> But I think what we really want is a bigger share of the profits a company makes without them raising prices.
Only as long as you're willing to have the same share of the losses, too, but most aren't.
Of course everyone wants to get max(salary, share of profits, commission) when the company registers losses, and sum(salary, share of profits, commision) only when the company registers profits, but I just don't see such a thing ever working.
What does this even mean? do you believe C levels and board members personally mope out of the office with dog-eared pockets each time the business loses a customer? do you assume the losses arent already gifted to the workers in the first place in the form of salary cuts and mandatory overtime?
the issue is wealth inequality. that a CEO can earn tens, if not hundreds of times more than a line worker without so much effort as to even show up to the office, that is the issue. that a cloistered elite of leadership exists seemingly immune to even the worst outcomes of business, only to arrive in yet further opulence after they retire in golden parachutes flush with shares of the company the excess capital of the workers themselves built in the first place.
if you want people to show up after the pandemic to swing hammers and build products, you need to give them more than the cost of the gas to get to work and a half hour lunch.
"It used to be that in the 1950s, 60s, and 70s, CEOs made 3.3 times what a top 0.1% earner made. Now, it's more than six times," says Mishel. "CEOs now are making 351 times that of a typical worker, but back in 1978, it was only 31 times. In 1989, it was 61 times."
And it's not just CEOs. IMO there should be federal guidelines that total compensation in public companies should be more fairly distributed, ie, executive staff can only make X times more than average worker pay. But you know what companies would do, right? They'd fire all the employees, setup mini companies to employ the workers, and bypass the regulations.
It’s worked quite successfully, in this country (assuming USA), in the past. It currently works reasonably well in Japan, where executive pay is capped as a multiple of the lowest paid worker at the company. In the US, executive pay has never been higher relative to average worker pay.
The gap in wealth is real, it’s increasing, and it absolutely does not (in fact, it cannot) need to be this way.
But America being the land of greed and selfishness, there would be a simple solution: Split the company into two legal entities. One which employs all the jamokes getting next to nothing and another which employs the C-suite folks. Even without such a dramatic split, a law like this would likely mean that they’d shift all low paid employees into contract roles.
None of which is to say that I disagree with the goal, just that one should never underestimate the greed and psychopathy of the typical C-suite individual. These are people who will have employment contracts that guarantee them a multi-million payout if they get fired because they’re shit at their job.
I mean sure, but the argument of "people will just try and work around it" can be made for basically any regulation ever put in place. That doesn't negate the importance of the regulation, and it doesn't make the regulation ineffective. It only acknowledges that the game of cat and mouse between regulators and the people playing the game exists.
It's in the same vein of "criminals will just find a way to get guns if you make guns illegal". Some will, certainly, but the argument itself is an argument against the rule of law entirely. Some criminals will speed on highways, some criminals will steal, etc. But laws are still effective in curtailing this behavior on the macro level.
Laying off workers is often the right thing to do for the health of the business. Companies are not make-work schemes, designed to employ as many people as possible, and shouldn't be. They're there to provide value for customers, as defined by customers demonstrating that they value the thing the company provides more than the money they give up to get that thing, and constrained by the fact that the business itself has to be profitable to be sustainable and keep providing that value. That sustainability includes the capital needed from investors to keep the business producing and innovating. There's competition for that capital (and there should be!), so if returns are higher elsewhere, that broadly means the alternate use of capital is providing value to customers more efficiently.
If someone at the company identifies a set of inefficiencies in producing value for customers, and remedying that involves laying off a bunch of people, but ends in providing that value more successfully, that person has been responsible for a lot of value creation.
The executives who are responsible for all the excess hiring should also be removed for their failures as well so they can be held responsible for their mistakes.
Maybe, and that sometimes happens... when it was definitely a mistake. But it often wasn't; the company has to make the best decisions given the information it has, AND things change. You don't fire people every time they make a mistake -- you fire them when you don't think their judgment is adding value. And while it might seem like that should be different when the mistakes are more impactful, it just means companies need to hire as well as they can (which often involves high compensation) to make the best bets on that judgment.
Judgment isn't about having been right -- it's about making the best decisions given the information you have at the time, and that means that some good decisions turn out not to work out in practice. Companies have to try things out to innovate and find new, better ways of creating as much value for customers as possible. You might hire 50 people to develop a new product line or offering, because it seems like it's going to work. If it then almost works, but the margins aren't good enough and it looks like there's untapped market, you might hire 100 more to scale it up because it looks like it will work at greater scale. But ultimately, if you end up not being able to make it work, you have to shut it down. Maybe some of those people fit elsewhere in the company, but usually that's very few. So layoffs are needed there, and it doesn't mean someone needs to be fired.
In many cases of layoffs, the employees were profitable... until they became unprofitable because circumstances changed. That's often the case at big companies. You find success with a product, but then consumer tastes change, or someone innovates better than you do (or gets luckier). You can't just keep that unprofitable product going to keep people employed -- someone has to make the hard call to hard pivot or exit that market. It doesn't mean the people who set that product line up made a mistake and need to be fired.
I usually see this argument about the utopian company which shields employees from the losses in debates. In the real world a company making losses cuts down on employees, wages, increases working hours for same pay ; all negatively affecting the employees in a desperate attempt to survive, failing which the company shuts down causing loss to all employees.
They are however not sharing the increased profits with the employees when they are highly profitable, they don't hire more people than required because profits are more.
I see there is a market value that the company has to pay for labor. The additional profits are generated due to the performance of the employees, they should get a share in the profits for their contribution, the investors putting in the capital are currently taking 100% of the profits. There should be a share in this for those putting in their sweat and brains.
> In the real world a company making losses cuts down on employees, wages, increases working hours for same pay…
All of that only affects future earnings. The employees' wealth (savings) is not tied up in the success of the company—they can quit at any time and go work somewhere else. Everything they've earned up to that point is theirs to keep, along with intangibles like training and job experience they've received along the way. This is their share for "putting in their sweat and brains".
For the shareholders, on the other hand, a company taking losses doesn't just impact future income. Their entire investment is at stake.
If an employee prefers equity rather than income they are free to purchase shares in the company with their earnings; as a rule, though, employees just want to put in their hours and get a steady paycheck which they can spend or invest as they please. They don't want to be forced to invest in their employer such that the prospect of their employer going bankrupt threatens both their paycheck and their savings.
The investment of shareholders is at stake irrespective of whether they share the profit with the employees, success of the company is a different function altogether.
>For the shareholders, on the other hand, a company taking losses doesn't just impact future income. Their entire investment is at stake.
Investors who do not get more returns in the companies compared to a debt instrument will take their investments to companies which can offer better returns, that is how they should manage their risk without getting bankrupt.
There is a chart above where some companies have profit/employee close to a million dollars, intellectual property of the employees is not valued enough, value is only attributed to the capital invested , which if you look at companies which are overvalued is not the rarest commodity; employees are not a rare commodity but good employees are.
> Investors who do not get more returns in the companies compared to a debt instrument will take their investments to companies which can offer better returns….
Of course, but to do that you first have to find another investor willing to take your place by buying your shares. An individual shareholder might leave but the shareholders, as a group, are just as invested in the fate of the company as before.
I agree, the company in total loses value when it shuts down, the employees are left without any jobs causing loss of livelihood , investors are left with a loss in share value.
Employees can get another job , investors can diversify and manage their portfolio better, there usually higher risk inherent when higher growth and dividends are expected.
What I am saying is everyone is affected when a business shuts down, its not something which affects only investors, employees are also affected, but when the company has record profits in most cases it is provided exclusively to investors and no portion on the profits are shared with employees.
I see salary as a way of booking the employees time, a share in profits is what they should get for how productive they are in the booked time.
> Employees can get another job, investors can diversify and manage their portfolio better...
Employees can get another job after the fact. Their skills and experience are mostly transferable. I'm not saying it isn't disruptive, but they haven't lost any principal or equity, just the opportunity to sell more labor to that particular employer in the future.
For the shareholders at the time to business goes bankrupt it's too late to try to diversify. Their shares are worthless and they are out whatever they paid for them. (BTW, telling them to diversify ahead of time is equivalent to telling them not to invest as much into this company... which isn't great for the company or its employees.)
> ... no portion on the profits are shared with employees.
The employees' fair share of the profits is their salary or wages (plus performance bonuses where applicable). If they want equity they can buy it with their earnings, but in general it's a bad idea to hold too much equity in your employer. The trade-off for sharing in "record profits" is sharing in the losses when the company doesn't do as well.
Only as long as you're willing to have the same share of the losses, too, but most aren't.
Of course everyone wants to get max(salary, share of profits, commission) when the company registers losses, and sum(salary, share of profits, commision) only when the company registers profits, but I just don't see such a thing ever working.