The salaries of corporate executives can raise many questions, particularly as they are so disparate. Now, an American study suggests that surnames could have a role to play in this.
Indeed, the degree of “favourability” of a surname – in other words, the way it is perceived – could be associated with levels of compensation. An international team of researchers came to this surprising conclusion by collecting information on the surnames and pay packages of the heads of US S&P 1500 companies between 1999 and 2014.
They cross-referenced this data with a Gallup Institute survey of US citizens’ preferences for foreign countries to determine the degree of “favourability” of the surnames studied.
This revealed that the more favourable a surname is perceived by American society as a whole, the more highly paid its bearer will be as a company director.
Pay differentials between CEOs can vary by as much as 4.39%, depending on the degree of favourability, the research reports. For example, a CEO with an annual salary of US$5.5 million will earn, on average, U$240,699 more than their counterparts if their surname is perceived positively.
The study authors also found that the perception of surnames can evolve according to major geopolitical events. For example, surnames of French and German origin were judged more harshly when the governments of these two countries spoke out against military intervention in Iraq in 2003, going against the position of the White House.
After this episode, the CEOs who bore them earned significantly less, according to the findings.
Prejudices with consequences
Another notable fact is that not all company bosses are equally affected by the perception of their surname. CEOs who did not start the company they run, and those who have been in the job for a short time, are more likely than others to be paid less if their surname has a low degree of favourability.
This phenomenon is particularly prevalent in companies whose main shareholders are individuals rather than institutional investors.
For study co-author Dr Jay Jung, these findings show how widespread psychological biases are in the professional world.
“A CEO or indeed any employee’s compensation should reflect the skills and experience they bring to the role. However, it is clear that an individual’s name and the attributes it carries – such as often being an identifier for race, gender and ethnicity – has a significant impact on their level of earnings and job security,” the researcher said.
Prejudices about the surnames of company directors reflect on corporate culture and can potentially create serious governance problems.
“Our study suggests that greater scrutiny of boards of directors as to who they appoint may be a remedy for this, as institutional investment curbs the effects of name favourability,” Jung concluded.