Faculty Perspective: Corporate Social Impact Starts From Within—and From the Top

chobani-headerChobani founder and chief executive Hamdi Ulukaya just announced that the company would be providing its 2,000 full-time employees with a combined 10 percent ownership stake in the company stock when it goes public or gets sold. The number of shares per employee would be determined based on tenure, but with the upstate New York yogurt company valued at $3 billion, the average payout is estimated to start at $150,000 per worker and go upwards of $1 million for the most long-standing employee.

Where does the money come from? Directly from Ulakaya’s shares.

We’ve seen a few CEO salary adjustments make the headlines in the recent years.

Gravity Payments CEO Dan Price took a 90% pay-cut in order to raise employee minimum wages to $70,000 a year, while Boxed CEO Chieh Huang committed to paying full college tuition for each employee’s child. Though there have been mixed reviews on the net positive impacts of each initiative, they have clearly been successful as conversation-starters around issues ranging from minimum wage to CEO salary caps.

Coincidentally, I recently had a conversation with Adam Cobb, Assistant Professor of Management at the Wharton School, about his research on corporate wage setting practices. His words were almost prophetic:

“We do not live in a particularly collectivistic society; it’s much more individualistic. But, I’d love to see more CEOs accepting this sort of responsibility, saying ‘I don’t need to make any more than $X, and I think it’s important that my company pays everybody a good wage. What this means is that some people at the bottom are going to get raises, and to cover that some people at the top—myself included—are going to have to be willing to work for maybe a little less.’

One could imagine that the 100 most powerful CEOs could agree to cap their pay. They’d send a positive message, saying ‘This is a consumer driven economy, wages are stagnant, and we have to do something.’  Some of the effects of this kind of decision would make a greater symbolic than substantive impact. However, many CEOs make upwards of hundreds of millions of dollars per year, and if the firm took that money and distributed it so that workers are making even $150 more a year, that might help. The workers would actually spend that $150. This doesn’t require the firm to sacrifice profits, it’s simply establishing new norms around what’s an acceptable level of pay.”

So what is behind this trend, and is it catching on?

Some execs have indicated a desire to “give back” or “pay it forward.” Others have referenced morality and corporate social responsibility. While I do believe that motive matters to a certain extent, Professor Cobb’s research shows that especially at the lower end of the wage spectrum, a little more goes a long way for both employees and the companies for which they work.  He demonstrates the business case for higher worker pay here:

“There is an increasing amount of evidence that companies are just as profitable or even more profitable when they pay their workers more. For example, research shows that if you pay people a little bit more—especially in the retail sector—then stores are more efficient, there’s less theft, shelves are stocked better, customers get better service and end up buying more, etc.

The idea that you can become more profitable just by cutting labor costs is flawed because workers’ behavior changes as a result—nothing stays constant. If you pay more you are able to attract a different type of applicant and workers may be less stressed about the short-term financial issues they have to deal with. You relieve a little bit of that and they, in turn, invest more in their job, make better decisions, are happier, friendlier, better fed, better rested, all of these things and ‘magically,’ they’re better workers. Except it’s not magic.”

Wages alone are nowhere near enough to raise the economic water table for society as a whole. Other forms of corporate activism, as well as access to benefits such as childcare, all play a role in influencing economic and labor market outcomes. Trailblazers like B Lab are already working hard to promote more responsible practices through the B Corp certification, and in time I hope we will see a greater shift in industry norms on what it means to be a strong and competitive company.

The changes will be incremental and the long-term impacts unclear, but Ulukaya is certainly onto something golden: the idea that strategic corporate social impact starts from within.

Professor Cobb called for a group of 100 CEOs to take action and send this message. Anyone else care to rise to the challenge?

 

Editor’s note: This article was originally posted by the Wharton Social Impact Initiative on May 5, 2016.

 

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