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CEO Salary and Performance Impact Employee Approval Ratings

CEO Salary and Performance Impact Employee Approval Ratings
Credit: Robert Kneschke/Shutterstock

What make employees like their CEOs? New research finds that their salary and overall company performance have a lot to do with it.

On average, highly paid CEOs earn low approval ratings from their employees, while lower-paid company leaders earn significantly higher praise, according to a study from Glassdoor.

"At a high level, there is indeed a connection between CEO pay and employee approval within public companies," the study's authors wrote.

One way to potentially alleviate hard feelings over high pay is to create a better company culture. The study found that the higher employees rank their company on senior leadership, advancement opportunities and compensation and benefits packages, the more likely they are to give high approval ratings to their CEO.

"Employee opinion of the CEO can be very telling about a company, and Glassdoor data confirms there is a direct link between how employees view their CEO and how they feel about their company culture," Andrew Chamberlain, chief economist of Glassdoor Inc., said in a statement. "CEOs and leaders who cultivate a strong company culture, offering career advancement opportunities for employees and management training for strong senior leaders, will typically gain more approval from their employees."

How well a company performs seems to be another driver of CEO approval. In the study's sample of large, publicly traded companies, a one-unit increase in company profitability in the study's regression models predicts a 10.2 percent increase in CEO approval ratings. [See Related Story: Luck Plays Big Role in CEO Success]

The study's authors said this suggest that employees credit their company leader for good financial performance.

CEOs who founded the company also appear to be better liked by their employees. The research discovered that chief executives who launched their organization had a 3.2 percent increase in approval over those who came into power by other means. In addition, CEOs brought in from outside the company received the lowest average CEO approval ratings.

"This suggests the path that CEOs take into their executive position is an important predictor of ultimate success on the job, when viewed from the perspective of their employees," the study's authors wrote.

One surprising revelation from the study was that employees who rated their work-life balance low, gave their CEOs high approval ratings. Specifically, the data shows that a 1-star (out of 5) decrease in work-life balance rating is linked to a 2.9 percent increase in CEO approval rating.

"In other words, high-rated CEOs seem to be much more common in companies that have lower work-life balance, such as fast-growing, high-achieving workplaces," the study's authors wrote. "One possible explanation for this finding is that workers who are inspired by a great CEO and who believe they are working toward a higher cause may be more willing to sacrifice work-life balance, while simultaneously expressing a high approval rating of the CEO."

The study's authors said the findings suggest a connection between company culture, financial performance, executive characteristics and employee perceptions of CEO quality.

"Although our results do not identify the exact causal mechanisms driving CEO approval ratings, they highlight a variety of avenues for future research on CEO quality and corporate performance," the study's authors wrote.

The study was based on data collected as an optional part of Glassdoor's company review survey. Current and former employees completing the survey are asked to rate their company CEO as "approve," "disapprove" or "no opinion." Overall, the data set covers 690 large, publicly traded U.S. companies. CEOs must have at least 20 approved CEO ratings to be included in the sample.

Chad Brooks

Chad Brooks is a Chicago-based writer and editor with nearly 20 years in media. A 1998 journalism graduate of Indiana University, Chad began his career with Business News Daily in 2011 as a freelance writer. In 2014, he joined the staff full time as a senior writer. Before Business News Daily, Chad spent nearly a decade as a staff reporter for the Daily Herald in suburban Chicago, covering a wide array of topics including local and state government, crime, the legal system and education. Chad has also worked on the other side of the media industry, promoting small businesses throughout the United States for two years in a public relations role. His first book, How to Start a Home-Based App Development Business, was published in 2014. He lives with his wife and daughter in the Chicago suburbs.