SOURCE: Glassdoor

Glassdoor

August 24, 2016 07:00 ET

Glassdoor Research Reveals What Makes a Great CEO, According to Employees

High CEO Pay Linked to Lower Approval Ratings; Founders Receive Higher Ratings; CEO Gender Has No Impact

MILL VALLEY, CA--(Marketwired - Aug 24, 2016) - In a new statistical analysis of CEO approval ratings on Glassdoor, a unique measure of CEO quality according to employees,1 Glassdoor Economic Research reveals the factors that ultimately drive employee perception of CEOs.

The study, What Makes a Great CEO?,2 looks at large, publicly traded companies in the U.S. and finds highly paid CEOs have significantly lower CEO approval ratings. Founder chief executives have higher approval ratings than outsider and internally promoted CEOs. And, interestingly, low employee ratings around work-life balance tend to correlate to higher CEO approval ratings. While employee sentiment around culture, senior leadership, career advancement, and compensation and benefits have some statistical significance around higher CEO approval, other characteristics like gender, age, education and job tenure do not.

"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. 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," said Dr. Andrew Chamberlain, chief economist of Glassdoor, Inc. "And there's no doubt about it -- employees who are more satisfied are going to be more productive, impacting the bottom line."

High CEO Compensation Negatively Impacts CEO Approval

Past Glassdoor research on CEO-to-worker pay ratios has shown, on average, CEOs earn 204 times the median pay of their workers. New rules3 going into effect in 2017 requiring public companies to disclose the ratio of CEO compensation to median worker pay could have more of an effect than just greater transparency. This new study found that all else equal, high CEO total compensation4 statistically predicts lower CEO approval ratings. However, the study found that having better company culture partly alleviates that effect5, suggesting a strong company culture can lessen the negative effect of high CEO pay on approval ratings. 

Lower Satisfaction with Work-Life Balance Means Higher CEO Approval

When looking at a variety of workplace sentiment factors that contribute to higher CEO approval ratings, the study found one factor in particular stood out with a negative correlation. Companies with lower work-life balance ratings predict higher CEO approval. Glassdoor data reveals a 1-star (out of 5) decrease in work-life balance rating is linked to a 2.9 percent increase in CEO approval rating. Although Glassdoor research has found work-life balance is linked to higher overall employee satisfaction6, this new analysis reveals that employees may be willing to sacrifice work-life balance for purpose-driven work and a visionary, inspiring leader. Highly rated CEOs seem to be much more common in companies that have lower satisfaction with work-life balance, such as fast-growing, high-achieving workplaces.

Glassdoor's employee satisfaction ratings have become an important measure of company culture, and the factors that contribute to higher overall employee satisfaction are similar to those that contribute to a high CEO approval rating. The biggest driver of CEO approval is employee satisfaction with senior leadership, underscoring the importance a strong executive and management team has on CEO perception: increasing opinion of senior leadership by 1-star predicts a 37.7 percent increase in CEO approval rating. Other workplace factors are also statistically linked to higher CEO approval ratings but at much lower significance. For example, a 1-star improvement in career opportunities results in a 3.1 percent increase in CEO approval rating, and a 1-star change in compensation and benefits rating contributes to a 1.6 percent increase.

Founders Have Higher Approval Ratings, Gender Has No Impact

Beyond pay, the study examined the impact of various CEO characteristics: age, education (whether CEO has an MBA), gender, tenure and how the CEO came to be the company's leader (external hire, internal hire or as the founder). Overwhelmingly, one of the biggest drivers of a high CEO approval rating is whether a CEO is also the founder of the company, predicting a statistically significant 3.2 percent increase in approval. CEO age, gender, education, and tenure on the job each had no statistical effect on CEO approval.

Company Performance Matters

The study also found, unsurprisingly, when a company is performing well financially, its CEO enjoys a higher approval rating. In the study's sample of large, publicly traded companies, a one-unit increase in company profitability7 predicts a statistically significant 10.2 percent increase in CEO approval ratings. This suggests that employees credit the CEO for good financial performance, though the inverse is also possible -- when a company is doing well financially, employees may be more likely to approve of their CEO's leadership.

"There is a strong link between employee sentiment and a company's financial performance. This study further confirms what we have found in past Glassdoor research and other academic studies8 -- more satisfied employees lead to better financial performance and stock returns. Now we see the specific tie between the bottom line and perception of the CEO," added Chamberlain.

To learn more, read the full study What Makes a Great CEO? and subscribe to Glassdoor Economic Research. To learn more about becoming a great leader, download our eBook, Glassdoor's Guide to Great Leadership.

About Glassdoor
Glassdoor is the most transparent jobs and recruiting marketplace that is changing how people search for jobs and how companies recruit top talent. Glassdoor combines free and anonymous reviews, ratings and salary content with job listings to help job seekers find the best jobs and address critical questions that come up during the job search, application, interview and negotiation phases of employment. For employers, Glassdoor offers job posting, recruiting and employer branding solutions to help attract high-quality candidates at a fraction of the cost of other channels. In addition, Glassdoor operates one of the most popular job apps on iOS and Android platforms. Launched in 2008, Glassdoor has raised approximately $200 million from Google Capital, Tiger Global, Benchmark, Battery Ventures, Sutter Hill Ventures, DAG Ventures, Dragoneer Investment Group, funds and accounts advised by T. Rowe Price Associates, Inc. and others.

Glassdoor® is a registered trademark of Glassdoor, Inc.

1 As part of Glassdoor's company review survey, employees choose whether they approve, disapprove or have no opinion of their CEO. CEO approval ratings appear on Glassdoor as the percentage of those employees who approve.

2 Based on data collected for 816 unique CEOs observed between 2008 and 2015 at 690 large, publicly traded U.S. companies with at least 20 CEO approval ratings on shared on Glassdoor during that time period. Full study methodology: https://www.glassdoor.com/research/studies/what-makes-a-great-ceo

3 New rules adopted by the U.S. Securities and Exchange Commission (SEC): http://www.sec.gov/news/pressrelease/2015-160.html

4 CEO compensation includes annual salary, bonuses, all other annual compensation, the total value of restricted stock granted, the total value of stock options granted, long-term incentive payouts, and all other total compensation. For full methodology: https://www.glassdoor.com/research/studies/what-makes-a-great-ceo

5 This effect is evident in the full table of regression results, provided in the study's Appendix found here: https://www.glassdoor.com/research/studies/what-makes-a-great-ceo

6 See Does Money Buy Happiness?, Mario Nuñez, Glassdoor Economic Research

7 Profitability is defined as operating income before interest and taxes, scaled by the total book assets of the firm at the beginning of the fiscal year. For full methodology: https://www.glassdoor.com/research/studies/what-makes-a-great-ceo

8 See Does Company Culture Pay Off? by Glassdoor Economic Research; and Family Firms, Employee Satisfaction, and Corporate Performance by Minjie Huang, Pingshu Li, Felix Meschke and James P. Guthrie