Gravity Payments, a credit-card processing company, announced their intention to raise every employee to $70,000 per year at a minimum. The ironically named CEO, Mr. Price, read somewhere that people paid $70K per year are somehow happier than those paid less than $70K. Congratulations to all those lucky employees. Let the experimentation of the free market begin. What could possibly go wrong?
Let's begin by examining what will go right? Average everyday employees will be richer. If the stated goal is to increase happiness, then this plan will surely be successful. Lowly paid clerks will never quit because the alternative - the similar business down the street - will only be paying half that amount. Which brings us to the first rule of labor law. If your current company is the only one willing to pay you as much they do, then you are being paid above market rate. This goes for Detroit auto workers and English professors as much as it goes for clerks at Gravity Payments. When you buy a house, you are by definition the highest bidder and it is worth that to you alone. The moment you own the house, there is no one left on the planet willing to pay that much. Suddenly your house is worth only as much as the next bidder was willing to pay.
Will gravity Payments be able to influence the market for clerks? No. So, if anything, there will be piles of resumes from low-paid clerks trying to get a "golden ticket" by becoming the next hired clerk. Will the current clerks, aware that equally or better qualified clerks are sending resumes daily, suddenly pick up their productivity to make sure they don't lose their over-priced job? Hopefully, but there is no guarantee since their huge salary increase was not tied to quality or productivity improvements. If they feel comfortable in their job - and it would be a public relations nightmare to fire all the highly paid clerks in favor of clerks will to be more productive for the same high wage - then likely increases in wage will not find increasing productivity in proportion. Why not? The second rule of labor. A guaranteed salary never gave anybody incentive to do an exceptional job.
Speaking of incentives, what about the office manager already making $70K. What about the salesman making $105K. Do they get an increase? Undoubtedly, the manager would lose happiness if they are making the same as the lowly clerk. And what does it mean in terms of a raise? Should the manager make $35K more than the clerk as they had previously or should they make double the clerk's salary... as they had previously. The salesman at $105K was making both $70K more than the clerk and triple the salary of the clerk. A salesman, whether good or bad, can make or break the company. A salesman is paid more because they are worth money. A clerk is at worst capable of ruining the week. The salesman can drive the company into bankruptcy. The risk and reward is greater for the salesman. That is why the salesman is paid m ore. And if the weight of additional salaries is carried anywhere, it is on the backs of the sales people. They need to be more productive, unless the whole scheme is not productivity driven. And that brings back to the third rule of labor: Wages need to be tied to productivity because without productivity, there are no wages. |
