Seattle Business offering $70K min wage is failing

[BehindBlueI's]

I don't think so. For one, I doubt seriously that any of the employees making 75K will ever get another raise. I think it will eventually lead to some infighting. And, financially, if the profits are being diverted from the shareholders to the employees, it's only sustainable as long as the shareholders are motivated more by ****ing each other. Usually shareholders become shareholders to make money.

Who are the shareholders besides the brothers? If he buys his brother out....

Are you arguing they should be paid less so they can get raises later?

There is no evidence revenue is declining. Quite the opposite. Show me how paying 1.6 out of 2.2 million is not sustainable.

 

[bwframe]

You gents keep going on about numbers and employees vs management vs shareholders, etc. What about consumer perception and the resulting action? For example, the recent news about Netflix . Won't every consumer of their product who knows this information weigh that out in their purchase considerations?

 

[HoughMade]

You gents keep going on about numbers and employees vs management vs shareholders, etc. What about consumer perception and the resulting action? For example, the recent news about Netflix . Won't every consumer of their product who knows this information weigh that out in their purchase considerations?

If they're doing it to attract and retain the best talent, it could be a very sound business decision.

Personally, if I worked somewhere that I thought could get along without me for a year just fine, I'd be a little worried, but I've never worked for a large corporation (thankfully). The notion of being eminently replaceable never appealed to me.

 

[bwframe]

If they're doing it to attract and retain the best talent, it could be a very sound business decision.

Personally, if I worked somewhere that I thought could get along without me for a year just fine, I'd be a little worried, but I've never worked for a large corporation (thankfully). The notion of being eminently replaceable never appealed to me.

I understand that, but I'm mainly referring to the perception of the consumer of the end product. With Netflix, for example, one might always wonder if they are overpaying for the product to fund excessive employee benefits (that most of us don't have?) Might be a reason to shop the competition when they might not otherwise?

Having a well paid staff is great until no one buys the product because of the high price to justify the labor costs involved.

 

[HoughMade]

I understand that, but I'm mainly referring to the perception of the consumer of the end product. With Netflix, for example, one might always wonder if they are overpaying for the product to fund excessive employee benefits (that most of us don't have?) Might be a reason to shop the competition when they might not otherwise?

In that case, if someone is streaming what they do for $8/month, I'll shop the competition. However, I don't care what benefits their employees have or what their cost structure is- I only care what I get for my $8.

 

[Twangbanger]

I give up. Why?

Also interesting that 80% of profits into worker salaries requires a pejorative. That reminds me of this older article:



The "no one else is doing it" argument is pretty weak, no matter what the topic is, just like "everyone else is doing it." It's a reason without having a reason.

There are certainly companies in the middle ground. Delta comes to mind, with a pretty robust profit sharing program. UPS, if you are a part time worker. Pepsi, as mentioned, or at least they used to be. I don't care enough to look up current wages, but in the 90's and 00's they were starting at over double other manufacturing jobs around their plant in southern Indiana.

The "no one else is doing it" argument isn't an argument, in my case; it's an observation. I asked, "why?"

If I had to guess, it's a combination of things. Maybe people don't want to risk their capital to help others; it doesn't "feel" altruistic, it just feels risky, and they think it'd be more efficient to just "give" the money to people, rather than give them a job in a company likely to fail. Philanthropy is noble in this view; work is, well...work. For example, Bill Gates could have turned Microsoft into a "commune" and employed people at minimal profit levels, but ultimately, what's the fun in that, would anybody notice, and would it even last? Better for him, apparently, to run the exact same type of smash-mouth, competitive, profit-seeking, monopoly-constructing company as everybody else, excel at it...then gift the proceeds to the world when finished, and make himself into a Big Deal in two ways, instead of one.

I suspect the world of business is probably just too scary for people, if they're not in it to win. I mean, look at how many companies intend to make a profit, and fail to? You can probably do whatever you want if you're in a market segment that's un-competitive. But in reality, most companies operate in an environment where maximizing employee pay would put them at a serious disadvantage, perhaps leaving them unable to weather storms when there's a downturn.

But I also suspect a reason it isn't done, is because people don't want to risk their own capital on altruistic good works, when it's so much easier to advocate laws forcing the other guy to do it. "Let the Tea Party guy down the street with the Hummer in the driveway be forced to pay his people more. He can afford it, I can't. I prefer security & need to take care of my own."

 

[BehindBlueI's]

We're just not going to agree on that. The theft part isn't at all the way you've spun it. The investors are the owners. The employees are hired help. Exactly what is being stolen from employees that they owned? When they're hired, they agree to the conditions of employment. If those conditions aren't met by the employer, THEN you can call that theft.

You're assuming I think it's theft for investors or the owners to take profit. I'm asking why if it's theft in IndyDave's mind when the money moves one way, is it also theft in his mind when it moves the other way? Hence the question marks. What is it?

If one owner ****s another other owner out of the profits, yeah, that's a form of theft.

Or its just business. It depends on what the contracts say. If the brother agreed to him making $1m a year, and then decided he shouldn't, that's on the brother. If CEO bro decided to just take it against the contract, yeah, he's essentially stealing. However how much is paid to investors and how much is paid to employees is a business decision, not theft in either direction.

You seem to see employment more as a social tool, the very purpose of which is to provide a means of living to employees. Almost as if they're entitled to the company's profits. But I see the purpose of employment as a mutual benefit; a resource for business owners to achieve their goals, and a source of income the employees can earn by creating value for the employer, and getting compensated according to that.

What you see as the purpose of employees and what's actually happening are two different things. Market wages are not the same as value created. Supply and demand, and the balance of bargaining power, set wages. What value you create doesn't enter that equation.

Frankly this is worthy of a thread of its own, and since I think we can agree that no one is forcing him to do to this, that it is irrelevant to this particular discussion.

And I think you've hit on the purpose behind the 70K salary. It's like a guy I knew who put everything he had into buying a new Mercedes that cost 3 times his salary, just so his ex-wife wouldn't get much in the divorce settlement.

This story is sounding a lot less altruistic and much more like, "**** you, brother". Either way, I don't think this story serves as a useful datapoint in this new trend of employers being held socially responsible for their employees earning power.

Probably. Like I said, I never figured altruism alone was the only motivator. I figured marketing played a big role in it. It's actually pretty smart when you compare it to a profit share in this particular instance.

My initial theory looked like this:

1) CEO brother gets to look like the good guy. The articles, and his own admissions, paint him as kind of an abrasive jackwagon. Here's a chance to at least white wash his reputation a bit.
2) More publicity than the equivalent in marketing could have EVER hoped to purchase. This guy got more play than a Super Bowl ad, and the salaries will take decades to approach that level of cash out lay.
3) It's smarter than a profit share in his case, a smallish business primed for big growth. Say business doubles over five years. Market wages won't have changed much, he's still paying way above market rates, and he can take his old salary back AND not he's making more money. A profit share would eat up a consistent amount of profits. Wages will be an ever decreasing portion. A more established business couldn't make that play, and a profit share is old hat and generates zero publicity.

Then I saw the brothers had reorganized years before and non-CEO brother has a pending lawsuit? This it's freaking genius. A flash of insight from creative desperation? How can I look like the good guy, stick it to my brother, and grow my company? He screws the brother's claim he's taking more compensation than authorized, he gets to play the victim, he still gets all the advantages of the PR...and maybe he gets to buy his brother out at a reduced rate? He ends up with a bigger slice of a bigger pie. Pretty clever, IMO, a win for everyone but his older brother.

The "no one else is doing it" argument isn't an argument, in my case; it's an observation. I asked, "why?"

Then why the pejorative? That indicates he's doing something wrong if it requires a pejorative, right?

 

[BehindBlueI's]

I understand that, but I'm mainly referring to the perception of the consumer of the end product. With Netflix, for example, one might always wonder if they are overpaying for the product to fund excessive employee benefits (that most of us don't have?) Might be a reason to shop the competition when they might not otherwise?

Having a well paid staff is great until no one buys the product because of the high price to justify the labor costs involved.

Has Netflix announced any price increase? Their net profit last year was over $265 million. They can probably absorb it without a price hike. However, if they raised their prices a nickle, that would generate almost $14 million in additional revenue each year.

 

[IndyDave1776]

Ok. We can agree he's probably sticking it to his brother. One point of agreement.

Can we agree that the sustainability argument didn't stand up to scrutiny? That as far as the health of the business is concerned, it's irrelevant if employees get it or shareholders get it?

Your point may have validity in the general sense, but it is not sustainable if there isn't any to get and the employees are getting it anyway. That is the way to go down the drain at the speed of light.

 

[IndyDave1776]

You're assuming I think it's theft for investors or the owners to take profit. I'm asking why if it's theft in IndyDave's mind when the money moves one way, is it also theft in his mind when it moves the other way? Hence the question marks. What is it?



Or its just business. It depends on what the contracts say. If the brother agreed to him making $1m a year, and then decided he shouldn't, that's on the brother. If CEO bro decided to just take it against the contract, yeah, he's essentially stealing. However how much is paid to investors and how much is paid to employees is a business decision, not theft in either direction.

On the CEO salary, you are right. It depends entirely upon the contract and whether or not the terms were being met. When someone has invested his money either by buying in or by leaving inherited value in the corporation rather than taking it out in the reasonable expectation of a return on investment and the other brother simply gives the money away in form of wages far beyond market value, yes, that is theft. The CEO has a legal duty to represent the interests of the shareholders which may or may not include himself and this is a case of flagrantly abandoning that duty. The bottom line is that if the company were solely owned by the brother making the decision, that would be one thing if he wants to give away his own money. Giving away the general fund and severely devaluing the stock is taking value that rightfully belongs to his brother and giving it to others.

 

[BehindBlueI's]

On the CEO salary, you are right. It depends entirely upon the contract and whether or not the terms were being met. When someone has invested his money either by buying in or by leaving inherited value in the corporation rather than taking it out in the reasonable expectation of a return on investment and the other brother simply gives the money away in form of wages far beyond market value, yes, that is theft. The CEO has a legal duty to represent the interests of the shareholders which may or may not include himself and this is a case of flagrantly abandoning that duty. The bottom line is that if the company were solely owned by the brother making the decision, that would be one thing if he wants to give away his own money. Giving away the general fund and severely devaluing the stock is taking value that rightfully belongs to his brother and giving it to others.

What if the loss is only short term? If the wages, and more importantly the PR generated, result in growth the company would not have otherwise seen?

Sorry, I'm not seeing this as theft. It's a business decision. It may pay off, it may not, but in the end it's simply a business decision.

On the CEO salary, yeah, we're on the same page there.

Your point may have validity in the general sense, but it is not sustainable if there isn't any to get and the employees are getting it anyway. That is the way to go down the drain at the speed of light.

Of course. But that's not what's under discussion here. 80% isn't more than there is, and there's no sign that revenue is decreasing. I think we all understand that if revenue drops, things have to give. That's not what we're discussing. Let's go back:

In order for this to be sustainable, he has to get enough value from each employee to offset that cost. My guess is that this is a difficult thing to do.

Any business that pays employees MORE than they are worth will not survive on its own.

As a whole, his employees are producing revenue that ends up with a profit of about $2.2 million. $1.76 million of that is now going into the "salary" bucket that wasn't going into the "salary bucket" before (his pay was already in the salary bucket). So the employees were already producing enough value collectively for this to be sustainable, as even after the pay (and the lowered taxes as a result) the net profit is still well in the positives at about half a million a year, assuming a stagnant revenue.

So, now, can we agree that there is nothing inherently unsustainable about paying 80% of profits in salaries?

 

[IndyDave1776]

What if the loss is only short term? If the wages, and more importantly the PR generated, result in growth the company would not have otherwise seen?

Sorry, I'm not seeing this as theft. It's a business decision. It may pay off, it may not, but in the end it's simply a business decision.

On the CEO salary, yeah, we're on the same page there.



Of course. But that's not what's under discussion here. 80% isn't more than there is, and there's no sign that revenue is decreasing. I think we all understand that if revenue drops, things have to give. That's not what we're discussing. Let's go back:





As a whole, his employees are producing revenue that ends up with a profit of about $2.2 million. $1.76 million of that is now going into the "salary" bucket that wasn't going into the "salary bucket" before (his pay was already in the salary bucket). So the employees were already producing enough value collectively for this to be sustainable, as even after the pay (and the lowered taxes as a result) the net profit is still well in the positives at about half a million a year, assuming a stagnant revenue.

So, now, can we agree that there is nothing inherently unsustainable about paying 80% of profits in salaries?

OK, now what is the value of the company and the value of the investment held by the non-CEO brother? Is there a sufficient dividend to cover depreciation and provide a reasonable return on his investment, or has he become a captive charity lender?

 

[jamil]

What you see as the purpose of employees and what's actually happening are two different things. Market wages are not the same as value created. Supply and demand, and the balance of bargaining power, set wages. What value you create doesn't enter that equation.

Frankly this is worthy of a thread of its own, and since I think we can agree that no one is forcing him to do to this, that it is irrelevant to this particular discussion.

I've assumed that we're both talking with goals in mind of how we think things should be. I understand how they are. And what we have isn't anywhere near a free job market.

When I say according to value, I'm saying, what the labor is worth to the employer. Anything is worth what someone is willing to pay. And I'm also saying it should be determined on an individual basis. If Clem can produce 20 quality widgets per day, and Cletus can produce 35, Cletus' labor is worth more than Clem's, and Cletus should have more bargaining power to negotiate higher pay. But that's not how it is. So, for the labor ranks, since both are widget-makers, the employer pays both a set wage for widget-makers and pays them by the hour rather than by what is produced.

In the salaried ranks, labor is more based on individual performance, notwithstanding the typical human behaviors like asskissing, favoritism, dickhead bosses, false perceptions, factions, cliques, and so on. But still, compensation is negotiated individually. Future raises and promotions are individually based.

 

[bwframe]

In that case, if someone is streaming what they do for $8/month, I'll shop the competition. However, I don't care what benefits their employees have or what their cost structure is- I only care what I get for my $8.

Yes, that was last year.
You may not care that you are overpaying for services, but a fair amount of folks are cost conscious. Like for example, the customers/sales that the Seattle business in the OP has lost with their foolish business move.

 

[BehindBlueI's]

OK, now what is the value of the company and the value of the investment held by the non-CEO brother? Is there a sufficient dividend to cover depreciation and provide a reasonable return on his investment, or has he become a captive charity lender?

That's the risk you take as a minority stakeholder. Isn't that the explanation we always get for why the owners and investors get the return they do? The risk? Especially if this turns out to be a long term gain due to the PR, is the fact his share temporarily lost value relevant? Has the value of the company changed significantly? Has the dividend changed at all? (I've yet to see anything about the company paying any dividend, which may be part of the brother's gripe, CEO bro is eating his lunch via high salary instead of dividend payments).

However that wasn't my question. There are so many issues that have been thrown up at this I'd like to resolve at least some of them. Can you show me how it is not sustainable or can we agree that it is and move on to this point?

 

[BehindBlueI's]

Yes, that was last year.
You may not care that you are overpaying for services, but a fair amount of folks are cost conscious. Like for example, the customers/sales that the Seattle business in the OP has lost with their foolish business move.

The company under discussion did not raise their prices, and are in fact still cheaper than other options in the market. Did Netflix price go up? Or did they absorb the cost internally?

We've had this discussion before. Companies can't just raise prices because their costs go up. The market doesn't care what you paid to produce an item. You would not pay more for a cheeseburger simply because it cost the restaurant more to make. You pay more for it based on quality or desire, but you don't give two poos what it cost them to make.

 

[HoughMade]

Yes, that was last year.
You may not care that you are overpaying for services, but a fair amount of folks are cost conscious. Like for example, the customers/sales that the Seattle business in the OP has lost with their foolish business move.

I don't understand. I am, in fact, cost conscious and if the price goes up or the product quality suffers, I would look elsewhere. As a consumer, that's the bottom line. I don't care if they pay their janitor $100,000 and give everyone 2 years off for hangnails.

This is wholly different that the issue addressed in the OP- the discussion of what salary and benefits will do to a company internally and whether it increases costs is one thing. As I have said before- I believe in reasonable pay and benefits based upon the value of the job done, performance and what competitors pay for the same job. I think that setting arbitrary salary because you think it would be nice to pay someone that much is dangerous to the business. That's more of a academic discussion.

Now, if I were a customer of that business, I wouldn't care what they paid their employees as long as the service did not degrade and the prices did not increase to pay for it. I understand that it is reported that some customers may have left because they believed a political statement was being made (political or not, going wide with press releases makes it clear that this was more than an internal, altruistic offering), but other customers signed on be cause they liked it. Whatever. In the end, whether this business sinks or swims, I do not see this as starting a trend, nor do I see it as a business model to be emulated, for a myriad of reasons, all of which, I think, have been discussed.

 

[jamil]

Yes, that was last year.
You may not care that you are overpaying for services, but a fair amount of folks are cost conscious. Like for example, the customers/sales that the Seattle business in the OP has lost with their foolish business move.

The Netflix service is worth what you're willing to pay for it. If you think what they charge isn't worth it, don't subscribe. I don't really care what is their internal structure, what silly policies they have, whatever. I care that I feel I'm getting what I'm paying for. We don't mind paying ~ $8/month.

Now, if I were an investor, I would care much more about those things. Netflix said they're doing it to try to attract and retain the best talent. I'm not sure an entire year of maternity leave really provides the cost/benefit that they seem to think it would. As an investor I might see it as excessive. As a subscriber, I don't care.

 

[bwframe]

The company under discussion did not raise their prices, and are in fact still cheaper than other options in the market. Did Netflix price go up? Or did they absorb the cost internally?

We've had this discussion before. Companies can't just raise prices because their costs go up. The market doesn't care what you paid to produce an item. You would not pay more for a cheeseburger simply because it cost the restaurant more to make. You pay more for it based on quality or desire, but you don't give two poos what it cost them to make.

Companies set their pricing as to what the market will bear. The market doesn't care to support the company in the OP for whatever reason, obviously not pricing.
The jury is still out on Netflix, since they just made their announcement. We will see if their much advertised business decision choice plays out well with their consumers or not.

Price is only one determining factor in making a purchase. Perception does matter to the informed consumer. As companies more and more use their success to advertise their other than business agendas, so do the consumers who make the purchasing decisions.

 

[jamil]

Companies set their pricing as to what the market will bear. The market doesn't care to support the company in the OP for whatever reason.
The jury is still out on Netflix, since they just made their announcement. We will see if their much advertised business decision choice plays out well with their consumers or not.

Price is only one determining factor in making a purchase. Perception does matter to the informed consumer. As companies more and more use their success to advertise their other than business agendas, so do the consumers who make the purchasing decisions.

Other than value, the only way a company's policies will affect my decision on things is if they make a political decision and take sides on something, especially if I think it's the wrong side. I ended my Angie's list subscription because they decided to pile on and take sides in the RFRA ****storm. **** them.

I don't see the netflix thing the same way. I don't think they're picking political sides. If they raise their subscription fee beyond what I'm willing to pay, for whatever reason, I'll terminate it.