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Company wages and what it means


LC
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It really comes back to Corporate Social Responsibility (CSR) - the responsibilities that a company has to its various stakeholders.

Sadly, in most business schools - maybe a single class within a single 12 week course, and only in passing. In NA, even business ethics (as limited as it is) gets more time. 

 

The good news is that network businesses demand a focus on CSR. No CSR, no social licence to operate - and tomorrow's technologies are network based. For most, CSR will be a by-product of change management, and Covid-19 will remove much of the current resistance. In many companies, standard practice is six-months to adapt to Covid-19 related change, and thereafter a package. 

 

Black Lives Matter, Me Too, Defund the Police, etc. are all manifestations of CSR - disruption because there is no social licence to continue operating in the current manner. Guaranteed income (70K in the article) is terrifying to many as it removes cheap and desperate labour - forcing radical change in how a business operates, that many will not survive.

  • In Europe, a bar/eatery is typically owned in partnership with full-time employees who also receive both a salary and full benefits - as it both spreads the business risk, and works better for the surrounding community. Very different approach in NA. Do you really see current NA bar/eatery owners being able to easily make such a transition?

Everybody eventually has to grow up.

Obviously, if you can do competent change management and CSR, you should do very well  ;)

 

SD

 

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LC what are your thoughts on this? I've personally seen a smallish business do this when I lived in Ohio. They manufactured precision parts for the medical and defense industry. The owner chose to pay employees a base salary of 60K. The company was very well regarded in the area and did quite well. I think it needs to be a choice though.

 

 

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LC what are your thoughts on this? I've personally seen a smallish business do this when I lived in Ohio. They manufactured precision parts for the medical and defense industry. The owner chose to pay employees a base salary of 60K. The company was very well regarded in the area and did quite well. I think it needs to be a choice though.

 

If this is even possible depends on the company.  A company that makes precision parts is very different from say Home Depot or Walmart.  The CEO of those companies could give up their entire salaries and it wouldn't even come close to being enough to raise every employees salary to $60-$75k.  Many tech companies pay the majority of their employees more than $60k and it works just fine.  Most retail or restaurant companies could never dream of doing that.

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I think it's certainly "easier" to implement as a small business with an owner/operator who spends his day rubbing shoulders with his employees.

 

But take the megacorp where CEOs make 300x the median wages.

 

Who is profiting here - senior management and shareholders, at the expense of employees. And these beneficiaries do not encounter the average employee. So they simply don't care.

 

I think it would be beneficial to the entire economic system if CEO & C-suite wages came down, if shareholder returns came down, and median wages came up. But I do not think it would happen by choice and nor do I think there is a good way to legislate wages. It needs to become a social norm (again). 

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I think it's certainly "easier" to implement as a small business with an owner/operator who spends his day rubbing shoulders with his employees.

 

But take the megacorp where CEOs make 300x the median wages.

 

Who is profiting here - senior management and shareholders, at the expense of employees. And these beneficiaries do not encounter the average employee. So they simply don't care.

 

I think it would be beneficial to the entire economic system if CEO & C-suite wages came down, if shareholder returns came down, and median wages came up. But I do not think it would happen by choice and nor do I think there is a good way to legislate wages. It needs to become a social norm (again).

 

300x the median wage.  So in a company with 100,000 employees you could double the wage of 300 of them, or increase 600 of them by 50%, or increase 1200 of them by 25% or increase 2400 of them by 12.5%, or increase 4800 of them by 6.25%, or increase 9600 of them by 3.125% or increase 19,200 of them by 1.0625%, or increase 38,400 of them (still only 39% of the workforce) by 0.53125%.  So you propose that CEOs make nothing so that less than 40% of their employees can get a half of a percent wage increase?  In order to pay the average employee $75k the average employee of your company has to be producing more than $75k of value.

 

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I think it's certainly "easier" to implement as a small business with an owner/operator who spends his day rubbing shoulders with his employees.

 

But take the megacorp where CEOs make 300x the median wages.

 

Who is profiting here - senior management and shareholders, at the expense of employees. And these beneficiaries do not encounter the average employee. So they simply don't care.

 

I think it would be beneficial to the entire economic system if CEO & C-suite wages came down, if shareholder returns came down, and median wages came up. But I do not think it would happen by choice and nor do I think there is a good way to legislate wages. It needs to become a social norm (again).

 

I don't know, it really depends. My personal opinion is you're an asshole if you as a CEO make ridiculous sums of money. But would reducing these salaries actually make a difference? Walmart CEO makes 22m and there are 1.5m employees. Even if you assume they are all minimum wage (which they are not) then employees get what...$20 a year?

 

As RK said, it really depends on the company (and I'm sure you agree). I think the change would be more of a perception change than anything. Some of these big tech companies could also choose to build centers or offices in less trendy areas to help "revitalize" areas. Should that also be forced though? I would say no. Not saying you think this way, but I don't like the thought process of "Well this would benefit everyone therefore it's good." as a justification for legislation. I think that's very dangerous thinking. I think this will change organically by itself over time. The current hyperbolic environment will usher in some changed at corporate levels. Hell you could probably argue that a lack of government action is forcing corporations to look internally for solutions.

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Where you are matters. Much easier in a Germany, or a France (where this is more the norm) than in a US or Mexico.

Size and structure matters. Much easier in smaller firms &/or private ones.

Market composition matters. Most businesses (70%) are smaller businesses

Instability matters. Nobody likes change, especially radical change.

 

Typically 'change' progressively dams up behind a 'wall of resistance'.

Eventually the wall fails, and the change overwhelms everything in its path. We then pick up the pieces and build something new.

 

SD

 

 

 

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The problem with inequality is that it destroys social cohesion and destabilizes society. An unstable society is bad for the rich, the middle class, and generally the poor as well. It's only good for those who don't really have anything to lose.

 

The problem with equality is that disincentives people. Most growth and innovation is caused by people striving to get ahead.

 

So it seems clear to me that you want to have a reasonable degree of inequality, but not so much stuff becomes unstable. A solution I think might work is:

1. Ensuring the total compensation of the highest paid person of the company cannot exceed some multiple (say, 30) of the lowest-paid person (including contractors).

2. For business owners (e.g. Bezos), implement a massive death tax on extreme wealth (like 95% tax on assets above an inflation-adjusted $50M)

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CEO pay to the average/median/lowest paid, is an often cited stat - supposedly the higher it is, the more abusive the comp structure.

But do any cursory dive into the numbers, and it's clearly not an apples-to-apples comparison. Most large companies prefer to use take-home pay - as it excludes bonuses, and keeps eyes focused on the size of the bi-weekly cash flow obligation. A 1OOk/salary, less 30% in payroll deductions, is $2,692/pay. A 50K/salary, less 25% in payroll deductions, is $1,442/pay. The difference in life-style is < 2x (2692/1442) the bi-weekly net pay. Most companies cap salary at 120K/yr and 33% deduction, or $3,076/pay - about 2.5x median bi-weekly net pay.

 

The rich get richer because of the risk they take, and the incremental skill brought to the table - leadership is essential, but results reflect the collective effort of ALL employees - not just the leadership. We would ALL be a lot better off if 'company result' bonuses went direct to a locked-in pension plan, versus our pocket. Simple change, but it's impact is fundamental - as the biggest participants in the plan would be current/past managements, familiar with the risks the company is taking, and the current market. ALL members of the plan benefit.

 

Small changes, straight-forward to execute - but they make a real difference.

 

SD

 

 

 

 

 

 

 

 

 

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The problem with inequality is that it destroys social cohesion and destabilizes society. An unstable society is bad for the rich, the middle class, and generally the poor as well. It's only good for those who don't really have anything to lose.

 

This precisely and concisely sums up the problem with our present day society.  To a certain extent, people are willing to tolerate inequality because our system is set up in a way that enables people to improve their lot in life through hard work, ambition, and creativity.  That said, I believe this door to the middle and upper class is closing for many folks in society.  If people feel like they can't improve their lot in life, they become a lot less tolerant of inequality.  And when they have nothing, then they have nothing to lose by destroying the system.  If we don't solve for this sooner rather than later, I don't think there will be much of capitalism left to save in the United States.   

 

The problem with equality is that disincentives people. Most growth and innovation is caused by people striving to get ahead.

 

I think this is where we need to be careful with how we describe the solutions.  I see equity and equality differently.  I believe in equality - equality of opportunity.  We should endeavor to make sure people have access to education and other tools that enable them to start businesses, earn money, and to generally improve their lot in life.  I do not believe in equity, which seems to be a disincentive for ambition, personal responsibility, and hard work.  I struggle to see the difference between equity and socialism.   

 

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This doesn't help answer the problems of the day, but it helps me at least understand where we may be going.

 

If you accept the premise that we should all be paid based on the "value" we provide, then globally a manual laborer should be paid the same amount. Right now, we are (were?) in a period of globalization where I can outsource a task to somewhere else cheaper than I would have to pay here in the US. Eventually, and eventually may mean decades, those workers overseas will demand wages on par with, home country (let's say US) workers, adjusted for whatever frictional costs there are of dealing with people half-way around the world.

 

Once one country/region has seen its living standards rise, then the work will progressively migrate to increasingly lower-wage places until all those places are at parity with US labor. At parity, it no longer makes sense to outsource work that can be outsourced (some work, like getting a haircut, cannot be).

 

The challenge for an unskilled/semi-skilled US worker is this process can take decades more to happen. But ultimately, I think that is inevitably what happens. Deciding to pay working people more is not really a sustainable solution because it increases the value proposition of automation.

 

The only real sustainable answer to this is to aggressively upskill and re-skill workers so they provide more value than someone overseas does. This pandemic may be a perfect time to do that given the number of people out of work, and I would not be mad at all if the government devised a sensible scheme to do exactly that. Wistfully looking back on the post-war period when a good job and a pension were a given for anyone willing to work hard with a high school degree was a function of the lack of available labor after the war ended. Those pensions and perks were created to attract workers, and were created out of competitive necessity. Companies are no longer feeling those constraints (although the pandemic could change that for a while). I think we have to do our best to find a market-based solution to the problem before coming up with more artificial wage requirements which only accelerate the challenges facing most workers without giving them the tools/skills to combat them.

 

I do also believe CEO's get paid way too much. Some of the suggestions which tie up mgmt. compensation for a long time (and creates more of a partnership mentality) is a good idea. I am all for managements eating their own cooking over the long-term (and being forced to do so). Mgmt. is taking a lot of risk, but its mostly asymmetric (heads I win, tails I don't really lose much) and any thing we can do to increase their downside risk from engaging in myopic behavior to benefit their short-term comp is a plus.

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I think it's certainly "easier" to implement as a small business with an owner/operator who spends his day rubbing shoulders with his employees.

 

But take the megacorp where CEOs make 300x the median wages.

 

Who is profiting here - senior management and shareholders, at the expense of employees. And these beneficiaries do not encounter the average employee. So they simply don't care.

 

I think it would be beneficial to the entire economic system if CEO & C-suite wages came down, if shareholder returns came down, and median wages came up. But I do not think it would happen by choice and nor do I think there is a good way to legislate wages. It needs to become a social norm (again).

 

300x the median wage.  So in a company with 100,000 employees you could double the wage of 300 of them, or increase 600 of them by 50%, or increase 1200 of them by 25% or increase 2400 of them by 12.5%, or increase 4800 of them by 6.25%, or increase 9600 of them by 3.125% or increase 19,200 of them by 1.0625%, or increase 38,400 of them (still only 39% of the workforce) by 0.53125%.  So you propose that CEOs make nothing so that less than 40% of their employees can get a half of a percent wage increase?  In order to pay the average employee $75k the average employee of your company has to be producing more than $75k of value.

 

This is the narrow view and assumes it's only the CEO's comp who is out of whack instead of nearly the entire C-suite and from there on down.

 

Real time example - PIMCO has something like 30-35 managing directors that split ~1/3 of the profits of a company that manages ~$2 trillion dollars. Those 30 individuals are making WAY more than 300x the average salary of starting associate (let alone back office staff!).  Keep in mind that when Bill Gross was just 1 of those 30, he was making $200 million a year.

 

And it's not just the MDs making a ton of money, but everyone below them too all the way down to the associate level where they pay 6-figure salaries to overworked associates that are told there isn't the budget to hire more of them which is why they're there at 9 PM on Tuesday doing a slide-deck while the MDs are all at home relaxing.

 

It's no different at publicly traded companies. Probably a little better in check, but it's not like the CEO is the only one overpaid. It's whole inverted pyramid - everyone at the top is skimming off the excess profits from underpaying those at the bottom.  Ultimately, I agree that while even cutting the pay of all of the C-suite and upper level executives is unlikely to make a huge difference in the average pay across mega-cap companies, cutting the return to stockholders by 0.5-1.0% a year in addition to that WOULD. For a market that's done ~13% annualized over the last decade, I think stockholders have some room to spare.

 

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I'd also add it's not about paying everyone 60-70k. It's about paying a fair wage across the board, but paying everyone the same wage, or the same starting wage even, is probably a terrible idea.

 

IIRC, when this CEO first implemented this policy, he lost a ton of employees. Not because he was paying everyone 70k, but because some of those making 70k realized they were doing far more value-add work to the company then their peers that were being paid the same amount. Maybe it's working now b/c he's attracted a type of workforce where this is no longer an issue, but I don't think we can expand that success to the broader workforce because there will always be those (like myself) who want more than the next person in recognition of a higher quality of work.

 

The reason that ~70k is where incremental satisfaction with more money stops is because you're already near 2x the median salary and know that you're making more than most. You feel valued for your work and feel adequately compensated. If EVERYONE made 70k, these self-actualization type emotions dissapear and you're being paid just as much as the next bum who binge watches Netflix while "working from home."

 

 

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This doesn't help answer the problems of the day, but it helps me at least understand where we may be going.

 

If you accept the premise that we should all be paid based on the "value" we provide, then globally a manual laborer should be paid the same amount. Right now, we are (were?) in a period of globalization where I can outsource a task to somewhere else cheaper than I would have to pay here in the US. Eventually, and eventually may mean decades, those workers overseas will demand wages on par with, home country (let's say US) workers, adjusted for whatever frictional costs there are of dealing with people half-way around the world.

 

Once one country/region has seen its living standards rise, then the work will progressively migrate to increasingly lower-wage places until all those places are at parity with US labor. At parity, it no longer makes sense to outsource work that can be outsourced (some work, like getting a haircut, cannot be).

 

The challenge for an unskilled/semi-skilled US worker is this process can take decades more to happen. But ultimately, I think that is inevitably what happens. Deciding to pay working people more is not really a sustainable solution because it increases the value proposition of automation.

 

The only real sustainable answer to this is to aggressively upskill and re-skill workers so they provide more value than someone overseas does. This pandemic may be a perfect time to do that given the number of people out of work, and I would not be mad at all if the government devised a sensible scheme to do exactly that. Wistfully looking back on the post-war period when a good job and a pension were a given for anyone willing to work hard with a high school degree was a function of the lack of available labor after the war ended. Those pensions and perks were created to attract workers, and were created out of competitive necessity. Companies are no longer feeling those constraints (although the pandemic could change that for a while). I think we have to do our best to find a market-based solution to the problem before coming up with more artificial wage requirements which only accelerate the challenges facing most workers without giving them the tools/skills to combat them.

 

I do also believe CEO's get paid way too much. Some of the suggestions which tie up mgmt. compensation for a long time (and creates more of a partnership mentality) is a good idea. I am all for managements eating their own cooking over the long-term (and being forced to do so). Mgmt. is taking a lot of risk, but its mostly asymmetric (heads I win, tails I don't really lose much) and any thing we can do to increase their downside risk from engaging in myopic behavior to benefit their short-term comp is a plus.

 

That is a complete misunderstanding of "value".  The value is a subjective value the customer places on the service.  A multi-millionaire in Beverly Hills will value a haircut more than a poor subsistence farmer somewhere in southeast Asia will.  Value is subjective and different for every human being and different even for the same person at different times.  You might place very little value on a bottle of water right at this moment sitting in your office, but when hiking on a hot day and you run out of water you might place a value on a bottle at that time many times higher, and if you are ever dying of thirst in the desert you might be willing to give everything you have for one.  This is the reason price arbitrage works, you can make money moving goods from where they are valued less to where they are valued more.  But in general a machinist who can make precision parts will always be valued by employers (and indirectly their customers for the parts they make) more than a cashier at McDonald's will be.

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This doesn't help answer the problems of the day, but it helps me at least understand where we may be going.

 

If you accept the premise that we should all be paid based on the "value" we provide, then globally a manual laborer should be paid the same amount. Right now, we are (were?) in a period of globalization where I can outsource a task to somewhere else cheaper than I would have to pay here in the US. Eventually, and eventually may mean decades, those workers overseas will demand wages on par with, home country (let's say US) workers, adjusted for whatever frictional costs there are of dealing with people half-way around the world.

 

Once one country/region has seen its living standards rise, then the work will progressively migrate to increasingly lower-wage places until all those places are at parity with US labor. At parity, it no longer makes sense to outsource work that can be outsourced (some work, like getting a haircut, cannot be).

 

The challenge for an unskilled/semi-skilled US worker is this process can take decades more to happen. But ultimately, I think that is inevitably what happens. Deciding to pay working people more is not really a sustainable solution because it increases the value proposition of automation.

 

The only real sustainable answer to this is to aggressively upskill and re-skill workers so they provide more value than someone overseas does. This pandemic may be a perfect time to do that given the number of people out of work, and I would not be mad at all if the government devised a sensible scheme to do exactly that. Wistfully looking back on the post-war period when a good job and a pension were a given for anyone willing to work hard with a high school degree was a function of the lack of available labor after the war ended. Those pensions and perks were created to attract workers, and were created out of competitive necessity. Companies are no longer feeling those constraints (although the pandemic could change that for a while). I think we have to do our best to find a market-based solution to the problem before coming up with more artificial wage requirements which only accelerate the challenges facing most workers without giving them the tools/skills to combat them.

 

I do also believe CEO's get paid way too much. Some of the suggestions which tie up mgmt. compensation for a long time (and creates more of a partnership mentality) is a good idea. I am all for managements eating their own cooking over the long-term (and being forced to do so). Mgmt. is taking a lot of risk, but its mostly asymmetric (heads I win, tails I don't really lose much) and any thing we can do to increase their downside risk from engaging in myopic behavior to benefit their short-term comp is a plus.

 

That is a complete misunderstanding of "value".  The value is a subjective value the customer places on the service.  A multi-millionaire in Beverly Hills will value a haircut more than a poor subsistence farmer somewhere in southeast Asia will.  Value is subjective and different for every human being and different even for the same person at different times.  You might place very little value on a bottle of water right at this moment sitting in your office, but when hiking on a hot day and you run out of water you might place a value on a bottle at that time many times higher, and if you are ever dying of thirst in the desert you might be willing to give everything you have for one.  This is the reason price arbitrage works, you can make money moving goods from where they are valued less to where they are valued more.  But in general a machinist who can make precision parts will always be valued by employers (and indirectly their customers for the parts they make) more than a cashier at McDonald's will be.

 

Kinda feels like you agreed with me there at the end...

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If you accept the premise that we should all be paid based on the "value" we provide, then globally a manual laborer should be paid the same amount.

 

I don't think that this is a given. The value people provide is the upper limit on their compensation, not the theoretical optimal amount they should be paid. It's also unclear to me how you factor in risk and ideas. Like, suppose you're the dude who had the idea, started the company, mortgaged your house for capital to get it started, and lost your marriage as a result of your focus on the company. And now today, 5 years later, you're responsible for 5% of the value of the company generates that year while your 5 employees are responsible for 95%, do your 5 employees deserve 19% of the profits?

 

Plus, I find it an odd metric regardless, because the "value you provide" could change dramatically based on the business. e.g. a generic manual laborer might have a different value in Amazon's warehouse than McDonalds than wielding a sledgehammer doing demolition. So, if you accept the premise that people ought to be paid based on the value they provide, you're saying that with identical skills, the same laborer ought to be paid differently based on the company they work for.  (Whereas, I think according to economic theory, as a result of competition, people with the same skills ought to be paid the same regardless of where they work.)

 

That's why I find the whole discussion really confusing once you step away from the communist slogans like "everyone contributes so everyone shares" or "nobody deserves to be a billionaire or gets to be a billionaire as a result of their own work." I believe there ought to some balancing factors that stop the big winners from making the world completely unbalanced, but it's hard to find those balancing factors.

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I do not believe in equity, which seems to be a disincentive for ambition, personal responsibility, and hard work.  I struggle to see the difference between equity and socialism. 

 

For me, socialism is insurance against catastrophic outcomes as a result of bad luck--unemployment insurance, medical insurance, insurance against being born in a dysfunctional family.... In socialism, you give up some extreme rewards to eliminate a some extreme catastrophes.

 

In equity, you're taking socialism from 10% to 100%, and eliminating any and all differential outcomes. You're giving up 100% of your rewards to eliminate 100% of catastrophes.

 

That's why I think it's reasonable to believe in socialism but not equity. If I'm shivering in the cold, it's reasonable to want to stand near a fire, but also reasonable to not want to be lit on fire.

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I do not believe in equity, which seems to be a disincentive for ambition, personal responsibility, and hard work.  I struggle to see the difference between equity and socialism. 

 

For me, socialism is insurance against catastrophic outcomes as a result of bad luck--unemployment insurance, medical insurance, insurance against being born in a dysfunctional family.... In socialism, you give up some extreme rewards to eliminate a some extreme catastrophes.

 

In equity, you're taking socialism from 10% to 100%, and eliminating any and all differential outcomes. You're giving up 100% of your rewards to eliminate 100% of catastrophes.

 

That's why I think it's reasonable to believe in socialism but not equity. If I'm shivering in the cold, it's reasonable to want to stand near a fire, but also reasonable to not want to be lit on fire.

 

Sure sounds good on paper doesn't it?

 

 

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This doesn't help answer the problems of the day, but it helps me at least understand where we may be going.

 

If you accept the premise that we should all be paid based on the "value" we provide, then globally a manual laborer should be paid the same amount. Right now, we are (were?) in a period of globalization where I can outsource a task to somewhere else cheaper than I would have to pay here in the US. Eventually, and eventually may mean decades, those workers overseas will demand wages on par with, home country (let's say US) workers, adjusted for whatever frictional costs there are of dealing with people half-way around the world.

 

Once one country/region has seen its living standards rise, then the work will progressively migrate to increasingly lower-wage places until all those places are at parity with US labor. At parity, it no longer makes sense to outsource work that can be outsourced (some work, like getting a haircut, cannot be).

 

The challenge for an unskilled/semi-skilled US worker is this process can take decades more to happen. But ultimately, I think that is inevitably what happens. Deciding to pay working people more is not really a sustainable solution because it increases the value proposition of automation.

 

The only real sustainable answer to this is to aggressively upskill and re-skill workers so they provide more value than someone overseas does. This pandemic may be a perfect time to do that given the number of people out of work, and I would not be mad at all if the government devised a sensible scheme to do exactly that. Wistfully looking back on the post-war period when a good job and a pension were a given for anyone willing to work hard with a high school degree was a function of the lack of available labor after the war ended. Those pensions and perks were created to attract workers, and were created out of competitive necessity. Companies are no longer feeling those constraints (although the pandemic could change that for a while). I think we have to do our best to find a market-based solution to the problem before coming up with more artificial wage requirements which only accelerate the challenges facing most workers without giving them the tools/skills to combat them.

 

I do also believe CEO's get paid way too much. Some of the suggestions which tie up mgmt. compensation for a long time (and creates more of a partnership mentality) is a good idea. I am all for managements eating their own cooking over the long-term (and being forced to do so). Mgmt. is taking a lot of risk, but its mostly asymmetric (heads I win, tails I don't really lose much) and any thing we can do to increase their downside risk from engaging in myopic behavior to benefit their short-term comp is a plus.

 

That is a complete misunderstanding of "value".  The value is a subjective value the customer places on the service.  A multi-millionaire in Beverly Hills will value a haircut more than a poor subsistence farmer somewhere in southeast Asia will.  Value is subjective and different for every human being and different even for the same person at different times.  You might place very little value on a bottle of water right at this moment sitting in your office, but when hiking on a hot day and you run out of water you might place a value on a bottle at that time many times higher, and if you are ever dying of thirst in the desert you might be willing to give everything you have for one.  This is the reason price arbitrage works, you can make money moving goods from where they are valued less to where they are valued more.  But in general a machinist who can make precision parts will always be valued by employers (and indirectly their customers for the parts they make) more than a cashier at McDonald's will be.

 

Kinda feels like you agreed with me there at the end...

 

No because, even though one might usually be more, there is nothing guaranteeing that to be true.  Maybe there is a Mcdonalds franchise operating in a culture somewhere that values hamburgers far far more than precision machine parts and they are willing to buy burgers off of the $100-Menu. That franchise could offer to pay its employees an astounding amount of money, where in the US we expect our cheeseburgers to cost $1.50 and our precision machine parts to cost more.

 

Back to haircuts, if I go to a national haircutting chain I would expect the employees to make less to cut my hair than the employees at the same chain in a super wealthy area where they can charge a lot more.  It is all relative.  Your income doesn't just depend on your skills, but how and where you use them.

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The thing I find most offensive about socialism is the term "workers" as if a human being with unique skills, thoughts, abilities, creativity and potential is just some kind of widget that can be grouped together and referred to en masse, because one is just as good as any other.

 

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This doesn't help answer the problems of the day, but it helps me at least understand where we may be going.

 

 

 

That is a complete misunderstanding of "value".  The value is a subjective value the customer places on the service.  A multi-millionaire in Beverly Hills will value a haircut more than a poor subsistence farmer somewhere in southeast Asia will.  Value is subjective and different for every human being and different even for the same person at different times.  You might place very little value on a bottle of water right at this moment sitting in your office, but when hiking on a hot day and you run out of water you might place a value on a bottle at that time many times higher, and if you are ever dying of thirst in the desert you might be willing to give everything you have for one.  This is the reason price arbitrage works, you can make money moving goods from where they are valued less to where they are valued more.  But in general a machinist who can make precision parts will always be valued by employers (and indirectly their customers for the parts they make) more than a cashier at McDonald's will be.

 

Kinda feels like you agreed with me there at the end...

 

No because, even though one might usually be more, there is nothing guaranteeing that to be true.  Maybe there is a Mcdonalds franchise operating in a culture somewhere that values hamburgers far far more than precision machine parts and they are willing to buy burgers off of the $100-Menu. That franchise could offer to pay its employees an astounding amount of money, where in the US we expect our cheeseburgers to cost $1.50 and our precision machine parts to cost more.

 

Back to haircuts, if I go to a national haircutting chain I would expect the employees to make less to cut my hair than the employees at the same chain in a super wealthy area where they can charge a lot more.  It is all relative.  Your income doesn't just depend on your skills, but how and where you use them.

 

I kind of feel like some are missing the fundamental truth in what I was trying to say, which is, the type of work you choose to do (or advance to doing) matters a great deal to what you theoretically should be paid. If you operate a machine, your production is limited to the capabilities of the machine and how close you can get to those capabilities. However, if I am a manager of several people who run machines and I constantly find ways to keep the people working motivated and I keep finding ways to help them be more efficient or find ways to get 1 person to run 2 machines, I can reasonably expect to share in the benefits of those improvements. Likewise, if that worker participates in the entrepreneurial process and finds ways to make him/herself more efficient rather than coming in and "doing their job" they too should share in the fruits of those improvements (I would argue most frontline workers who initiate or help with these types of improvements often do not get their due financially. I do not think it would be abnormal in today's working environment at all for someone to find a $250,000 improvement, get a pat on the back, maybe some kind of award, and a $50 gift card to Walmart.) Ok I kind of got off track there. And then taking the example further, if I see a widespread need for millions (or billions) of people to have better information, and I develop a software that helps them get that information, that work should probably be more highly valued by orders of magnitude than the manager who oversees a few machines, and by even more than the one worker.

 

I feel like this is a pretty straightforward and hard-to-argue-with definition of value but hey maybe I'm crazy. To be sure, I'm only looking at the labor side of things here. If you want to talk about capital and the reward for risking one's capital, that's a whole different story which nonetheless interplays with how labor is compensated.

 

Either way, this conversation got way too in-depth really quickly, and I really like just analyzing stocks so I'm out. 

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The reality is that every job is only worth so much. To get the job done, the employers choice is to either use capital/technology - or people, and demographics largely drives the CSR decision. When your home has lots of young people (China, India, etc) needing a job, use people; when there aren't many young people (Canada, Japan), use technology.

  • Why? Because if there are no jobs, there will be unrest, and your privilege is at risk. Riots happen in poor neighbourhoods, not rich ones - for a reason.

For most people, comp is a measure of worth, and cash the settlement mechanism. At the lower rungs on the Maslow Hierarchy this benefits everyone, thereafter it becomes progressively more toxic as one rises up the pyramid. A few at the top, behaving well, is inspirational. 20% at the top, behaving like arseholes, not so much.

  • Amongst the already rich, cash is just a counter. CSR would argue settlement via other currency - prestige, social standing, etc. 

The behaviour thing has long been recognized as critical, as in the divide between Old and New money. WEB, Munger, Gates, etc. behave very differently to an Ackman, and many HF managers. They know that their privilege is a social licence - granted by you and I, the people.

 

Notable, is that this doesn't really change as you move across the cultures.

It just executes differently, according to local custom.

 

SD

 

 

 

 

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