David Segal should look for a job at the Huffington Post. He is a good writer, and he knows some good link bait when he sees it. Today he landed above the fold on the front page of the Sunday New York Times with a non news piece about the wages Apple pays its retail employees.
There are two significant problems with the article:
- It implies that entry level employee pay should somehow be related to CEO pay,
- It implies that entry level employee pay should somehow related to corporate profits.
Neither is true and proposing that Apple should pay its retail employees differently for any reason other than to compete effectively in the marketplace is preposterous.
As an exercise, let's imagine that the Apple board calls an emergency meeting to respond to this article. A great deal has been written lately about how boards represent the interests of the shareholders, but for the sake of this hypothetical meeting, let's just pretend that the Apple board is higher quality than most boards and feels a responsibility to both the Apple shareholders and the Apple employees.
Here are the options I can think of for the board to consider:
- Establish a metric that either increases employee pay or decreases CEO pay so that the two are closely correlated and don't get too far apart.
- Establish a profit sharing plan that distributes corporate profits to employees.
- Increase front line employee pay preemtively in an attempt to address employee dissatisfaction promted by Mr. Segal's reporting.
- Decrease front line employee pay because the article ends saying that Apple has more applicants than it needs -- which indicates it pays too much.
- Do nothing. There does not seem to be a shortage of willing employees, and the quality of employees is more than adequate to do the job.
One economic fact that is not reported in the article, but warrants a mention here is that any change that increases the pay of the current employees will provide only a small and very temporary benefit to current employees. The increased pay will attract more experienced, higher quality employees, that over time will displace the current employees.
Clearly the Apple board will not actually call a meeting, and the result of the article will not be any of the options that increase the pay of the current employees.
I am the CEO of a small company that has a large percentage of front line employees. We live and die by the performance of our employees and work very hard to find, recruit, and retain extraordinary people. From time to time we get into this very same discussion. Invariably the discussion comes when our profits go up. At times we have had profit sharing plans that distribute some of our profits to front line employees. In my experience, those plans are not a good investment because employees decide to come work for us by evaluating our environment and the base pay. A dollar distributed in profit sharing does not earn the company a dollar in value, because potential employees logically discount the potential of profit sharing as it is uncertain.
In lean years, it is common for owners of companies to pay more into the company than they extract in wages or dividends. This economic reality should not have any bearing on employee wages either. I have never heard of a company that has been successful recruiting great talent by telling them that during lean years they will have to pay to come to work.
The marketplace sets wages for employees quite efficiently. David Segal and the New York Times knows that quite well. Taking a swing at Apple on the front page is great link bait though.