April 14, 2015 at 9:52 am #9553
This is very interesting!
The company is well capitalized right now, and the owners have obviously taken profit on a regular basis, but not too much, as well as paid themselves well.
When companies capitalize, their owners can take money out, leave it in, reinvest it, etc…
Here, we see reinvestment in the people. One to follow for sure.April 14, 2015 at 10:05 am #9555Deane JohnsonParticipant
Interesting experiment.April 14, 2015 at 10:20 am #9563
Yes it is.
He’s gotta be well capitalized himself. Good margins in that business, and he’s run it since he was 19.
So basically, instead of further capitalizing the company (leaving the money in the corporate bank account), or taking distributions (moving the money to his bank account), he’s going to invest in the people.
Since he’s capitalized himself, he really does only need the 70K salary while this is going on. That is a direct reinvestment in the business. And that kind of business is mostly a people and systems thing too.
Once the wages have come up, he will see some sort of return, ideally. That might be more efficiency, more business due to good will, etc… or it might just run as it does now.
The only real loss scenario is if overall business goes down, which I doubt for that kind of business.
Net result will be a thinner overall margin, but the company will still capitalize. At that point, he’s free to raise his salary, or begin to take distributions again, leaving his own salary low.
If he does the latter, then he’s really basing his income above cost of living on real, material performance, and that’s commendable.April 14, 2015 at 11:54 am #9568Chris_TaylorParticipant
I love this idea.
Given it will be phased in over 3 years, won’t be a shock to the system, so to speak. I really hope this model works. It may not be right for every industry, but certainly the morale going to work will be high along with productivity.April 14, 2015 at 12:15 pm #9570VitalogyParticipant
Let’s face it, you get what you pay for. Just look at a Wal-mart employee vs a Costo employee.
When a company pays a premium salary, they attract a premium workforce. Plus, wanna bet all the employees do a REALLY good job to stay employed at this company?April 14, 2015 at 2:54 pm #9581
That and good will might make for some nice growth.
If so, that guy will soon be taking nice distributions again, and have happy people.August 1, 2015 at 2:11 pm #12759BroadwayParticipant
Latest news… a failure in just a few months…
http://www.youngcons.com/ceo-raises-salaries-to-70k-for-every-employee-now-has-to-rent-his-own-home-to-make-ends-meet/August 1, 2015 at 3:51 pm #12760
And the publicity surrounding it has generated tangible benefits. Three months before the announcement, the firm had been adding 200 clients a month. In June, 350 signed up.
That new business won’t start paying off for 12 to 18 months, however, Mr. Price said, and in the meantime, he is contending with the lawsuit brought by his brother. Lucas Price owns about 30 percent of their company, although he has not actively been involved in day-to-day operations for several years. There had been tensions between the two long before the new pay plan, and Lucas is demanding that Dan buy him out for an unspecified amount, plus damages.
needs to play out before we can judge how this all actually does play out.
You aren’t the only one following this decision to see how it pans out. 🙂August 1, 2015 at 4:04 pm #12761
Now it’s really interesting to me how the SAME NYT link is present in both my post, highlighting the lawsuit and client business.
I would have contributed the employee dynamics, but the piece Broadway linked does an OK job of that.
There is a misrepresentation though. The 70K is a minimum. People can punch above that. A lot of people though, won’t. And that’s due to the floor being above several normally graduated pay levels.
It’s not over yet with the employees. Some didn’t like people being moved up without them getting a boost in like kind. This is understandable, and frankly I’ve got one in a similar scenario. Two very underpaid and highly productive people getting a nice bump left them wanting the same. At the root of it was status, not value added to the company.
I found that quite telling. And when I pointed out ways to add more value? Let’s just say that was not received well. Oh well, their loss.
Back to this guy: He’s got a couple higher profile people who left, and their complaints may well be status, and value, or both!
That’s not so much of a worry.
What is worth watching here is what the others eventually do. A web monkey will end up making what a clerk does. And the web guy actually said he thought he might get trapped at a nice wage for what he’s doing and not move on to a tech company, while the clerk is maybe getting caught up on bills and enjoying life more.
Will they distribute the load differently? What about securing skills?
It could be said people will just languish and take advantage. Not so fast. A good thing is a good thing, and if too much of that happens, it won’t be a good thing will it?
The group dynamics on that are far from over. Lots to learn here.
As for the clients who left over fears of higher fees?
I discussed how that can work in my post above. They left over ideological fears more than material ones. And it appears 18 months from now the 300 new clients will pay off quite nicely, meaning the loss here is short term at best.
What is really an impact is the lawsuit, and remember the brother suing is locked in a 1.1 Mil / year. He’s not hurting at all for owning his share, just not feeling like he’s getting all the benefit he should from his share.
We don’t know if that’s an ideologically driven suit, or a meaningful financial one or both? If it’s financial, there are ways to resolve it that leave the company able to carry out it’s experiment. Watching that play out will tell us a lot.
Bottom line here is not yet resolved. There is a lot going on, and some struggles to work through and a whole lot to be learned.
It may be this was a very bad call. It may be that it’s a somewhat bad call, close but too aggressive. Or it may be great.
Those with their heads in the sand will see what they want to, and notice the highlighted posts in the link Broadway put here. Case closed already. Of course we know which party actually works with facts and data and which one does not.
Others, who probably don’t have their head in the sand, will watch this to see how it all plays out and what can be learned.
That’s what I’m doing.
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