How Did Walmart Get Cleaner Stores and Higher Sales? It Paid Its People More

[Slava]

Originally Posted by GGG

Yes, in publicly traded companies some restriction on executive pay should exist because the average investor does not have the knowledge base to enact change. It's like the arguememt that we don't need food safety rules because the reputation of companies would suffer if people get sick or we don't need to mandate seat belts or day time running lights in cars.

I'm not sure what such legislation would look like.

http://www.wsj.com/articles/ceo-pay-...nce-1464880505

The above source isn't the best link to good peer reviewed research but it does show the lack of correlation.

Well the simple solution here is "say on pay" resolutions. Because the shareholders own a business interest in the companies they can vote on resolutions at the AGM. If the business-owners (shareholders) think that the CEO or board is overpaid they can do something about it. There is really no need to legislate this.

[iggy_oi]

Originally Posted by Delgar

There are very good reasons the CEOs make what they make. First, they aren't paid an hourly rate they'll have a salary, which by itself is usually in the millions. But then they have all kinds of incentives to grow the company and increase its value.

The decisions made by the CEO, in the case of McDonalds, have literally billions of dollars of consequences each and every month. Contrast with the decisions the guy flipping burgers makes and how much he can impact the corporation's bottom line --- which is almost zero. Also, anybody can flip burgers but to run a megacorporation takes a rare breed.

Ultimately it is the shareholders who decide what compensation they are willing to pay to their executives. Some companies have had shareholders who have grouped together to lower executive salaries and have had some success.

The hired CEOs have to decide the optimal amount to pay their staff to keep their company viable and profitable. Shareholders don't set employee compensation but if they did I don't think you'd see much difference.

Edit: And some of the best CEOs take zero salary at all. They still make massive multiples over the front line workers.

I don't think anyone is questioning why CEOs make more than their employees, I think people question why they are making so much more. Does it not seem strange that a company will pay one employee more money than they'll ever be able to spend while another one is compensated at a level where they can't even afford the basic necessities of life? Also why have CEO salaries grown exponentially faster than middle class worker salaries? This uneven inflation contributes to many economical problems.

[Slava]

Originally Posted by iggy_oi

I don't think anyone is questioning why CEOs make more than their employees, I think people question why they are making so much more. Does it not seem strange that a company will pay one employee more money than they'll ever be able to spend while another one is compensated at a level where they can't even afford the basic necessities of life? Also why have CEO salaries grown exponentially faster than middle class worker salaries? This uneven inflation contributes to many economical problems.

I'll take a crack at it. How about "level of responsibility", or maybe "some positions are easily replaced and others are very difficult to replace"?

[iggy_oi]

Originally Posted by Slava

Well the simple solution here is "say on pay" resolutions. Because the shareholders own a business interest in the companies they can vote on resolutions at the AGM. If the business-owners (shareholders) think that the CEO or board is overpaid they can do something about it. There is really no need to legislate this.

Problem with that is shareholders aren't typically given all these facts at a shareholders meeting. They are given an outline of what the plan is for the future and told how they will benefit. I highly doubt CEOs would tell them "under this plan you will see a 2.5% increase on the returns for you investment, but if you cut my compensation in half you'll see 2.7% increase"

[Slava]

Originally Posted by iggy_oi

Problem with that is shareholders aren't typically given all these facts at a shareholders meeting. They are given an outline of what the plan is for the future and told how they will benefit. I highly doubt CEOs would tell them "under this plan you will see a 2.5% increase on the returns for you investment, but if you cut my compensation in half you'll see 2.7% increase"

Not true at all. If there is a resolution to be voted on, the shareholders are given a ballot. We've seen this increasing in recent years, specifically on these say on pay resolutions. Shareholders have full disclosure on compensation and full information on the financials.

In fact, that is one of the more amusing things about this article. Its gets into a question along the lines of "can a company actually increase its profitability by increasing wages?" and near the bottom of the article the answer is of course "no". It costs more money and decreases profitability. They've tried to dress that up, but if you look at the public financials for Wal-Mart the profits have decreased. That doesn't mean they won't rise again, and it doesn't mean that they've increased due to this action...but profits are down. My point here is that you have full information available though.

[iggy_oi]

Originally Posted by Slava

I'll take a crack at it. How about "level of responsibility", or maybe "some positions are easily replaced and others are very difficult to replace"?

How often do you see a business story of a company struggling to replace a CEO? I'm not saying it doesn't happen, just that I haven't heard any recently, which suggests to me it is not as difficult as you are suggesting. The responsibility level is no doubt much higher than the lower positions, but I disagree with the argument that it justifies the extraordinary difference in compensation. The CEO should make more, I just don't agree that it should be 10k times more, unless of course all the employees are being well compensated, if you have minimum wage earners in your companies ranks I don't believe that the employees are being well compensated.

[GGG]

Originally Posted by Slava

Well the simple solution here is "say on pay" resolutions. Because the shareholders own a business interest in the companies they can vote on resolutions at the AGM. If the business-owners (shareholders) think that the CEO or board is overpaid they can do something about it. There is really no need to legislate this.

How often do say on pay resolutions come up?

Why doesn't executive pay track with performance?
Why if executive pay doesn't track performance do people keep getting paid the way they do

This is not an example of a functioning marketplace.

[GGG]

Originally Posted by iggy_oi

The math is not questionable at all. $7000/hour divided by 1000 employees is $7/hour that could be paid to those 1000 employees. The hourly rate for the CEOs in that graph were calculated by dividing their salary by 60hours per week for 50 weeks in a year, So if those 1000 $8/hour workers are working less than 60 hours per week they could actually afford to pay more more than 1000 workers $15/hour.

If paying out ridiculous amounts of money to executives doesn't not affect the ability to pay their employees, why would paying their employees a little bit more have an effect? I'm asking you in all seriousness, I'm sure even the posters who are on the opposite side of my position are a little confused by this statement.

It's misleading when there are 2.1 million employees. Paying 1000 of them more money is absolutely meaningless. Don't say pay 1000 employees $8 per hour more pay 2.1 million employees .7 cents an hour more

Don't attack executive pay because employees aren't paid enough go after executive pay because there is no evidence that paying them what they do makes a difference.

[Slava]

Originally Posted by iggy_oi

How often do you see a business story of a company struggling to replace a CEO? I'm not saying it doesn't happen, just that I haven't heard any recently, which suggests to me it is not as difficult as you are suggesting. The responsibility level is no doubt much higher than the lower positions, but I disagree with the argument that it justifies the extraordinary difference in compensation. The CEO should make more, I just don't agree that it should be 10k times more, unless of course all the employees are being well compensated, if you have minimum wage earners in your companies ranks I don't believe that the employees are being well compensated.

It's not that these people are irreplaceable of course, but how easy is it to find a new CEO as compared to a new cashier? It's not even close to a sensible discussion, and I just want to bail on this.

Originally Posted by GGG

How often do say on pay resolutions come up?

Why doesn't executive pay track with performance?
Why if executive pay doesn't track performance do people keep getting paid the way they do

This is not an example of a functioning marketplace.

The short answer is that they come up as often as shareholders bring them forward. They have come up in Canada specifically for the major banks in the recent few years. And executive pay does track performance...I don't even know what to say. All the public companies have full disclosure on salaries and shareholders have complete disclosure.

I just think that the general public doesn't understand a lot of these processes and issues, so they assume that nothing like this exists. Even shareholders get their materials, never read them or open them and fail to vote. So what can be done? If you're part owner of a business and don't exercise your rights as a shareholder, then how upset can people expect you to be with the situation?

[iggy_oi]

Originally Posted by GGG

It's misleading when there are 2.1 million employees. Paying 1000 of them more money is absolutely meaningless. Don't say pay 1000 employees $8 per hour more pay 2.1 million employees .7 cents an hour more

Don't attack executive pay because employees aren't paid enough go after executive pay because there is no evidence that paying them what they do makes a difference.

The point I was trying to make was that there is a lot a of fat that can be trimmed in larger companies, yet it's always the same excuses that we hear of how badly it will affect people whenever lower level workers want a raise.

[Locke]

Originally Posted by Gozer

You.

There is a wonks policy position (that you seem to hold) that increasing minimum wage is detrimental to private business. It behooves an employer to support this position.

Okay, assuming this to be true I'm not approaching this from the perspective of an employer, I'm approaching it from the perspective of a consumer.

Be that as it may though, is that assertion not true? Is an artificial increase in wages not detrimental to private business?

You say: 'Management makes too much!'

Thats not a point that I'm inclined to disagree with you on, but it also doesnt really reflect on this particular aspect of business either.

'Private Business.' Thats quite the hefty term. That sort of lumps Joe's Hardware in with Wal-Mart while one has significantly more control of their costs due to purchasing power, diversification and just general overall revenues and cash-flows than the other and can afford certain increases and reduced revenues much more than the other.

Ceteris Paribus, an external force arbitrarily increasing a cost of doing business (in this case minimum wage) to an extreme that takes it beyond what the market deems reasonable so quickly that businesses are not afforded the opportunity to transition smoothly, is that not detrimental to Private Businesses? And even moreso to those that cant control their costs to the same extent as others?

And if something is detrimental to private businesses is that ripple effect not felt through subsequently reduced tax revenue and social costs?

And please dont trot out the tried and tired defense that 'if a business cant make it under these regulations then screw those heathen bastards!!'

Paying people more isnt the issue, its what you're paying them for and why.

Or are we back to businesses just firing people to garner their own Political Capital...sorry...Taxable Economic Pressure?

[GGG]

Originally Posted by Slava

It's not that these people are irreplaceable of course, but how easy is it to find a new CEO as compared to a new cashier? It's not even close to a sensible discussion, and I just want to bail on this.



The short answer is that they come up as often as shareholders bring them forward. They have come up in Canada specifically for the major banks in the recent few years. And executive pay does track performance...I don't even know what to say. All the public companies have full disclosure on salaries and shareholders have complete disclosure.

I just think that the general public doesn't understand a lot of these processes and issues, so they assume that nothing like this exists. Even shareholders get their materials, never read them or open them and fail to vote. So what can be done? If you're part owner of a business and don't exercise your rights as a shareholder, then how upset can people expect you to be with the situation?

But is it reasonable to expect the public to know this? If I invest in 10 companies should I be spending time on executive pay? I'd argue it's a waste of my time as it would affect earnings per share by .001 cents. So from a profitability standpoint it isn't worth me spending the effort.

On executive pay not matching performance I am saying that evidence shows paying more money for a CEO doesn't get you better results. There is no difference (and actually a negative correlation) if you pay some one 30 million vs 2 million.

One though I had is that you could get rid of minimum wage if you capped CEO pay at 100 times the lowest paid employee. The problem being that companies would contract out all low paying jobs to get around this loop hole.

But philosophically I don't think the labour of anyone one person regardless of responsibility level is worth more than 100 times that of someone else's.

At a $10 an our minimum wage this would effectively cap executive pay at 2 million per year.

[GGG]

Originally Posted by iggy_oi

The point I was trying to make was that there is a lot a of fat that can be trimmed in larger companies, yet it's always the same excuses that we hear of how badly it will affect people whenever lower level workers want a raise.

To give everyone a $1 per hour wage costs roughly 2 billion per year. Is there Billions in fat to trim? Also how can you complain that companies make excuses when you are doing the same thing by minimizing the costs companies will face.

[Azure]

Originally Posted by GGG

Where does the 11 billion dollars to pay for that come from?

You do realize that is only 2% of their yearly revenue, right?

Perhaps better wages could lead to 2% growth.

[Oling_Roachinen]

Originally Posted by iggy_oi

The math is not questionable at all. $7000/hour divided by 1000 employees is $7/hour that could be paid to those 1000 employees. The hourly rate for the CEOs in that graph were calculated by dividing their salary by 60hours per week for 50 weeks in a year, So if those 1000 $8/hour workers are working less than 60 hours per week they could actually afford to pay more more than 1000 workers $15/hour.
You're giving $8/hour more to 1000 workers. Which is great.

What about the other 2,099,000 workers for Wal-Mart though? It's not that your math is wrong, it's that it isn't painting at all a clear painting. As GGG explained a CEO working for free for Wal-Mart would have negligible affect on the workers pay.

Originally Posted by iggy_oi

If paying out ridiculous amounts of money to executives doesn't not affect the ability to pay their employees, why would paying their employees a little bit more have an effect?

Well, first we need to distinguish what a little more is. But the differences here, for a place like Wal-Mart, there's 2,100,000 employees working millions of work hours. Of course not all would be affected by a minimum wage increase that your implying, but probably (unfortunately) a good portion would be. Let's say very loosely and just to get the point across, that the average worker at employee makes 8 dollars and works 30 hours a week. To get that up to 15 dollars an hour, that's 2,100,000 employees * 30 hours * $7/hour difference for a $441,000,000 difference. In a week. You should start to see how that outrageous amount to executives is a drop in the bucket compared to the overall cost of the work force.

And the difference, as already stated, between a CEO making a ton and a minimum wage earner is that the CEO can have drastic, multiple billion dollar ramifications with each decision he or she makes. That minimum wage worker's biggest decision might be to put the Pokemon toys at the start of the shelf instead of the Star Wars one.


Now, I'm not arguing for or against minimum wage hikes. (If I was, I'd probably be arguing for). I'm just saying that the CEO making a lot of money is not a very good argument, at least not to me.

[Azure]

Also, it is interesting to note that when this subject comes up, the same companies are always targeted.

Some of our suppliers are billion dollar companies too, and their CEOs make a lot of money. But, they invest a lot of time and effort into their employees including full post secondary, health care, good wages, career advancement etc, etc. The post secondary investment is done by getting high school aged kids into apprenticeship programs. Apparently this is common in Europe.

Growth? Steady 3-6% per year.

[Slava]

Originally Posted by GGG

But is it reasonable to expect the public to know this? If I invest in 10 companies should I be spending time on executive pay? I'd argue it's a waste of my time as it would affect earnings per share by .001 cents. So from a profitability standpoint it isn't worth me spending the effort.

On executive pay not matching performance I am saying that evidence shows paying more money for a CEO doesn't get you better results. There is no difference (and actually a negative correlation) if you pay some one 30 million vs 2 million.

One though I had is that you could get rid of minimum wage if you capped CEO pay at 100 times the lowest paid employee. The problem being that companies would contract out all low paying jobs to get around this loop hole.

But philosophically I don't think the labour of anyone one person regardless of responsibility level is worth more than 100 times that of someone else's.

At a $10 an our minimum wage this would effectively cap executive pay at 2 million per year.

Well I just don't know what you want? The mechanism is there and works just fine, but you now give the argument that basically amounts to "who cares, its not worth my time." Then in the next breath you explain why people should care and be concerned. So I really don't know...there are options and obviously its not a big enough deal that people care.

[GGG]

Originally Posted by Azure

You do realize that is only 2% of their yearly revenue, right?

Perhaps better wages could lead to 2% growth.

That might be possible at some points in the wage spectrum for a company that is drastically underpaying

There EBITD is 33 billion so each dollar increase in wage would cost them 6% of their profit. Though you are correct at some points on the curve you could increase profitability by increasing Salaries.

One reason for increased profit of stores by raising wages is that most of the money would just be recycled back into Walmart. Its the same economic argument that the best form of stimulus for an economy is giving poor people money because they spend it on consumables instead of saving it or spending outside the country.

[OMG!WTF!]

The other thing is that people are only looking at the extremes. Average CEO pay in Canada is about 140k. Average retail is about $16. It's often a case of people looking at a dozen crazy top 12 CEO salaries and then suggesting everything needs to change so this tiny sample can feel the justice.

[GGG]

Originally Posted by Slava

Well I just don't know what you want? The mechanism is there and works just fine, but you now give the argument that basically amounts to "who cares, its not worth my time." Then in the next breath you explain why people should care and be concerned. So I really don't know...there are options and obviously its not a big enough deal that people care.

My issue is that we have an inefficient market. I don't like inefficient markets. The argument for high CEO pay is that they bring results and have responsibility. This is not borne out by the evidence. So the reason that the CEOs get paid the way they do is because they can and there is no incentive to fix it.

Its an inefficient market with perverse incentives. I don't like those. By tying executive pay to minimum wage you could incentivise higher paying front of the line workers.