The more a CEO is paid the worst customers are treated. Everyone knows inequality is bad for our society, but now shareholders might start caring because inequality within companies produces negative results. Customers are less satisfied with companies with high CEO compensations, and internally the companies suffer from inefficiency and lower morale.
This article adopts a marketing perspective to examine how wage inequality between top managers and their employees may have customer-related consequences (i.e., customer-directed effort, customer-directed opportunism, and customer-oriented culture) that affect customer satisfaction and firm performance. Surprisingly, marketing scholars and practitioners have largely neglected this pressing societal issue. The authors collect a cross-industry, multisource data set, including responses by top-level managers and objective data on wage inequality and firm performance from 106 business-to-business-focused firms (Study 1). In addition, they analyze multisource longitudinal panel data covering 521 firm-year observations for business-to-consumer-focused firms (Study 2). The results consistently reveal that wage inequality harms customer satisfaction. This relationship is mediated by customer-directed opportunism and customer-oriented culture but not customer-directed effort. Moreover, while wage inequality has a positive direct effect on short-term firm profitability, this effect is dampened by the negative indirect effect through customer-related consequences and customer satisfaction. Importantly, the positive direct effect of wage inequality on short-term profitability vanishes in the long run, whereas the adverse effect through customer satisfaction persists, leading to a nonsignificant total effect on long-term profitability. These findings may guide researchers, managers, shareholders, and policy makers in addressing the challenge of rising wage inequality.