CEO cuts his own salary and raises all employees' pay to $70k minimum

[windawake]

I'm not saying that the premise itself is bad, but I was struck that his reasons for doing it were because he heard how hard it is to get by on $40k/year.

http://crooksandliars.com/2015/04/ceo-cuts-his-pay-raises-all-workers-pay

[MgoSam]

I approve of a person that is putting his money where his mouth is.

[FIreDrill]

I'm not saying that the premise itself is bad, but I was struck that his reasons for doing it were because he heard how hard it is to get by on $40k/year.

http://crooksandliars.com/2015/04/ceo-cuts-his-pay-raises-all-workers-pay

I read the NY Times article and got the impression that he was doing this more based on the correlation of salary to happiness.  Either way, it will be interesting to see how this turns out.

[olivia]

How is this anti-Mustachian?

[frugalnacho]

How is this anti-Mustachian?

His workers had a hard time living on $40k.  I could retire on that amount!

[Gone Fishing]

How is this anti-Mustachian?

His workers had a hard time living on $40k.  I could retire on that amount!

Yeah, the sad part is that probably only a small percentage will use the extra cash to truly better their financial situation.  The rest will be spent on junk.  Probably about like winning the lottery.

[russianswinga]

Upside - this creates MASSIVE incentive for employees to stay with this company.
Downside - there's a set ceiling. No reason to improve oneself
Bigger downside - a skewed perception of self-worth. If your job is worth $45K and you're now getting paid 70K, there is zero incentive do anything but keep working at the level you are, and this effort, if you end up on the job market, is still worth $45K - but the employees now believe it's 70K.

I would personally support more of a bonus structure - a 25K bonus to a 45K salary so the employee KNOWS they're worth 45K and the rest is the good boss's grace.

[No Name Guy]

How is this anti-Mustachian?

Paying $70k for services that could be bought for $40k.

Would you pay $70 for cell service, when the exact same service is available for $40?
Would you pay $7000 for a contractor to work on your home, when the exact same contracted work could be bought for $4000?

IMO, one of the core behaviors of frugality is getting value for money.  Paying 175% of market rate for anything isn't value.

[Valhalla]

Something is wrong with the article.

I read it as him cutting his own salary to $70k, and the raising all other employees' salaries to a net total of $70k, thus total employee compensation stays the same (assuming he was paid $140k in the first place??? extremely unclear!).

It would be absurd to pay the mail clerk $70k, the same as the CEO.  And how would that HR lady feel making the same amount of money as the mail clerk?  Something's not quite right...

This is a horribly written article.

EDIT: this article is better:  http://www.king5.com/story/money/2015/04/14/seattle-company-70000-minimum-wage/25761421/

CEO was making $1 million per year, cuts his pay to $70k, spreads wealth around.  Makes more sense.

But still, a mail clerk making $70k...how much should the HR lady be making - $140k?

That's a huge freaking raise.  Paying well above market rates for a commodity skill, good for those who are with the company I guess.

[Sid Hoffman]

I would personally support more of a bonus structure - a 25K bonus to a 45K salary so the employee KNOWS they're worth 45K and the rest is the good boss's grace.

I think the bonus system makes a lot of sense too, plus I can see it going to better use than an increase in base pay.  From everything I've read, people generally adjust their lifestyle to use up all of their base pay.  However when they get a windfall, they will most frequently pay down debt first.  I base this on articles like this one which show about a third of people saying they'll pay down debt and another third saying they'll save/invest.  The rest spend it, which is not surprising.

I don't doubt that the actual number of people who put money towards savings is lower, but there's a good chance that people who are only so-so with money really do use lump sums of cash to pay down debt, because there's no guarantee they'll get such a lump sum again next year.

[timkrik]

How is this anti-Mustachian?

Interestingly enough, this same article is posted in the 'Mustachianism Around the Web' forum.

My perspective is that the article fits both forums as I'm sure some employees will exhibit AntiMustachian behaviors and some will exhibit Mustachian behaviors. It would be interesting to see a follow up article after a year.

[olivia]

How is this anti-Mustachian?

His workers had a hard time living on $40k.  I could retire on that amount!

It's a lot easier to reach FI when you've got $30k more a year to add your 'stache.

[Dee]

I just saw the article through a FB link and came by here to see if it had already been posted. Glad to see it was -- now I don't have to decide which subforum I think it belongs in.

It's mustachian to do things to increase your own happiness and that of others. But MMM himself doesn't seem to buy in to more money boosting happiness (after a certain minimum threshold). Though research seems to indicate an increase in salary to 50-70K/year does boost happiness (which is what the CEO based it on). So...yes, both mustachian and anti-mustachian, I think.

FWIW, I think what this CEO did is great!

[slugline]

How is this anti-Mustachian?

Paying $70k for services that could be bought for $40k.

Would you pay $70 for cell service, when the exact same service is available for $40?
Would you pay $7000 for a contractor to work on your home, when the exact same contracted work could be bought for $4000?

IMO, one of the core behaviors of frugality is getting value for money.  Paying 175% of market rate for anything isn't value.

I've read enough MMM to see that Mustachianism is not all about frugality. One of the perks of reaching FI is making decisions like this as an exercise of the Position of Strength.

[TheGrimSqueaker]

Definitely a ballsy move.  I wonder how much more business they get, simply because of this.

[bzzzt]

Definitely a ballsy move.  I wonder how much more business they get, simply because of this.

I'd wonder how much business they're going to lose. While I applaud him for his decision, I will be interested to see if other CEOs feel like he pissed in their Cheerios and taking their business elsewhere.

Meanwhile, our Governor of Illinois things everyone should work for slave wages because he didn't want to make the temporary tax hike permanent, wants to cut government worker's pay, and gave himself a $750k/year raise by doing it (former hedge fund manager, spent $26M of personal money to get in office, "isn't taking a salary" because he's filthy rich)... SMFH.

[MgoSam]

Definitely a ballsy move.  I wonder how much more business they get, simply because of this.

I'd wonder how much business they're going to lose. While I applaud him for his decision, I will be interested to see if other CEOs feel like he pissed in their Cheerios and taking their business elsewhere.

Meanwhile, our Governor of Illinois things everyone should work for slave wages because he didn't want to make the temporary tax hike permanent, wants to cut government worker's pay, and gave himself a $750k/year raise by doing it (former hedge fund manager, spent $26M of personal money to get in office, "isn't taking a salary" because he's filthy rich)... SMFH.

Thus far I'm not a fan of the governor, but I don't have much of a problem of cutting government worker's pay. They have a recession-proof job that has a largely well-defined pension (though of course it likely is largely unfunded), and in my opinion that does justify getting paid less than someone in the private sector.

[bzzzt]

They have a recession-proof job that has a largely well-defined pension (though of course it likely is largely unfunded), and in my opinion that does justify getting paid less than someone in the private sector.

Not if the Governor gets his way, he is pushing to have all State employees put on a 401k type system to reduce unfunded pension liability.

Don't most gov employees already get paid less than employees in the private sector? That's my experience with the ones I know. If I went to gov employment, I would take a big pay cut (~25-40%). I am in the minority of private sector employees though, being a union tradesman.

[MgoSam]

They have a recession-proof job that has a largely well-defined pension (though of course it likely is largely unfunded), and in my opinion that does justify getting paid less than someone in the private sector.

Not if the Governor gets his way, he is pushing to have all State employees put on a 401k type system to reduce unfunded pension liability.

Don't most gov employees already get paid less than employees in the private sector? That's my experience with the ones I know. If I went to gov employment, I would take a big pay cut (~25-40%). I am in the minority of private sector employees though, being a union tradesman.

Yeah that's a fair point, that's why I hedged a bit on them having a funded pension. The lack of pension integrity throughout the country is going to be a huge problem. This is one of the many reasons why I save up as much as I can to protect myself.

[No Name Guy]

Not if the Governor gets his way, he is pushing to have all State employees put on a 401k type system to reduce unfunded pension liability.

Don't most gov employees already get paid less than employees in the private sector? That's my experience with the ones I know. If I went to gov employment, I would take a big pay cut (~25-40%). I am in the minority of private sector employees though, being a union tradesman.

Actually it depends on what job you have in Govt on if you're over paid vis-a-vis the private sector.  I've heard / read that low level employees (think Janitors, for example) are highly over compensated at Govt.  I suspect that in high skill jobs, Govt is equal to underpaid versus private industry of comparable experience.

There's also the intangibles that don't show up in a paycheck as well - in Govt, you pretty much have to try to get fired, and even then, often times they can't fire you, AND you get to keep collecting the paycheck for zero work "while on paid leave".  In private industry, yeah, there's slackers, especially in unionized jobs (note, I'm in a union, I see it first hand), but getting rid of the dead wood is simple compared to Govt.  So, what's that worth?  [shrugs]

Don't think this is the case?  Just Google "NYC Rubber Room" for an example of how hard it is to fire public sector employees.  Another one is the SEC employees viewing porn on their Govt computers.  In my union private sector job, I'd be out the door in no time flat for that.  But at the DEA and Secret Service, I guess you can get hookers in Columbia and not get fired.

Oh, and BTW - for some of those of us looking to FI / ER - a pension sucks.  I can't collect until I'm 65.  I'll ER before 50....I wish I had the NPV of that pension in my 401k since I'd be ER today.  Pensions are merely another form of golden handcuffs to keep you slaving away at the assembly line / desk until THEY say it's time to stop, a dependent of the company / state.

[RexualChocolate]

As I said in the general thread, this is fine until the space(here, payment processing) becomes competitive and his margins shrink to where you can only afford to pay market rates for labor. Right now its a hot sector, but it will be commoditized within 5 years and he will either have to pay in to the company or lower wages or make cuts at other places. Most likely, he gets bought out and all of these people get fired.

The government jobs really depend. It's hard to compare apples to apples. Overall I think we can all agree that a lot of the useless bureaucracy jobs are very overpaid (Office of Personnel Management, Department of Education, etc) while some are underpaid (SEC lawyers come to mind).

[zephyr911]

Oh, and BTW - for some of those of us looking to FI / ER - a pension sucks.  I can't collect until I'm 65.  I'll ER before 50....I wish I had the NPV of that pension in my 401k since I'd be ER today.  Pensions are merely another form of golden handcuffs to keep you slaving away at the assembly line / desk until THEY say it's time to stop, a dependent of the company / state.

Yes and no. It's really no different than Social Security in that regard. If you're a hardcore financial hacker, you just work the math to retire on a higher withdrawal rate, reducing invested principal until payments begin and you level out.
It definitely does lock the smallminded into serving until their 60s, since they 1) generally don't think to hedge their bets with substantial outside investments, and 2) find the above calculation daunting.
Personally, because I'm risk-averse, and because I want to leave money behind, I am ignoring any possible pension in my calculations. (I'm actually trying to do it without touching the IRAs either)
I will probably get a small military retirement (6 years active, now 7 ANG and will probably finish my 20), and I may get a civil service one too, but by the time the money kicks in, I expect us to be rich assholes living on less than we make, so it will just get piled up in the Stash to feed our legacy. But if I find myself experiencing serious burnout, or for whatever reason this ridiculously large safety margin starts to look like an obstacle to timely FIRE, then I'll dial it back, work out the numbers, and draw down savings till pensions hit.

(tldr: if you can calculate the NPV of a pension, you DO have it)

[Forcus]

I'd be pretty pissed if I'm working my ass off for 70k a year in a skilled role and a mail room worker with no skills (sorry mail room workers..) makes the same. What incentive do I have (besides my own drive) to work harder than someone with no skills for the same pay? Might as well demote me to mail room, I'd be happy as a clam with my only stress being paper cuts. Capitalism is flawed, socialism isn't any better.

The CEO of my company makes tens of millions per year. Having seen his schedule and what he's had to deal with, as far as I am concerned he deserves it. He has aged rapidly since taking the job, and I've heard he's had at least one heart attack. I would not do it for the same amount of money, not worth it. Others would... and would fail.

As far as our Governor, I am reserving judgment since I don't know him very well. But the pension liability must be dealt with. It's not a recent issue, it's been festering since the late 60's. If drastic changes aren't made the state will collapse in on itself and no one will get anything. To an extent I do feel for those who inevitably get caught by having pensions changed (as far as I'm concerned, a contract is a contract.... reasonable or not) but I've read a considerable amount of Illinois law and the greater good overrules fairness for a few. Harsh but it is the recognized precedent and anything that does not contradict law is fair game. I am in the private sector and we had our pensions frozen and future investments done through 401k. It was done fairly and most people realized providing a paycheck to someone for no productive work was not a reasonable, sustainable, or competitive proposition. If it's done this way at the state level I'm all for it.