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Are we Trashing the Family Legacy?

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April 25, 2011 – Comments (1)

Board: Macro Economics

Author: washcomp

As some may know, I have been looking for some time for a graceful way to retire, yet protect the jobs of my employees. Especially in times like this, small business sales are a challenge. There are two philosophical ways to run a small business. The first, much in style, is to build it quickly by attracting huge revenue (at the frequently at the expense of profitability) and sell it at a premium as a "growth" company). It is started with this transaction in mind and all business decisions are made in an effort to raise the sales price. The second method of running a small business is as a "lifestyle" enterprise, where reasonable profit is generated over time, but growth and its associated risk is not the primary focus. This second method has kept me able to live the lifestyle I chose over much of the nearly four decades that I have followed this route. As this method does not tend to "enhance value" in the way the first sometimes does (if it doesn't crash and burn first), it's a bit rough to find a buyer. For the past year or so, I have essentially been working for my employees, rather than the other way around, but have been reluctant to shut down operations because of my reciprocating their loyalty to me (all the key employees have been working for me for a decade or more).

Anyway (I'm under NDA, so I can't go into details), a pair of guys, somewhat younger than me (with the enthusiasm that I had at their age) have made me an offer, with the assurance that all employees, benefits, etc. will be maintained. Obviously, they will be at liberty to do what they want, but I think they realize that turning too many knobs at the same time on a complicated system is not a good idea. While the offered price is far less (in my opinion at least) than the "fair market value", it is enough that I have accepted their offer with a close date of the end of June. Hopefully it is a win-win-win for me, them and the employees.

Anyway, in the process of their due diligence, I had to go over all sorts of records and a couple of interesting documents came to the surface. In a convoluted fashion (which I won't bore you with), the origins of the business date back to my grandfather opening a previous iteration in 1912. I came across the first dollar bills that he took in (which are nearly the size of a #10 envelope, redeemable in silver, which just shows how the dollar has shrunk.

More importantly, I came across his original payroll ledger from 1912. This was in the days before calculators and, as an aid to calculating pay, there is a chart inside the front cover for calculating weekly and hourly pay. This was a commercially published book for this purpose (it wasn't his notes).

There are a series of 18 columns at the top of the matrix with wages that run from $.25, increasing by increments of $.125 all the way to $2.375 (I'm using decimals, but these are 1/2 cents).

The left column is number of hours worked and you find the intersection of the cost and the hours to calculate a day's pay.

Now here's the important part: The wages on the top of each of those columns is PER DAY, not per hour. The number of hours required to hit that number is 10. Which means that for the lowest pay scale, someone was working for 10 hours to make $.25 and the highest scale per 10 hour day was $2.37.

There is another chart to calculate the wages per week, if that's how employees are to be paid and the top row lists from $1 across the columns to $18 per week. The number of days to hit that lofty pay was six days per week.

This would indicate that a well compensated worker, working a 60 hour week would earn $18 before they "fell off the table" presented to do the calculations

He started with four employees:.

George earned $4.50 for working 9 hours for 6 days
Selby earned $4.00 for the same
Irving earned $4.30 for the same
Adolf (I guess the "lead" electrician) earned $8.00 for the same

It's not until the business has been running for six months that my grandfather (Ben) started to take a salary, apparently has changed some of the workers (sequentially through the sheets until that point) and given some raises:

Ben (my grandfather), as the boss has given himself a salary of $15 per week
Esther (now he has a secretary/bookkeeper, but I think she was his sister) is earning $10 a week
Adolf is up to $9 for the week
Isadore is earning $13.50 a week
George is up to $5.50 a week

He has also cut the standard week to six days of 8 hours each

Ben continues at $15 a week for another six months or so and then gives himself a raise to $20, but a few months later, reduces it back to $15 (I'm guessing out of cash flow considerations as he is now up to 9 additional employees (including one listed at $1.20 a week who I guess is a "broom pusher" of some sort)

It is important to realize that his employees were electricians at a period of time when this was not a common background. Electricity had just started to be generally deployed about 20 years earlier, so these guys were pretty close to the top of the blue collar pay scale and the top ones are at the halfway point, or above on the chart (despite working a couple of hours a day less than "standard") which validates the chart.

There were zero "benefits" back then, but there were zero income tax (and others as well).

Now, let's fast forward to the same trade today. I will use NYC Local 3, IBEW costs to the contractor for electricians (We'll call that "Adolf", as Isadore looks like he was a foreman). I will round off for simplicity, but am within 2%:

Wages: $50.00 per hour for a 35 hour, 5 day week
Benefits and other direct costs (unemployment/disability/workers comp insurance, etc.): $50.00 per hour

So Adolf ultimately made $468 a year for a total (assuming 8 hours, 6 days a week) of 2,496 hours of work

A current union electrician (excluding any overtime or overscale) would make $91,000 per year with an additional equivalent amount paid by the contractor towards his/her benefits.

It is important to note that (presumably) Adolf did not live in poverty, but was able to afford a house, a family and the trappings of a high tranche working class life style.

I want to point out that I have no particular agenda in comparing the above, but the implications (from the standpoint of inflation, trade off of benefits vs. cost, size of government, etc., etc) are clear. The nature of our country has changed over the nearly exactly one century since this document was created. Some things, from the standpoint of the small businessman remain the same. My grandfather's willingness to work for "no pay" during times when there were increased startup costs, and reduced pay during times of cash flow constrains are similar to actions that I have taken. His reduction of working hours from the norm and willingness to increase compensation also show a paternalistic attitude which I have always tried to show. Things haven't changed all that much for the small business :-). Things have, however dramatically changed in the fabric of our society (some for the better, some for the worse) and it important to realize that the one constant is change.

Shortly after the end of this ledger, the US participated in a major war. About a decade after the end of the ledger, the US embarked on a growth path of exuberant levels which ended in tragedy about 20 years after the record ends. It is out of that event, and the war that ensured at its end, that our current society was created. The generational trench created in that extended period of turmoil succeeded in building a structure of support so that their children and grandchildren would never have to go through a manic depressive stage like they did. They then handed the keys to the family car to us. As in the case of many "children" we have driven irresponsibly. We have used the wealth and power accumulated by that generation, as small children will when they don't understand the importance of things that their parents have placed value on, in a fashion to squander that wealth and recreate a scenario that mimicked that generation's darkest fear. As orphans, we now have to solve our way out of our current problems on our own, but without the background of the "work ethic" that drove those previous generations. Our story is not over and our game is not finished, but unless we, as a nation, begin to understand the nature of how we have changed and realize that we are now adults and have to act "grownup", we will continue to trash our family's legacy that they worked so hard to create.

Jeff

1 Comments – Post Your Own

#1) On April 25, 2011 at 1:55 PM, Jbay76 (< 20) wrote:

+1 rec...good post and good luck in your future endeavors!

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