Here's What Really Happened at That Company That Set a $70,000 Minimum Wage
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Re: Here's What Really Happened at That Company That Set a $70,000 Minimum Wage
#2I suspect that the real reason for the raises is the dispute with his brother: by paying profit out to employees, he doesn't have to pay it as dividends to his brother.
Re: Here's What Really Happened at That Company That Set a $70,000 Minimum Wage
#3I suspect that the real reason for the raises is the dispute with his brother: by paying profit out to employees, he doesn't have to pay it as dividends to his brother.
That is a reasonable suspicion, unless you actually read the article.
1. The lawsuit was filed after the pay increase.
2. "Profit growth continued to substantially outpace wage growth." So basically the company is more profitable than ever.
3. This guy is an outspoken advocate of paying people an equitable wage. It'd be a lot of trouble go to through all of that charade just to pay his brother less.
4. Profits don't always have much to do with the value of a company, which is what the lawsuit is about. Furthermore, the lawsuit might be about the documents they signed (or didn't sign!) related to selling stakes to one another.
Re: Here's What Really Happened at That Company That Set a $70,000 Minimum Wage
#4Wages are subject to the law of supply and demand, just like every other aspect of economic life. Since the CEO seems to be paying well above the going market rate, I doubt that this is sustainable for the long run. Yes, he's partially compensated for the imbalance by cutting his own pay, but it won't be enough. Also, the rapid growth of the company will also buy him some time, but that can't go on forever.
The article's author seems to know little about capitalist economics beyond the conventional wisdom, most of which is wrong or non-essential.
And if Rush Limbaugh did in fact call the CEO a socialist, then Rush Limbaugh doesn't understand what socialism is.
Having said all this, I would still like to see this company succeed, just like Henry Ford did many years ago with a similar tactic.
Re: Here's What Really Happened at That Company That Set a $70,000 Minimum Wage
#5> he has sold all his stocks, emptied his retirement accounts, and mortgaged his two properties -- including a $1.2 million home with a view of Puget Sound
Maybe I'm missing something, but how is a $1.2m mortgage affordable on $70k/year? Did he not remortgage the whole value of the house?
Re: Here's What Really Happened at That Company That Set a $70,000 Minimum Wage
#6This is socialism. Paying wages that are 50k over the market creates enormous incentives for corruption. The CEO seems to be a devout Christian, and I want to hope that all the employees are strongly moral people, but to paraphrase the parable of the camel and the needle, it is extremely difficult to be both rich and righteous at the same time.
There is a pressure on the people to outsource much of their work at market price, skimming the profit. People are clever, they will find a way.
It also puts an immense value on getting the job (possibly by deception or by getting rid of the incumbent in some way), and then staying at that job at all cost. The risk-aversion will be through the roof. There will be absolutely no back-talking. The managers will never be challenged, no matter what they do, by their underlings. Morale and the working conditions will deteriorate as a consequence, with negative effect on the bottom line.
All the above used to be the norm in various forms in the Soviet bloc when I was a kid. Those of you who spent some time in a socialist country will recognize the problem.
I hope that this experiment stands the test of time, and we can all learn from it how to make employing people more humane. But I won't be holding my breath.
Re: Here's What Really Happened at That Company That Set a $70,000 Minimum Wage
#7> he has sold all his stocks, emptied his retirement accounts, and mortgaged his two properties -- including a $1.2 million home with a view of Puget Sound Maybe I'm missing something, but how is a $1.2m mortgage affordable on $70k/year? Did he not remortgage the whole value of the house?
He sold the mortgage to his company, for stock.
The company takes out a mortgage, secured by the house he owns, he gets stock in return. If the company fails to pay, house gets foreclosed on, but he still keeps the stock.
Re: Here's What Really Happened at That Company That Set a $70,000 Minimum Wage
#8> he has sold all his stocks, emptied his retirement accounts, and mortgaged his two properties -- including a $1.2 million home with a view of Puget Sound Maybe I'm missing something, but how is a $1.2m mortgage affordable on $70k/year? Did he not remortgage the whole value of the house?
He sold the mortgage to his company, for stock. The company takes out a mortgage, secured by the house he owns, he gets stock in return. If the company fails to pay, house gets foreclosed on, but he still keeps the stock.
Cool!
Re: Here's What Really Happened at That Company That Set a $70,000 Minimum Wage
#9Wages are subject to the law of supply and demand, just like every other aspect of economic life. Since the CEO seems to be paying well above the going market rate, I doubt that this is sustainable for the long run. Yes, he's partially compensated for the imbalance by cutting his own pay, but it won't be enough. Also, the rapid growth of the company will also buy him some time, but that can't go on forever. The artic…
The cost of your inputs has little to do with the price you can charge for your outputs. Those are two supply-demand curves, which have very little to do with each other. Note that there is an infinite number of business models where the inputs curves are way above the outputs curve, and those are the business models that never can possibly be profitable. Increase of minimum wage (albeit this extreme) only raises the cost of inputs, and makes the set of unprofitable business models larger; there is no qualitative difference to, say, raising the cost of oil 300%.
Wages in aggregate eat directly into your profits, so if you're happy with lower profits and lower wages for executives, you absolutely can raise wages. If you pay 70k/year in low-margin-per-employee industries, your will inevitably operate at a loss, but this company is not low-margin.
I would also love to see this succeed, but maybe giving employees non-voting stock would better stave off the possibility of running the business into the ground.
Re: Here's What Really Happened at That Company That Set a $70,000 Minimum Wage
#10This is socialism. Paying wages that are 50k over the market creates enormous incentives for corruption. The CEO seems to be a devout Christian, and I want to hope that all the employees are strongly moral people, but to paraphrase the parable of the camel and the needle, it is extremely difficult to be both rich and righteous at the same time. There is a pressure on the people to outsource much of their work at mark…
This is definitely not socialism! There is no coercive government intervention here. It is the CEO of a private company paying his employees above market rate. One of the many benefits of a free market is that you will often see experiments like this. Some will fail, some will succeed, but no one will go to Siberia.
Socialism is political system, an incredibly irrational and immoral one, but this is merely a business decision taken by a single CEO exercising his own independent judgement.