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How Your Company’s Reputation Can Impact Your Earnings

Recently, news reports have focused on ethical breaches at Wells Fargo, where a number of employees opened customer accounts without the consent of those customers to make company-defined sales quotas. Wells Fargo is only the latest in a number of corporate scandals, which include last year’s charges against auto maker Volkswagen and numerous banks during the financial crisis. They have unfortunately become a feature of the U.S. corporate landscape.

What impact do scandals like this have on the career of individual employees? According to a recent study published in the Harvard Business Review, it has a measurable impact whether the individual employee was directly involved in the ethical breaches or not. Employees of a firm involved in a scandal made less when they moved to other firms, on average, 4% less, in compensation than peers whose firms had never been tied to any scandal.

There were variations to the hit in compensation. Women’s salaries in the wake of a scandal suffered more – 7% on average. The authors hypothesized that the greater decrement stemmed from the higher visibility of women executives. The compensation of executives of both genders whose companies were located in countries with well-established regulatory networks also dropped an average of 7%. Upper-level executives saw their compensation fall 6%.

The study’s results were in line with results of a 2014 study by Stanford profesors, which looked at the “moral spillover” from company scandals such as Enron. It found that an employee’s reputation was negatively affected whether they had worked directly for an executive who was involved in the scandal or not.

Possible Solutions to a Damaged Reputation

These findings are a concern for employees in positions of business leadership especially. Scandals ranging from breaches of financial trust to product recalls are ever more widespread. Yet individual employees may have no control over circumstances that led to the scandal, since these individuals may be totally uninvolved with the division or personnel who caused the scandal and totally unaware of it until it is revealed in Congress or the press.

Because reputation, personal brand, and future earnings may be affected significantly, it is a good test of leadership skills to have a potential plan in place should a breach ever hit a firm in which you’re employed.

The HBR authors suggest three potential solutions.

The first is to address the situation forthrightly in any job interview or networking situation. Speak to your situation, and acknowledge that the scandal is public knowledge and may affect perceptions of you. You should also know that many firms will find it easier to choose against you given that perception, whether such a move is just or unjust.

The second is to establish relationships that can speak to your character. These can be relationships within industries – often easier if you happen to be in a niche industry where everyone knows everyone – or relayed in the findings of a search firm.

The third is to take what the HBR authors term a “rehab job.” This is a position, perhaps at a lower level, that you can shine in. Your reputation there will eventually overwrite your previous job with the scandal-involved employer.