9 ms·

CEOs have way more latitude than most think. There is an incredibly easy argument to make in this case: paying employees more means you get better employees, an

CEOs have way more latitude than most think. There is an incredibly easy argument to make in this case: paying employees more means you get better employees, and more productive employees, thus you drive more shareholder value.

cbHXBY1D 10y ago
It's insane that we live and work within a system where you can be sued as a CEO for that argument.
- maerF0x0 10y ago
  We live in a system that allows (afaik, IANAL) a law suit for anything. Afterall, if you have a complaint you need to be heard and due process needs to explore the legitimacy of your complaint. What's insane is some of the lawsuits that succeed.
- bko 10y ago
  If you paid employees all of the companies earnings you wouldn't make any money. If you paid employees nothing, you wouldn't be making any money as they would stop working. If you pay somewhere in the middle, you would likely make money. So there exists a point where paying workers more will result in less money. If he made a change on compensation not based on the interest of the company, then the other shareholders should be allowed a say.
  - lukeschlather 10y ago
    Nothing you said is entirely true. It's certainly true if you look at it from a quarterly-earnings perspective. But there's no reason that a company paying out 100% of earnings to its employees can't outperform a company paying out less year-over-year. You do need committed investors, but even if you have investors cashing out it may be better for the company that they leave when you look at things on a 5-year or longer timescale.
    - bko 10y ago
      I can rephrase that there is some point X where X is the amount you pay employees, such that you don't make any money on T time scale. You can't say that you always get better productivity as you pay more and more. There comes a point where paying them more does not improve their efficiency or your business enough to justify the higher salaries being paid out. I'm not saying that paying min 70k is beyond this point where paying them won't help you on T time scale, but it needs to be evaluated. You can't just assume that paying someone more will be more than made up for in increased long term efficiency.
    - jasode 10y ago
      >Nothing you said is entirely true. It's interesting that you critique gp's comment for being binary, but you also make an absolutist comment yourself by stating "there's no reason" in: >But there's no reason that a company paying out 100% of earnings to its employees can't outperform a company paying out less year-over-year. ... it may be better for the company that they leave when you look at things on a 5-year or longer timescale. Instead of "no reasons", there are several reasons why a company paying out 100% of the profits to employees for 60 months will make it underperform another company that retains some of its earnings. A company can use its retained profits to spend on future expansion, speculative research & development, acquiring a company, etc. In many industry segments, if the company doesn't grow, it becomes irrelevant and dies. (At that point, the jobless employees get 100% of $0 profits.) I can't think of any example in business history of a company that paid 100% profits to employees and therefore had $0 in retained earnings year-after-year ... outperform its competition.
- TheCoelacanth 10y ago
  He wasn't. He was sued for supposedly paying himself too much and misusing his company credit card.
komali2 10y ago
What boggles my mind is that this is just one of many cases of provable long-term return. It's trickier for HR type investments (measuring the ROI on increases wages, or putting a pool table in the break room), but another example is most governments' refusal to believe that education has a massive ROI. Despite the fact that we have economic scientists repeatedly demonstrating with overwhelming evidence that these types of long-term investments have massive ROI, people can't overcome their natural short sightedness.
- caseysoftware 10y ago
  > another example is most governments' refusal to believe that education has a massive ROI Any education or education in specific fields or courses of study?
  - mjevans 10y ago
    As far as ANY education goes, successfully providing children with a means of being a productive member of society provides them with 'things to loose' and thus they are far less likely to be a 'non-productive' as either a flat resource drain, or worse, as someone forced to find methods of employment that drain resources from others (such as crime). I suspect you'd get the most RoI on education related to what the economy needed at the time. However if the market is compensating employees fairly* then students will likely pick what enjoy doing which also best fits the needs of the economy (as dictated by the benefits of the job). *For example, when you have to hire employees from out of nation requiring that they make 2X or more of the median pay for the job in that area, and also allowing this valued employee to freely take any other similar offer (2X median pay in the area of the job) as well as have a fast track to citizenship.
    - st3v3r 10y ago
      "I suspect you'd get the most RoI on education related to what the economy needed at the time. However if the market is compensating employees fairly* then students will likely pick what enjoy doing which also best fits the needs of the economy (as dictated by the benefits of the job)." The problem being that much education has a minimum of 4 year lag time. So one could go into a degree program when the market is hot, only to see it cool off by the time they graduate.
Alupis 10y ago
> paying employees more means you get better employees, and more productive employees, thus you drive more shareholder value Except in this case, quite the opposite happened. All of the company's best employees quit and walked away within a few month's time. This left only the newest hires running the ship - collecting, in some cases, more salary than the seasoned crew that had been there from the start and had to work their way up the pay ladder. [1] http://www.businessinsider.com/dan-price-gravity-payments-employees-leave-2015-7 http://www.businessinsider.com/dan-price-gravity-payments-em...
- st3v3r 10y ago
  Sounds to me like those weren't the "best employees", but rather just the most petty and jealous.
  - Pinatubo 10y ago
    I don't think it's petty or jealous to seek employment at a place where hard work and dedication are rewarded.
    - st3v3r 10y ago
      That's not what they were doing, though. It absolutely is petty and jealous to quit because someone else got a raise, and now you're not making more than them.
      - Alupis 10y ago
        The folks that left were the folks that built the company. The new hires came in, and promptly got a massive pay raise to match the most senior employees, even though their contributions were non existent at that time. The CEO got really good personal PR. The new hires got huge raises. The employees that had toiled long hours and built the platform got nothing. That's not somehow petty, nor jealous. Let's not demonize the employees that decided they were not going to be part of that company anymore - a company that showed it wasn't going to reward hard work and dedication. Most of us would have made the same choice.
dominotw 10y ago
> paying employees more means you get better employees, and more productive employees, thus you drive more shareholder value. Isn't more driven by market forces of supply and demand. Why should CEO make his business to interfere with systems that are in place to deal with this. A more convincing argument is 'publicity'.
crispyambulance 10y ago
Yep, "shareholder value" can be taken to mean all kinds of things-- long and short term. The CEO may very well be able to make a case for higher wage workers even in the "greed-above-all" context of shareholders. FWIW, 70K "min wage" might not mean so much if most employees are line workers and there are contractors for the support jobs (eg IT-dept, janitorial, secretarial, etc).

cbHXBY1D 10y ago

It's insane that we live and work within a system where you can be sued as a CEO for that argument.

maerF0x0 10y ago
We live in a system that allows (afaik, IANAL) a law suit for anything. Afterall, if you have a complaint you need to be heard and due process needs to explore the legitimacy of your complaint. What's insane is some of the lawsuits that succeed.
bko 10y ago
If you paid employees all of the companies earnings you wouldn't make any money. If you paid employees nothing, you wouldn't be making any money as they would stop working. If you pay somewhere in the middle, you would likely make money. So there exists a point where paying workers more will result in less money. If he made a change on compensation not based on the interest of the company, then the other shareholders should be allowed a say.
- lukeschlather 10y ago
  Nothing you said is entirely true. It's certainly true if you look at it from a quarterly-earnings perspective. But there's no reason that a company paying out 100% of earnings to its employees can't outperform a company paying out less year-over-year. You do need committed investors, but even if you have investors cashing out it may be better for the company that they leave when you look at things on a 5-year or longer timescale.
  - bko 10y ago
    I can rephrase that there is some point X where X is the amount you pay employees, such that you don't make any money on T time scale. You can't say that you always get better productivity as you pay more and more. There comes a point where paying them more does not improve their efficiency or your business enough to justify the higher salaries being paid out. I'm not saying that paying min 70k is beyond this point where paying them won't help you on T time scale, but it needs to be evaluated. You can't just assume that paying someone more will be more than made up for in increased long term efficiency.
  - jasode 10y ago
    >Nothing you said is entirely true. It's interesting that you critique gp's comment for being binary, but you also make an absolutist comment yourself by stating "there's no reason" in: >But there's no reason that a company paying out 100% of earnings to its employees can't outperform a company paying out less year-over-year. ... it may be better for the company that they leave when you look at things on a 5-year or longer timescale. Instead of "no reasons", there are several reasons why a company paying out 100% of the profits to employees for 60 months will make it underperform another company that retains some of its earnings. A company can use its retained profits to spend on future expansion, speculative research & development, acquiring a company, etc. In many industry segments, if the company doesn't grow, it becomes irrelevant and dies. (At that point, the jobless employees get 100% of $0 profits.) I can't think of any example in business history of a company that paid 100% profits to employees and therefore had $0 in retained earnings year-after-year ... outperform its competition.
TheCoelacanth 10y ago
He wasn't. He was sued for supposedly paying himself too much and misusing his company credit card.

komali2 10y ago

What boggles my mind is that this is just one of many cases of provable long-term return. It's trickier for HR type investments (measuring the ROI on increases wages, or putting a pool table in the break room), but another example is most governments' refusal to believe that education has a massive ROI. Despite the fact that we have economic scientists repeatedly demonstrating with overwhelming evidence that these types of long-term investments have massive ROI, people can't overcome their natural short sightedness.

caseysoftware 10y ago
> another example is most governments' refusal to believe that education has a massive ROI Any education or education in specific fields or courses of study?
- mjevans 10y ago
  As far as ANY education goes, successfully providing children with a means of being a productive member of society provides them with 'things to loose' and thus they are far less likely to be a 'non-productive' as either a flat resource drain, or worse, as someone forced to find methods of employment that drain resources from others (such as crime). I suspect you'd get the most RoI on education related to what the economy needed at the time. However if the market is compensating employees fairly* then students will likely pick what enjoy doing which also best fits the needs of the economy (as dictated by the benefits of the job). *For example, when you have to hire employees from out of nation requiring that they make 2X or more of the median pay for the job in that area, and also allowing this valued employee to freely take any other similar offer (2X median pay in the area of the job) as well as have a fast track to citizenship.
  - st3v3r 10y ago
    "I suspect you'd get the most RoI on education related to what the economy needed at the time. However if the market is compensating employees fairly* then students will likely pick what enjoy doing which also best fits the needs of the economy (as dictated by the benefits of the job)." The problem being that much education has a minimum of 4 year lag time. So one could go into a degree program when the market is hot, only to see it cool off by the time they graduate.

Alupis 10y ago

> paying employees more means you get better employees, and more productive employees, thus you drive more shareholder value Except in this case, quite the opposite happened. All of the company's best employees quit and walked away within a few month's time. This left only the newest hires running the ship - collecting, in some cases, more salary than the seasoned crew that had been there from the start and had to work their way up the pay ladder. [1] http://www.businessinsider.com/dan-price-gravity-payments-employees-leave-2015-7 http://www.businessinsider.com/dan-price-gravity-payments-em...

st3v3r 10y ago
Sounds to me like those weren't the "best employees", but rather just the most petty and jealous.
- Pinatubo 10y ago
  I don't think it's petty or jealous to seek employment at a place where hard work and dedication are rewarded.
  - st3v3r 10y ago
    That's not what they were doing, though. It absolutely is petty and jealous to quit because someone else got a raise, and now you're not making more than them.
    - Alupis 10y ago
      The folks that left were the folks that built the company. The new hires came in, and promptly got a massive pay raise to match the most senior employees, even though their contributions were non existent at that time. The CEO got really good personal PR. The new hires got huge raises. The employees that had toiled long hours and built the platform got nothing. That's not somehow petty, nor jealous. Let's not demonize the employees that decided they were not going to be part of that company anymore - a company that showed it wasn't going to reward hard work and dedication. Most of us would have made the same choice.

dominotw 10y ago

> paying employees more means you get better employees, and more productive employees, thus you drive more shareholder value. Isn't more driven by market forces of supply and demand. Why should CEO make his business to interfere with systems that are in place to deal with this. A more convincing argument is 'publicity'.

crispyambulance 10y ago

Yep, "shareholder value" can be taken to mean all kinds of things-- long and short term. The CEO may very well be able to make a case for higher wage workers even in the "greed-above-all" context of shareholders. FWIW, 70K "min wage" might not mean so much if most employees are line workers and there are contractors for the support jobs (eg IT-dept, janitorial, secretarial, etc).