Where our form of capitalism fails...
December 02, 2010
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The US is a net importer of goods.
That being the case, we rely on strong domestic demand.
So taking that a step further, you also need strong domestic consumer spending.
If a domestic business doesn't share it's success with it's lowest level employees, it is literally cutting it's own throat over time. The lowest level employee spends a higher percentage of his income than any executive or investor that you have.
So this brings up a dilemma. What you give to that low level employee, you have to take from somewhere else. Does the corporate executive take less or does the investor?
That's a tough question. If you pay less for corp execs, you get less talent and if you pay less to your investors, you get less money for growth.
So the answer is actually both and neither.
You have to make that lowest level employee a partner. You allow him to share the reward but he also shares the risk.
You give the lowest level employee the same compensation package as your highest paid executive. (obviously it's the same percentage on a much lower base). The base for the lowest level employee has to be competitive just like the highest level employee. It truly has to be performance based and that should be focused on the performance of the company and nothing else.
So what happens? You align the interests of all parties. For the investors, the highs aren't as high but the lows aren't as low. Bonuses only get paid when the company performs. The investor puts some of his risk on all the employees. For the executives, they trade some of their risk for less maximum compensation but they gain employees with the same goals as management and they have lower overall costs in tougher times. Their chances for success are higher. For the lowest level employee, they get a paycheck comparable to other company employees in the worst times, a much better paycheck than comparable employees in the best times and more job security since company costs go down in the worst times and investors are less likely to leave due to higher lows.
Companies that choose this method of compensation should see a flock of lower level employees and other companies will be forced to provide the same compensation. Once this occurs, we should get macro-economically stronger. We'll see slower, steadier growth, but the growth will be more sustainable.
I'd love to go into the importance of encouraging the lowest level employee to save and invest at this point, but I'm already getting long-winded in a post that I thought I could put into a nutshell. I'll leave it at the idea that prodding the lowest level employee to spend on credit until he can't pay anymore as something that isn't sustainable.
The point of the United States was to be united. Aligned goals will create sustainability and prosperity. You have to put money in the consumers hands for them to consume.
YOU MUST RESPECT WHERE THE MONEY IS MADE! The lowest level employee provides for the existence of your product and his spending provides for the consumption of it.
The biggest hope for your company's prosperity is to make something you thought little about, something that you think a lot about.
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