This is according to research I have conducted with Rajesh Chandy and Alina Sorescu. As pay represents the biggest cost in many organisations this is not a trivial finding.
Why do employees care about brand? Our central idea is that the identity-enhancing benefit that employees gain from being associated with strong brands is a substitute for pay, especially for those at the very top echelons of companies. For example, our analysis shows that strong brands attract higher quality CEOs (as measured in terms of experience and board appointments at the time of appointment) for less overall compensation.
Brand highs and lows
In particular, executives’ leadership roles allow them to credibly position the brands that they are managing as a central part of their identity, and to rely on equity transfer from these brands as a potent source of self-definition. Being at the helm of strong brands is a powerful source of psychic benefits, whether in interactions with family, during class reunions and dinner parties, or at interviews with future employers.
Conversely, imagine being an employee at the now tarnished VW brand and having to answer to friends and family about its actions. The impact of brands on consumers pales in comparison to their effects on the employees who live and breathe (and create and nurture) them. The highs and lows, the pride and despair, the public and private victories and defeats that are part of working at a brand contribute more to someone’s identity than simply owning it.
Less now, more later
And these effects continue beyond a person's current job. CEOs’ pay at future employers gets a boost from helming strong brands. These identity effects are stronger for younger executives who have longer careers ahead during which they can use the résumé power strong employer brands provide.
HR managers are increasingly aware of this brand effect. Deloitte recently announced it will be recruiting graduates blind with respect to their university affiliation, fearing that its judgement might be biased by the brand name.
But simply ignoring the brands employees boast on their CVs is not enough. A failure to recognise the role your own brand strength plays in recruitment can result in biased benchmarks for setting executive and CEO pay, as well as a failure to leverage a strong brand in salary negotiations. Under-appreciation of brand strength in relation to employees also has the knock-on effect of under-investment in the brand, a crucial oversight on the part of many organisations.
Nader Tavassoli is a professor at London Business School and non-executive chairman at The Brand Inside