Why Apple Can Get Away With Paying Lower Salaries
No one would argue that a strong company brand matters when it comes to attracting high quality job candidates (Google, call me!) But does a strong brand actually translate into cold, hard cash when it comes to hiring?
A new study by London Business School Professor Tavassoli and colleagues is the first to quantify the actual ROI of a company’s brand when hiring.
Employee-based brand equity
Customer-based brand equity has a long history in marketing research: strong brands generate value by attracting customers who are willing to pay higher prices. Thus, strong brands increase profits by gaining revenue.
The researchers extend this concept to what they call employee-based brand equity: the value a brand generates by attracting employees who are willing to work for lower compensation. Thus, strong brands increase profits by lowering costs.
This reduction in salary really affects your bottom line. According to a survey by the Society for Human Resource Management, salaries account for 45% of operating expenses on average. It’s even more dramatic for sales and marketing positions: in the early years of SaaS startups, their salaries take up approximately 90% of revenues.
Why does a strong brand attract employees who are willing to work for less money?
According to social identity theory, strong brands offer more benefits to your self-esteem and your social status than weak brands. These benefits represent non-financial rewards of working and should therefore make employees willing to work at a company in lieu of more pay.
The main benefit to your self-esteem is the belief that a high quality brand will only partner with other quality brands. The main benefit to your social standing is that a strong brand can serve as a signal about your value for future employment opportunities.
How much can a strong brand save in compensation costs?
The research examined 2,717 executives across 393 S&P 1500 companies. The results found that brand strength was negatively related to employee compensation. This brand effect was stronger for both CEOs and younger executives: these groups of employees were paid even less than their weak brand counterparts.
The researchers found a 2.42% decrease in pay for every one standard deviation increase in brand strength, or $89,978 in savings for the average non-CEO compensation.
For CEOs, it was even more dramatic: they found a 12.13% decrease in pay for every one standard deviation increase in brand strength, or $1,268,130 in savings for the average CEO compensation.
Does a strong brand affect your future pay?
For 84 executives who switched jobs, the researchers found a positive relationship between the brand strength of their previous company and first year total pay in their new job. So working for a strong brand for lower pay can be an investment in your future earnings.
Popular opinion argues that strong brands attract the best talent. The data show that the strength of your company’s brand also influences how much you can pay your employees.
Contrary to popular belief, companies with strong brands are able to get away with paying their employees less because a strong brand provides additional non-financial benefits like social status.
Of course, you can’t really develop a strong brand without good management practices, quality products and services, and talented employees in the first place.
But it looks like investing in your company’s brand pays off when it comes to hiring – literally.
How are you developing your company brand? Let me know in the comments.
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