You hire some guys to paint your house. Later, you sell the house and make more than paid for it. How much of the profit do you give to the painters?
Profit sharing only makes sense when paired with loss sharing. Employee ownership, for example. But “you take the risks, I’ll take the rewards” is pretty lame. It makes sense to me that there are entrepreneurs, who risk their own money and stand to gain a lot, and employees, who don’t risk anything and earn a negotiated salary or wage regardless of the health of the business. That’s the tradeoff you make as a business owner. You stand to gain much more than your labor is worth, while also risking your entire paycheck. Employees take no risk, but “only” get paid what they’re worth.
You work for a tiny company compared to the one I worked for. Most companies have targets for pay systems, but it is interesting that you don’t have a budget. If you gave every good performer would that fly, or would HR shoot it down?
I’ve done all sorts of systems of quantification, mostly around assigning numbers to goal meeting, but they were all subjective at their heart. In one Lab I was in we had to balance the contributions of software people with chemists. That’s kind of hard.
Three tier systems like yours are popular these days. Deming might not be mentioned much any more, but his influence remains. We did what we called a natural ranking system, where we bucketed people into one band if there was more than five minutes of discussion about who was better. That always worked pretty well.
Do you have a quota for C performers? I’ve been in companies that did, and the pressure on managers to sacrifice one of their people to the 5% C quota was intense. I have no trouble with the category for real underperformers, but in one case a guy got on the list because he car pooled and left at a reasonable time, and didn’t stick around for dinner and foosball throwing as was expected. That’s what started me out the door of that company. Also gigantic.
One time, no. But if you live in a mansion with a painting crew which is always freshening up the place which helps to increase the sales price, a little something might be nice.
The only people who should qualify are those who would be employees back in the good old days.
As I mentioned in some places they did cut salaries. And employees always are involved in loss sharing in the sense that some will get laid off and the rest will work harder to make up for it with no more pay.
So let’s say there are two bus drivers, Fred and Roger. They both work for Joe’s Transportation. Joe’s Transportation has a contract with Facebook, and a contract with Radio Shack.
Just so happens that Fred drives for Facebook most of the time. Roger drives for Radio Shack most of the time.
So under the union’s proposal, Fred will potentially make a lot more money than Roger, since Facebook is making money and Roger works for moribund Radio Shack. Is that fair?
Or, let’s say Roger starts filling in for sick drivers on the Facebook route. Would he get a bump in pay for those days?
Jesus, I feel sorry for Joe’s Transportation who now has to manage all of this, and deal with drivers who are pissed that they won’t be let on the lucrative Facebook route.
This is not a general profit sharing comment, it’s specific to the bus contract in the OP. The only way to guarantee higher wages for the contracted bus drivers is to specify driver wages in the contract and to require the bus company to send in monthly certified payrolls for review.* This adds administration costs to both sides of the contract and unless there are standard “prevailing wages” that can be referred to, it also requires Facebook to calculate what driver wages should be every time the contract is up for bid. Trying to stipulate higher wages in a contract adds more than those higher wages to the cost.
*To be really sure, Facebook would have to interview random drivers to be sure they were actually being paid the amounts listed on the payrolls. I know because construction contractors working on projects paid with federal funds must pay “prevailing wages” and the wage rates are updated monthly and locked in when the contract is signed. By regulation, the contracts all stipulate certified payrolls and random employee interviews.
I’ve heard inspectors (who are usually the ones doing the employee interviews) tell stories about ways that contractors tried to get around paying the contracted wage rates without actually falsifying payrolls. One inspector story was about a variation on Ravenman’s Facebook/Radio Shack scenario. They told it to show that sometimes if you only ask the standard interview questions, you don’t really verify the wage.
Yes, those are the hours they worked on the federal project. Yes, they got that wage for those hours. It wasn’t until the inspectors asked why they weren’t working full time that they found out that for every hour an employee worked on their project, the employee had to put in another hour on a different project where they were paid minimum wage.
The contracting company had decided their own wage rates, which were lower than “prevailing wage,” and they would shift people around to ensure that, over a pay period, everyone was essentially paid the lower company rate. This is not, by the way, legal. There were repercussions.
That’s really it. The owners typically are owners because they put in the money to start the business. Which is why when you start bringing in venture capitalists and other investors, you start to potentially lose control of your business.
More to the point, when Facebook gets wind of the reduced rates that Joe’s is offering Radio Shack, they will likely demand the same lower rates or cancel their contract.
After reading the article, I feel this is more of a cash grab from the bus companies and their unions. Why should Facebook or Google pay higher than the prevailing market wage for a service that is largely ancillary to their core business?
A lot of things “might be nice”. But from an economic perspective, your painting crew has already received their reward in the form of the compensation for the repeat business. Are they going to chip in if the mansion owner takes a loss on the sale? No. The painters get paid for their work regardless of the value of the owner’s property.
Yes, absolutely. A company, at its most basic level, is a group of people coming together, each bringing their own skillset to the table, with the overarching goal to build something or improve the world/mankind’s existence in some small way - whether that’s by studying the sexual habits of fruit flies or sending men on the moon doesn’t really matter.
From the CEO to the toilet scrubber, every single individual in the company (barring no-show jobs and similar) is integral to the company achieving its function - you try holding meetings when everyone’s back up because the toilets are clogged ;).
So, yes, what profits are made by the company should be shared. Not necessarily equally so, and there’s certainly room for some meritocratic arrangement there. But “I’m the boss, I make the decisions, I should get everything” only leads to Bastilles being taken in the long run.
What about losses?
n.b: I’m a strong believer in profit sharing, as a good business practice. Of course, that means loss sharing, too.
So companies should pay their employees more than they deserve because otherwise, the workers might revolt, steal from the company and burn down the country. Right. I’m sorry, but I don’t find an implicit threat of extortion a very compelling reason for profit-sharing.
For me, market rate is the operative word here. the market rate is determined by a number of factors within a legal, cultural and political background. The rate is a price that is arrived at through the interaction of various players in the market. Ultimately, the market rate is in large part the result of a power equation not a strict reward system for what people do to contribute to an organization or society; neither is it strictly correlated with how much effort, sacrifice and hard work one contributes.
This is no different than the system and equation which determines which companies succeed and profit most.
So, to me, everyone is acting responsibly and how they should act in this situation. Facebook is using the competitive power of the market to seek out the best price for the service they need - as they should be doing in accordance with their mandate to maximize return for investors.
On the other side, I think the union and workers are acting responsibly and doing exactly what they should be doing to maximize their advantage, which, for the workers means increasing their chances to have a better personal financial position.me; no different than a company trying to gain public support and advantage from the public to achieve their ends.
I don’t see any basis for an overall ethical argument concerning the stances taken by those involved in the situation here. Facebook will weigh their options according to the extent to which it is to their advantage to capitulate in order to maintain public favor. Ultimately, the reaction of the public will probably play a part in this.
Apologies to anyone who reads this and finds it a difficult to understand; I did my best.
Define “deserve”.
In the words of the philosopher Eastwood, deserve’s got nothing to do with it.
It’s not really an implicit threat, it’s just a natural reaction when the majority of the people live in squalor/economic precarity while an oligarchy of elites controls and owns everything. People born into these situations start wondering why that is and what they did to deserve it (i.e. nothing), what they can do to remedy their lot in life (i.e. usually nothing) and then they get fookin’ angry.
As well they should. As I said before that in the meat of my post, there’s a strong ethical reason why profits should be shared beyond that simple fact of life that the downtrodden don’t necessarily enjoy been down, or trodden.
@John Mace : sure. Ideally workers should have a stake in the company they work in/with. Joint ownership by the workers is eminently desirable. Indeed, that’s how most small companies get off the ground and attract talent despite not having much capital yet.
Course said talent often only wants to be on the ground floor so that in time they get to be part of the “I’m the boss, I get everything” crowd when all of the actual work is done by unpaid interns and temps down the line, but hey :o
No, most small companies don’t. You’re thinking of tech companies, which make up a tiny fraction of small companies-- most of which are things like retail shops, plumbers, and other tradesmen who employ a few workers.
And since most small companies fail, most workers would be worse off with profit sharing. It has to be voluntary.
Not just tech companies (I was also thinking of some TV shops I worked at, which I suppose I sort-of tech, but mostly not), but yeah, you’re right, I forgot about retail shops and small-scale tradesmen.
Doesn’t sound like a direct employment situation to me. More like a contractor or vendor.
Is it normal to profit-share with vendors/contractors?
Since we’re discussing morality here, deserve absolutely has something “to do with it”. “Deserve” is what workers would get in a market free of government regulation and violence. I don’t believe that someone born today is entitled to the fruits of other people’s labor, and saying that most people live in squalor or under an oligopoly is just baseless hyperbole.
You need to think about what downtrodden means. There will always be people who are poor compared to the mean, no matter what the mean income is. But almost everyone, and especially people who are employed, live lives of luxury compared to what once was. They wouldn’t be the proletariat if transported back to revolutionary France; they’d be the bourgeois.
If an employee said “give me some money from the register or I’ll burn down the store” everyone would call the cops. But if all the employees said “give us money or we’ll burn down all the stores” you’d call it acceptable. How does threatening the use of violence to take what doesn’t belong become ethical when many people do it?
There are a number of Dilbert cartoons that riff on the fact that in most company cultures, contractors are considered outsiders to such an extent that there are sometimes humorous prohibitions against their use of any company resources. There’s one where the contractor has to bring in an oxygen tank because he’s not allowed to breathe the company air. 
Hyperbole aside, this does reflect a reality where contractors are simply regarded as independent businesses from which the company is purchasing services at a set rate, and are entitled to nothing that employees may get beyond said rate of payment. If they have specialized skills they may get paid a lot more than typical employees, or not, based on market factors.
So, yes, I agree with you, whatever one may think of profit sharing, it’s irrelevant in the context of contractors and in the example given in the OP.
While I disagree with the attitude of the bus drivers in this instance, I think you have “deserve” confused with “as little as possible”.
And I think you have “as little as possible” with “the lowest rate required before skilled and competent resources decide that there are better business opportunities elsewhere”.
IOW, no one held a gun to someone’s head and forced them to become a bus driver. Now maybe engineer at Facebook, one of the most competitive jobs to get into on the planet might be out of their reach. But there are certainly other jobs out there that pay more than a bus driver. There are also places where one can be a bus driver that doesn’t have as high a cost of living as Palo Alto, CA.
That strikes me as a pretty unsympathetic view of the realities that many people are faced with. Given family situations, education, age, and many other factors, not everyone has job mobility or geographic mobility, nor skills that attract high salaries or readily available means of acquiring them. That’s just the way it is, and that’s why we have people doing shitty jobs, and why shitty jobs get done. But the fewer options people have, the more they are vulnerable to exploitation, and the more they may require the protection of government regulation like minimum wage and workplace safety and standards laws.
What I was responding to there was the preposterous assertion that without government regulation, workers would get what they “deserve” – i.e.- fairness and justice would prevail. Yeah, just like it did in the unregulated workers’ paradise in the early days of the Industrial Revolution – on both sides of the Atlantic.
That said, I believe the bus drivers should get a fair and competitive living wage commensurate with the work of driving a bus, and that’s it. Just because they drive rich people around or are contracted to a rich company doesn’t make their work any more valuable. I don’t think they or their union would be happy with a salary cut if they were driving poor people around.