CEO's pay -- 300 times regular folks'!

[Whack-a-Mole]

@Amateur_Barbarian

Rather than make an extended post, let me make it a question. If you take away the factor “the best they can do” from your picture, how does that change things? That is, if some majority of those working at Costco are in the best job they are likely to get, and they’re making $12/hr with better working conditions than the cornholing they’d take over at Walmart, Sam’s Club, Target or Home Depot for $9/hour… how much of that company-love, CEO-worship is from an entirely relative perspective?

Maybe working at Costco is a shitty, demeaning, exhausting job on an absolute level… but it’s better than those folks in red vests can do anywhere else.

Does that change the picture?

It might if that were the case but it is not a shitty, demeaning job.

Last week, we wrote about The Container Store and its “1 = 3” theory, which says that one “great” employee is just as productive as three workers who are only “good.”

Kip Tindell, the company’s CEO and founder, says this rule allows him to pay his retail employees an average salary of nearly $50,000 a year — almost twice the retail industry average.

Of course, The Container Store isn’t the only major retail chain that professes a commitment to paying its workers a livable wage.

At Costco, hourly workers make an average of more than $20 an hour — well above the national average of $11.39 for a retail sales worker — according to a 2013 Businessweek story. For employees who put in 40 hours per week, that works out to about $43,000 a year.

In addition, Businessweek reports that 88% of Costco’s 185,000 employees have company-sponsored healthcare.

SOURCE: Costco Pays Retail Employees $20 an Hour - Business Insider

[John_Mace]

@Whack-a-Mole

I’d submit that Costco is darn close to being a model of an ideal relationship between employees and employers.

If you read up on Costco their employee turnover rate is exceptionally low, employees at the company are fairly compensated, get some great benefits (401k, generous vacation policy, health benefits, etc) and as a result are loyal, long-term employees.

Clearly it can work and there can be a mutually beneficial relationship between the employee and employer.

Clearly it can work. “All” you need is to cater to more affluent customers. Easy peasy!!

Walmart vs Costco. We do this on a regular basis as this issue keeps being brought up again and again and again.

[Whack-a-Mole]

@John_Mace

Clearly it can work. “All” you need is to cater to more affluent customers. Easy peasy!!

Walmart vs Costco. We do this on a regular basis as this issue keeps being brought up again and again and again.

I’d be willing to bet Walmart could easily improve productivity per employee. Their employees, in my experience, are some of the most uninterested, lackadaisical bunch I have ever seen in a store. I frequently find their stores messy and unkempt while Costco stores are neat and efficient. This despite Walmart having almost twice the employees per square foot (I get the extra SKU issue…nevertheless it is a problem for Walmart).

Can Walmart close the gap with Costco in this regard? Perhaps not completely but they certainly CAN close the gap.

Fewer employees paid better and doing a better job is better than numerous employees paid a pittance and unmotivated.

[Slash1972]

@Amateur_Barbarian

We did not have any employees below skilled office staff, unless you want to include the building’s janitorial staff, and I don’t really know how to account for them in a question like this.

The ratio of the co-owner’s compensation to the lowest full-time equivalent was 10:1 or less. There were many part-time field employees, but they were paid at the same rate as full-timers with equivalent experience. There were always more hours for part-timers, up to around 75 FTE for 100-120 employees. A lot of our most valued staff stayed part-time by choice for ten years or more. We never had enough staff and as many were both parents and pursuing degrees, there was endless rescheduling and turnover. We paid by far the highest rates among the companies in the field. In 12 years, more than a dozen went from “some college” to advanced degrees, with our encouragement and help (both financial and work-related, as in scheduling). Many more went from being dumb 19yo’s with no real plans to college tracks with the aim of getting a related degree. (One was a model who thought she was too dumb to move to a supervisory level. She got her Ph.D. two years ago.) We also maintained very high quality healthcare options long after it started being a significant bite of profits. Those costs were a big factor, but not the only one, that led to closing all down five or six years ago.

That’s about one-third of my upper-level employment experience, less if count parallel positions separately. Lest anyone thinking I’m preaching from a barstool or union hall.

Thanks for explaining this. However, how about you post what the hourly rate was for the lowest paid employee, whether full or part time or whatever. And then post what the actual compensation for the co-owner was so we can do the math ourselves.

[A.I.G]

@Whack-a-Mole

Thing is we know it does not have to be this way. The Walton’s are a prime example of executives being paid ridiculous sums at the expense of the people who work for them.

At the expense of the people who work for them?

Huh! Seems strange considering that Walmart receives 20 applications on average for every job opening.

So, the Waltons, who created this business in the first place, and have generates trillions of dollars of benefits for the customers and employees…are getting rich at the expense of them?

The comparison with Target seems to forget a little thing however: how many consumers chose to go to Walmart instead of Target? Why is that?

[John_Mace]

@Whack-a-Mole

I’d be willing to bet Walmart could easily improve productivity per employee. Their employees, in my experience, are some of the most uninterested, lackadaisical bunch I have ever seen in a store. I frequently find their stores messy and unkempt while Costco stores are neat and efficient. This despite Walmart having almost twice the employees per square foot (I get the extra SKU issue…nevertheless it is a problem for Walmart).

Can Walmart close the gap with Costco in this regard? Perhaps not completely but they certainly CAN close the gap.

Fewer employees paid better and doing a better job is better than numerous employees paid a pittance and unmotivated.

Sounds like you have a great business opportunity for yourself!! Alternatively, you don’t really understand how businesses work and have oversimplified the difference between the two. Did you read the whole article? Because the two stores are not in the same business. Just because they’re both “big” does’t mean they actually compete with each other for the same customer base.

[wolfpup]

Have you considered the fact that, while the two stores’ business models differ, that there are is also a deep philosophical management difference between the companies that is independent of that? Namely, that Costco is frequently cited as a progressive and enlightened management style, while Walmart is not just cited as the diametric opposite, but is frequently in the news for egregious violations of labor law. The fact that they’re in a discount business and the fact that they’ve been successful are both independent of the fact that they have a truly sucky corporate culture that is so awful that it frequently transgresses the law.

[A.I.G]

@Amateur_Barbarian

wealth cannot accumulate at the peak of a pyramid without it costing some or all of those in the lower layers. I don’t believe all “costing” is measured in purely financial terms. More significantly for my esteemed opponents, I don’t buy the blanket assertion of “mutually beneficial transactions” that would make a 1,000-person company all happy worker bees (or at any real-world level, for that matter). So if you want to argue the point in vague webertarian dogma, I’ll pass; if you want to confine the analysis to standard economic dialectic, I reserve the right to change the viewpoint.

The higher the pyramid, the more extreme the wealth accumulating at the top, the exponentially greater the [del]“fucking”[/del] “costing.” Conversely, I think there’s a minimum company size this whole discussion applies to, and when you get down to a 50-person company where the “CEO” knows every employee personally, it’s a very different picture.

Wow.

By that definition, Engineer #1 is accumulating his/her wealth at the cost of Janitor #1. If the same holds true for the CEO, then the same must hold true for every level of your pyramid.

Unfortunately, that’s not a definition of cost or wealth.

Wealth accumulates to those who contribute the most to it’s creation. Hence, no one is making anything at the “cost” of anyone else. This isn’t “libertarian” fantasy.

You’re confusing distribution of benefits, with “costs”. Someone getting 1% of the benefits isn’t being imposed any costs because someone else is getting 99% of the benefits. They are both getting benefits. Just in different proportions. The proportion of the benefits they each get is dependent on two things:

1. The inputs each places on the creation of those benefits

2. Asymmetries in bargaining power.

The only place your argument has some merit, is if you extend it into the asymmetries of bargaining power. Obviously a janitor has very low bargaining power. A CEO has very high bargaining power.

But as I said earlier, that is a function of supply and demand in the labor markets. Which means that bargaining power is endogenous to the value of the inputs themselves. It’s a circular argument: those who are better and rarer and more valuable, get a bigger share of the wealth.

There’s no company in the world that has ever turned a profit by “squeezing” those at the bottom. Because pretty soon, they’ll go work elsewhere.

I’d submit that Costco is darn close to being a model of an ideal relationship between employees and employers.

If you read up on Costco their employee turnover rate is exceptionally low, employees at the company are fairly compensated, get some great benefits (401k, generous vacation policy, health benefits, etc) and as a result are loyal, long-term employees.

And you’re forgetting that this isn’t necessarily what every company wants.

You’re assuming that having employees that stick around forever is a “good thing”. It may be in some settings. it may certainly not be in many other settings.

Case in point: Kodak, Xerox, Boeing. Having the same engineers for 50 years has cost those companies a heck of a lot, and dragged most of them to the pit of bankruptcy.

Up or out is what you want in many cases, especially the more high tech the firm becomes.

I’d be willing to bet Walmart could easily improve productivity per employee. Their employees, in my experience, are some of the most uninterested, lackadaisical bunch I have ever seen in a store. I frequently find their stores messy and unkempt while Costco stores are neat and efficient. This despite Walmart having almost twice the employees per square foot (I get the extra SKU issue…nevertheless it is a problem for Walmart).

Can Walmart close the gap with Costco in this regard? Perhaps not completely but they certainly CAN close the gap.

Fewer employees paid better and doing a better job is better than numerous employees paid a pittance and unmotivated.

You’re forgetting another issue here: where are those “dull” Walmart employees going to go work if Walmart fires them and seeks better employees?

Walmart’s business model is precisely one cut-throat low costs. To do so, it has chosen to sacrifice hiring “good” people, and instead hires the sort of people no one else will want to hire, because Walmart’s customers don’t care about service. They care about costs.

How exactly is this going to “improve” Walmart’s position…by making it a more expensive place to buy things? How is it going to improve the positions of the “dull” employees there? By being fired and replaces by “better” employees?

Imposing…your…preferences on what a company should do, is all you’re doing here.
Unfortunately for this argument, customers have spoken on what they prefer. All you’re saying is that customers don’t know what’s good for them, and they should be willing to pay a bit more for their goods to get “better” service. If they wanted that, they’d go shop at Cosco instead of Walmart.

[A.I.G]

Also, your pyramid analogy implies the opposite of what you claim. It implies that the majority of the wealth created goes to the bottom of the pyramid. There’s just a lot more people at the bottom of the pyramid.

Walmart is an excellent example of why the majority of the wealth does NOT accumulate at the top. Walmart has created, literally, trillions of dollars of value. The Walton’s “share” of this wealth is far less than 1% of the total wealth they have created.

How much wealth does Walmart create for the employees and customers it serves? A hell of a lot more than the Walton’s get!

To understand this, as I said earlier, you have to understand the difference between “profit” and “profit margin”. Walmart’s profit margin are tiny. Which means the amount of wealth the residual claimants, i.e. the shareholders of Walmart make, out of the total wealth created, is tiny. Walmart’s customers, suppliers, employees etc get the vast majority of it.

The same applies to a CEO. A CEO of a $300 billion company gets paid $10 million. That’s a number far smaller than 1/100 of 1 percent. Yet how much of the reason that company is worth $300 billion, is due to that CEO? Probably a lot more than that.

How much of the reason that company is worth $300 billion is due to a single engineer in the company, or a single janitor? A number so small it can’t be written.

[Habeed]

One problem that sucks for Dibbs, who may no longer be reading the thread, is that firing janitors and everyone else who is not part of the “core business” makes solid economic sense. This is a no-brainer economic strategy that is absolutely correct. Joe might have been able to find a job working for a third party company that provides janitors to other firms. Unfortunately, those company may specialize in hiring nothing but illegal immigrants, and thus might not offer him a job. In essence, for any business :

Any goods or services your firm needs that are available on the open market, in the exact form you need and with many competing firms offering the same services, you should “outsource” and not run in-house. Your company shouldn’t have on-payroll janitors, restaurant workers, doctors, IT technicians, auto mechanics, etc unless your company’s core business requires something that “standard” services can’t provide.

For example, if you run a bank, part of your core business is securing your client’s money and financial information. You may actually want your own in-house security if third party services are not trustworthy enough. Similarly, you may want your own in-house server cloud because you can’t trust third parties with such a critical function.

But, if you run Joes Architecture and Interior Design studio, your blueprints aren’t so valuable that you want to secure them at high cost. You would want to rent server capacity from a third party, instead of keeping it on your own computers. Hire a third party cleaning service to clean the offices and bathrooms. Hire a third party security service to monitor the alarms remotely and send armed guards if necessary. Hire third party doctors and nurses when your employees get sick. Rent the real estate your business is headquartered in so the landlord worries about building maintenance. Etc. You basically only want to hire architects and interior designers. A common modern trend is you don’t even hire secretaries - you have a third party service answer the phones and take messages, and some of the rote copying and other duties you have performed by interns in architecture/interior design.

There’s rock solid economic arguments that say that if a good or service is available on the open market, the market price for that good/service will tend to drop to cost of capital + cost of delivery + profit. If your company tries to provide the service for itself on a small scale, it will probably be inefficient or not do as good of a job as a company that specializes in providing that good or service. , and that inefficiency will cost more than the profit margin of a third party firm.

Where does this go wrong? In some cases, your company needs something that is not really available on the open market with many competitors. The specialized stuff that NASA needs to launch rockets you don’t need in other industries. In my example of a bank above, you may not be able to find trustworthy guards suitable for protecting millions of dollars provided by the local Security Co. If your Architecture and Interior design co needs special computers you can’t just order from Dell.

Or, in some cases, you may have a firm that needs such vast quantities of a particular good that it might in fact be cheaper to provide it in-house. Tesla is planning to make it’s own batteries.