Study: Execs from Tarnished Firms Get Paid 4 Percent Less, Even If They Had Nothing to Do With Scandal

Chris Gaetano
Published Date:
Jan 12, 2018

If a former employer suddenly makes headlines due to a major scandal, you might make about 4 percent less than you otherwise would, according to a recent Harvard Business School study. The study examined 2,000 executives between 2004 and 2011. After looking at their CVs, they found that executive cash compensation, like salaries and bonuses, diminished by about four percent on average when an executive had a scandalous company as a former employer, even if they had nothing to do with the actual scandal. This is after controlling for education, gender, experience, and other factors. And this is just the average. Senior executives suffer a 6.5 percent penalty, while financial executives take a 10 percent hit. The paper noted that this can be a substantial difference, given average starting compensation for the sample was about $300,000. This is compounded by the fact that future earnings could also be impacted by the lower compensation, since it has a lower starting point. The research also found that a sizable portion of the sample, 18 percent, would be affected this way. 

The researchers speculated that this happens when there's not much else to go on besides the CV and employers don't want to risk importing problem employees from the scandalous firms. Meanwhile, other firms might need to do more research on the candidate, which means hiring them takes more work than other candidates. 

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