On the web since 1997
|
On the web since 1997 |
|
Salary Caps Don't WorkLuke Hodgens / Powerhouse Profits -- I was talking to a close friend and business partner the other day when he brought up something that blew my socks off!This friend of mine is involved in half a dozen different businesses. He's highly successful, personally responsible for creating tens of millions of dollars in profits each year (that's just for one of the half dozen!) At any rate, he was telling me about a partner in one of his businesses and how that partner wanted to put a price cap on both of their salaries. At first my friend didn't know what to say - the business in question was healthy enough for them both to take out double what they took the year before. He'd been working with this partner and good friend for thirty years, they've both made an incredible amount of money growing that business, and built up an annuity that will no doubt last generations. How could he tell his partner no? He asked me what I thought about the cap, knowing before hand what my reaction would be (He knew I'd break into one of my free market sermons). So, I let him have it, though it was nothing he didn't already know. I can sum in up in one word. One word that has dictated the course of every free mans life from their dirty diapers to their threnody. A word that has brought down communism, monarchism, and a host of other isms! Motivation! Let me explain in two scenarios: If I were a school teacher making say $32,000 with a 1% raise each year, regardless of my performance, attendance, or extracurricular activities, what do you suppose would be the likelihood of me concerning myself with any of them? Ok, maybe for the first year or two when I think I can change the system. But once reality kicks in, what's the chance of me really caring? Not all that high, for even the best of them. Now let's say I'm a school teacher in a private school, or let's say we entered into the twilight zone and our school system was instantly transformed into a competitive market. I start out making $32,000 a year. If my children express better than average results I get a 5% bonus next year. If they express excellent results I get a 15% raise next year, and if they express phenomenal results I get a 20% raise next year. What then do you think would be the odds of me arriving at work 1 hour early, constantly approving my curriculum - finding all the week spots, and staying after with the kids to coach the math team? Well, I don't know about you, but I've always wanted to take a cruise up through Alaska in the summer time - you know, right when the icebergs begin breaking free form the glaciers. (I can already hear you saying, but what about corruption? What about those teachers who'll fudge their test scores to get the extra dough? Fine, they will exist, they always have, it's part of life. But on the whole these teachers would get paid better, and the quality of their instruction would be better, and oh yeah, the kids would be a whole hell-of-a-lot smarter) So you mean all I've got to do to make an extra $6,400 next year is care? $6,400, now that's motivation! OK, back to my friend. His yearly salary was based on a percentage of company sales. The more sales, the more dough. Sounds like a good reason to try to increase sales day after day, year after year (could that be the reason for this company's wild success?) But, my friend agreed with his partner, so salary cap it is. Just one of those things I guess. But now his salary is capped. Regardless of company sales (up or down) he'll be paid a flat salary. Can you guess what this friend said to me before I left his office? "I think I'm going to spend more time growing my other businesses." Can't say I blame him. I have a sneaking suspicion the company in question will see a steady decline in profits this year. Luke Hodgens is the editor of |
|
