Less is more: CEOs cutting their own pay increases employee motivation


When managers give up part of their salary, this can boost the motivation of the entire workforce – especially when they do so of their own free will and the money benefits the employees or a good cause. This is the finding of a study by WU (Vienna University of Economics and Business).

During the coronavirus crisis, many CEOs publicly renounced parts of their salaries: Disney CEO Bob Iger, for example, opted not to receive his basic salary, while then Adidas CEO Kasper Rorsted and his fellow board members waived their annual bonuses. Similarly, in 2023, the salaries of various top managers dropped in light of the tense economic situation – albeit often under gentle pressure from the supervisory board – including the CEOs of Apple, Intel, and Goldman Sachs.

In the media, these actions are either celebrated as noble gestures for the good of the company or criticized as a calculated attempt to score brownie points. “What is often ignored is the effect that such top-level salary cuts have on the workforce,” says Christoph Feichter from the WU Institute for Strategy and Managerial Accounting. His co-researcher Martin Wiernsperger adds, “When CEOs reduce their own salary, this can have a positive impact on the commitment levels of employees.”

The two researchers were able to show this with a series of experiments. However, the strength of the effect depends on two factors, explains Martin Wiernsperger: “On the one hand, a key factor is what happens to the money, and on the other hand, it also depends on whether the salary reduction is really voluntary.”

Give and take

In their study, Christoph Feichter and Martin Wiernsperger draw on the theory of reciprocity: People build mutual trust through the exchange of friendly gestures and gifts of comparable value. Such a gesture does not necessarily have to be associated with a material gain for the other party: Even the deliberate act of giving up something of value as a sign of goodwill is positively rewarded and strengthens relationships.

This reciprocity can be observed in a wide variety of groups – from tribes in the Amazon to the offices of large corporations. When CEOs give up part of their salary, the two researchers assumed, this is perceived by the workforce as a friendly gesture and rewarded with higher motivation. According to reciprocity theory, however, the effect should be greater if the money is donated to a good cause and if there is no doubt about the voluntary nature of the sacrifice – because both of these factors signal goodwill more clearly. But the effect should be most pronounced if the money directly benefits the employees themselves. 

To test this hypothesis, the two researchers conducted several experiments: Test subjects were divided into groups of four and solved simple tasks for which they received small amounts of money. One participant took on the role of the manager and received both a fixed sum of money as well as a reward for their group’s performance. They had the option of waiving this fixed amount, and indeed, the performance of the group increased when they did so – even if the group did not know what would happen with the money. “However, performance levels increased even more when this fixed amount was donated to a good cause,” explains Christoph Feichter. But the jump in performance was greatest when the money was split between the other three group members.

Personal decisions count

In a second experiment, the researchers did not give the managers the choice of giving up their fixed pay, but rather determined it for them. Although an increase in performance was still noticeable, it was no longer as pronounced. “This showed us that it’s not just the salary cut itself that matters, but also the fact that you give up the money voluntarily.”

But does this also apply to real life, where it’s not about simple tasks and small amounts of money but about CEOs who often earn several orders of magnitude more than the workforce? The researchers investigated this aspect in a third test in which only subjects with a professional background took part. In a scenario-based experiment, they had to decide whether they would work unpaid overtime for a company in financial trouble if the CEO waived his salary.

The results showed that it’s less important how big the salary gap between the CEO and the workforce actually is – the voluntary nature of the pay cut is much more important. “The decisive factor is the symbolic act of consciously making a sacrifice,” summarizes study author Martin Wiernsperger.

Detailed study results and further information

Feichter, Christoph and Wiernsperger, Martin, Voluntary Managerial Pay Cuts and Employee Effort (March 14, 2023).

Back to overview