Not That Hard

For some time now I’ve been saying, both in this space and in real life, that while I have no quarrel in principle with the $15/hour movement, I don’t believe that the people involved with it have really considered the economics of the situation. As a business consultant and a business teacher I don’t buy into any of the “robber-baron” mythology; business owners are driven by the desire (and occasionally need) to make money, not to make the lives of their employees difficult. No one is saying that capitalists are a bunch of saints and angels, but the concept of them as comic-opera villains, plotting the destruction of their workers, is every bit as silly as the far-right mythos, in that most people would rather work for a living than exist on handouts. Unfortunately, this also cuts both ways…

In most unskilled and labor-intensive jobs, people are used because they are cheaper to recruit and train than it would be to equip the business with automated equipment capable of doing the same tasks. There are exceptions, of course – some civic-minded companies will retain sub-optimal production systems, either out of concern for the communities in which they are based or because without job income their customers won’t be able to purchase their products. But for the most part, if any part of a company’s operations can be replaced or reorganized in such a way as to lower operating costs or increase revenue, one should expect them to do so…

The corollary, and the place where people seem to be having conceptual issues, is that any artificial change in the relative costs of different methods will also impact the desirability of operational changes, such as automation. That is, if the Federal Minimum Wage is increased to $15/hour, the breakeven point for new equipment will rise with it. To take a common example from the last few years, once it became possible to replace a crew member making $7.15 per hour ($14,872 per year, plus taxes and benefits where applicable) with a machine that could fill soft drink cups automatically for less than $14,800 per year, many of the larger fast food chains began buying such machines…

Even worse, however, are the automated ordering kiosks that McDonald’s has been testing, and that Wendy’s is apparently going to start installing starting later this year. Not every fast food location needs to have a dedicated person making drinks on every shift, but every such operation does require order takers whenever it is open for business. For a 24-hour location, that’s 8,760 hours per year, or a whopping $131,400 just on salaries for each available register position per calendar year. When you add in recruiting costs, training costs, retention costs (fast food counter positions turn over several times per year), employee-related shrinkage and accidents, and the aforementioned taxes and benefits, it becomes somewhat surprising that the automated kiosks haven’t already reached widespread deployment…

Now, no one is suggesting that people don’t deserve a living wage in return for a day’s work. Even to a business leader, the concept that you can’t sell goods and services to consumers if there aren’t any who can afford your products and/or services is fairly elementary. What appears to be getting lost in this conversation is that if costs rise, but revenue does not, eventually the company will go out of business. One could argue that if senior management and the stockholders were to accept lower incomes the company could divert those funds into higher salaries, but that isn’t realistic either; if investments with higher returns exist then the stockholders will invest in them, and if higher salaries exist then the top management personnel will pursue them. Unless you are planning to run the entire economy by government commandments – and the large-scale experiments on command economies conducted during the 20^th Century did not end well – then any artificial increase in costs is not the long-range solution to this problem…

And while finding a workable long-term solution to this problem may be difficult, identifying the problem and realizing that a simple artificial salary (cost) increase would not work really wasn’t that hard…

The Ethics of Benefits

In all of the recent controversy over whether companies in general should be excused from having to pay for employee benefits that violate the company’s religious beliefs – or those of the people who control the common stock, anyway – one of the things that doesn’t seem clear is what a company’s obligations to its employees actually are. These days even arch conservatives seem to be okay with the idea that everyone deserves adequate medical care, assuming that no one asks them to pay for it. And I have already written in this space about how benefits are really part of a company’s compensation package, and how offering better ones is really no different from paying higher salaries than a competing firm. But the question of what constitutes a critical quality of life issue and what is just something that people would enjoy getting someone else to pay for isn’t always clear. I thought we should take a closer look…

First off, let’s consider the various health-related benefits. It may seem fantastical at this point in history that some companies don’t offer even the most basic healthcare coverage, but if all jobs came with health benefits there wouldn’t have been any need for the Affordable Care Act in the first place. Even here, however, it isn’t always clear what the critical factors are. For someone who as trouble getting around, the ability to select your own physician (so you get to choose a provider nearby your house) may be vitally important; for those with greater mobility it may not be. People with chronic conditions may need access to specialists, or want to see a doctor who is already familiar with the progress of their disease, while somebody whose primary health issue is limited to patching up their parasailing injuries may not care who is applying the bandages and painkillers…

As difficult as that is, it gets worse when we move into things like dental and vision benefits. If you need new glasses every year, then vision coverage is very important; if your eyes are 20/20 you may not care about this. Life insurance can be of relatively little use to someone who is single and childless; death and dismemberment coverage is critical for anyone who works with any kind of heavy machinery, but not so much for someone who never uses anything more dangerous than a copier. By the same token, someone who is relatively healthy may regard a time bank of sick days to be a nuisance, while somebody with a chronic health problem may need those days to avoid losing their job, and management may not want to offer them at all…

Things become even more extreme when we move into other kinds of employee benefit. For someone without children subsidized day care and personal days to deal with school/PTA meetings, soccer games, taking children to the doctor and what have you may seem like the company is punishing (and in some cases, fining) them for not having families, by making them do the family peoples’ work and lowering the pool of funds available for benefits they could use. But to a single parent trying to care for multiple small children on a relatively low income such benefits may be the difference between survival and succumbing to poverty – and rescinding them (or just not offering such benefits in the first place) seems cruel. The same could be said for tuition benefits for someone trying to escape from dead-end jobs, or even about the free turkey and pie giveaways we used to see at Thanksgiving and/or Christmas in some companies, in the case of a disadvantaged family that will otherwise be feasting on macaroni and cheese with puffed cereal on the side…

The more we consider this issue, the more it seems as though one person’s critically-needed benefit is another person’s wasteful boondoggle or inappropriate entitlement. Which leads me to ask the question: What do we, as employers, have an obligation to supply to our employees? Do we owe them more than the agreed-upon wages that we feel are fair compensation for the work that we are requiring them to do? If we have an ethical responsibility to provide the necessities of life, who gets to decide what things are really necessary and which are merely desirable? Happy and healthy employees are more productive, and ultimately lead to a more profitable company – provided that the costs involved in making them that way don’t exceed the increase in the firm’s income. But at what point does something stop being a basic necessity of life and become an inappropriate use of company funds?

It’s worth thinking about…

The Ethics of Fitness Programs

Let’s imagine that you work for a company that offers an employee discount on everything they sell in their retail stores; say, 20%. Let us further imagine that the company makes a whole range of fitness and wellness programs available to its employees, either at no charge or at cost. Assuming that there are no other barriers that would prevent any employee from using any or all of these programs, the question is should the company offer incentives to people for using the fitness and wellness programs, losing weight, and bringing their body-mass index (BMI) into standard acceptable ranges? Incentives beyond the obvious benefits of better health, lower medical bills, a longer life, and so on? And, if they do, does this constitute discrimination against people who can’t or don’t want to use such programs or can’t/don’t want to conform to the BMI standard for correct weight?

Before you answer, consider that (as reported by the “Consumerist” website), Whole Foods is doing exactly that; offering a larger employee discount to people with lower BMI ratings – which the company provides, free of charge. The original employee discount was 20%, and the company has presented the program as an extra 10% off for anybody who can achieve their “healthy” BMI rating, but this still raises a number of ethic questions…

On the one hand, there’s no doubt that some people are naturally more able to comply with this body mass standard than others – be it because of an active metabolism, a relatively low natural fat content, a love of sports or exercise, or many other reasons. This policy is therefore offering a greater benefit or perk to those people, while requiring much greater effort from other people to receive the same benefit, and withholding it altogether from still others. This is especially problematic in the case of individuals who do not conform to the mainstream BMI rankings. In my case, for example, the “healthy” BMI number for a man my height would require a weight I have not seen since high school (and could not safely reach under my circumstances), yet I would still be denied the higher discount rate if I fail to reach it. The same problem would occur in the case of someone of high BMI rating who can’t exercise or lose weight because of a disability, but would still like to receive the discount and eat healthier food…

On the other hand, there’s really no arguing with the fact that people who are fit will, in general, work more productively for more years while costing the company less in both health benefits and working days lost to fitness-related illness. Therefore it is definitely within the company’s interests to pay their employees to achieve and maintain better health. Certainly, there would be no controversy over the company paying employees a bonus for better or harder work, which means that paying them extra to maintain their physical condition so that they COULD do better or harder work isn’t exactly outrageous. Which leads me to pose the following questions: Does the company have the right to reward its employees for maintaining a more utilitarian physical condition? Can they incentivize people to achieve a lifestyle that benefits the employees as well as the company? Or are they required to provide all of the same compensation, including perks, to all personnel, regardless of physical condition or the consequences thereof?

It’s worth thinking about…

Golden Coffins

According to a report in the Wall Street Journal, if Rupert Murdoch, CEO of News Corp. were to pass away this week, the company would immediately pay death benefits to his estate in the amount of $1.37 million. That’s right, folks; Mr. Murdoch’s heirs would receive an extra $1.37 million US, just because he died while still employed there. Most of us working stiffs have some sort of minor death benefit – usually just enough to cover funeral expenses, unless we want to pony up the premiums ourselves. But Rupert Murdoch, a multi-billionaire, is getting a death benefit equal to roughly 30 years of my salary. It sounds preposterous, doesn’t it? Until you realize that the President of News Corp. (57-year-old Peter Chernin) is slated to receive $5 million in company-funded life insurance and $32 million in other benefits if he passes away during this fiscal year…

Benefits of this type are generally known as “Golden Coffins,” and are justified the same way every other outrageous Executive perk is justified: as being necessary to attract and retain the best people. And to some extent this might be true; if you can get a $300 million benefit from Company A versus a $50 million benefit from Company B, for doing the same job, you’d probably go to work for Company A, wouldn’t you? The real question here is what, exactly, these executives do that is worth paying them salaries and bonuses in the hundreds of millions of dollars in the first place. Especially when you consider that said executives will be dead at the time these benefits are being paid out…

Consider the case of Brian Roberts, CEO of Comcast, whose $298 million dollar death benefits including continuing his salary and benefits for five years after his death. Or consider Disney’s Robert Iger, who will receive $62.4 million including three years of his salary. Or Charles Schwab, founder of the firm which bears his name, who will receive $3.7 million per year for 15 years for the license of his name as part of the $64.5 million he will receive after he passes away. Or, most amazing of all, consider Eugene Isenberg, CEO of Nabors Industries, who will receive $263.6 million in severance pay when he dies. No matter how good Mr. Isenberg is at his job, it’s difficult to fathom why he should be paid the equivalent of employing 186 people for 30 YEARS EACH at my current salary just for dropping dead…

The people who are advocating CEO compensation reform call these arrangements the ultimate example of not paying for performance, and in many ways they are quite correct. Some CEOs (and their apologists) excuse such arrangements as being based on the company’s stock price: since the death benefit is based on how well the company is doing, this supposedly gives the CEO an extra incentive to maximize stockholder value. Critics will quickly point out that every CEO is being paid to maximize stockholder value already, and many of them are being paid hundreds of millions of dollars to do so; if they want to leave 9-figure fortunes for their heirs they can surely afford to buy their own life insurance…

Personally, I’ve never had any issue with “pay for performance” programs; if the only change to your company was a new CEO, and your company’s performance improved by $700 million that year, I see nothing wrong with offering that individual a few percentage points of the improvement. Provided, of course, that he or she gets no bonus in a year where performance deteriorates, and is fired if that performance continues to degrade for several additional years. And personally, I would prefer to be worth more to the company (and my heirs) alive than I am dead. But as a taxpayer (and in some cases as a stockholder as well) I have to question how much these outrageous death benefits really contribute to the health of the company…