There are two reasons for a company to raise wages: to improve profitability, or to improve the lives of its workers. When wages are rising in the economy, those two motivations overlap. When wages are stagnant, they can potentially conflict.
Jamie Dimon wants you to know that JPMorgan Chase is raising wages, and that it’s not doing so merely to improve its profitability. “A pay increase is the right thing to do,” he wrote today in a New York Times op-ed, because “it enables more people to begin to share in the rewards of economic growth.”
A cynic might suggest that the bank is merely responding to labor market conditions, or betting that higher wages will mean greater productivity from workers, and therefore higher profits. Maybe. It’s true that wages are set to a large degree by market forces outside any one CEO’s control. Still, companies probably do
some wiggle room to raise or lower wages. Higher wages do sometimes mean higher productivity, and Dimon himself claims that, “It’s good for our company, helping us attract and retain talented people in a competitive environment.”
But let’s take Dimon at his word and assume that the hike is not just about performance, but also an attempt to help workers. The move may garner JPMorgan Chase some good press, but it also has the potential to backfire. The thing about values is that people expect you to stick to them.
In a 2009 paper, Tillmann Wagner of Texas Tech and Richard Lutz and Barton Weitz from the University of Florida introduced the concept of “corporate hypocrisy” to explain how consumers react to corporate social responsibility (CSR). In the study, participants were given information about a company and its CSR principles, as well as a fake news story describing the company’s behavior. When the company’s behavior conflicted with its principles – for example, Walmart claiming to prioritize environmental sustainability then being fined by the EPA — participants reported worse feelings about the company.
“Proactive CSR strategies may bear a hidden risk if they convey a firm’s standards of social responsibility, which may be followed by the revelation of actions violating such principles,” write the authors. Translation: People don’t like companies that claim to be something they are not.
The study’s most striking finding is that even positive actions by a company can actually damage its reputation, if they create a perception of hypocrisy. In such cases, corporate sustainability may be worse for public opinion than doing nothing at all.
Most Americans don’t have a very high opinion of big banks, so it’s possible that Dimon’s announcement will backfire as the public compares his op-ed to its impressions of the company’s past behavior.
A more recent working paper from researchers at Drexel – albeit with a relatively small sample size – extends the idea of corporate hypocrisy to political activism. The researchers suggest that consumers expect companies that claim to be driven by “core beliefs and values” to take political positions. By contrast, they’re less likely to expect as much from companies that claim to prioritize financial results.
If Dimon is serious about doing his part to mitigate inequality, he’ll have to do more than a one-time wage hike. By claiming to care, he has set a higher bar. Customers may hold him to it.