Learn Me: Average Wage Across Business as Measure of Success vs Profitability?

One thing I've been thinking about, and often proposed (pie in the sky ideas) was that of a tax system based on voluntary distribution of profits in a company. 

IE - a company that paid its workers a better average wage relative to corporate profits would be taxed less than one where profits were not shared with employees. 

The arguments I've heard against this was the idea the stock market and shareholders were also employees who instead of putting in their time, put in their capital, so their "wage" should also be considered. The investors who contributes more money in his stock buying than the average worker would ever earn therefore would see 10000x the pay increase if profits were distributed among employees and shareholders. I get a few cents added to my paycheck, he gets a few bucks return on his share.

The problem I still don't understand however is how we can measure the strength of business based on it's share price, when that isn't a true indication of the strength of a company. If all the workers quit, that share price would fall quickly and the business would likely fold based on indicators, revenue aside. If the share price fell but all the workers still had plenty of work and plenty of business...then the company would survive, right?

Are there any example of cases where more "equal" businesses failed? If so, was that a result of stagnate market share, rather than paying good wages?

Right now, for example, the stock market is falling pretty hard, but thats really only based on lack of confidence, not lack of business? If we still have more demand than supply, and we're keeping people employed, is the stock market dip a result of shareholders being concerned that *gasp* they may lose profits in order to pay people more?

Why is the strength of the company measured by its profit, it's growth, it stock value, and not the average wage, stability of employment, and market dominance of its employees?

Stock prices have little to do with the health of a company. They are based on earnings and the whims of the market. Nobody in the market cares about employees.  They are an expense and expenses need to be controlled to increase earnings. 

Add to that, a companies ability to borrow is based on their stock price. 99% of companies operate with massive amounts of debt. A falling stock price can dry up their ability to borrow and if they can't borrow they aren't long for this world. 

There's also a massive level of inequality of stock ownership. 

Top 10% of Americans own 89% of the stocks

So berkeley the stock investors, they don't count. 

Ok, so companies need to borrow in order to expand, in order to purchase materials, etc. 

Lemme get this straight with a hypothetical: 

I'm a business with a few hundred employees. My revenue last year was a 100 million. After payroll and taxes, I'm left with 50 million in profit. My expenses are 25 million. 

Why would I need to borrow anything? Why couldn't I just buy my materials with the cash I've clearly got? I've got 25 million in cash for next year's materials. 

I'm clearly a profitable business, so why would I care about my stock value?

Toyman! said:

Stock prices have little to do with the health of a company. They are based on earnings and the whims of the market. Nobody in the market cares about employees.  They are an expense and expenses need to be controlled to increase earnings. 

 

Apparently you missed the point the OP made about all  employees quit. ( or joined a union and went out on strike). 
   If you read history. You will see how torn apart the USA was in the 1920's leading to the Great Depression. 
        Only the strength of adjustments made to meet the needs of the workers resulted in America's relative strength entering WW2.  
    Since the Middle and lower class hasn't had a real wage increase since the 1970's. ( adjusted for inflation) That's led to the current division America is currently experiencing. 
     

Toyman! said:

Add to that, a companies ability to borrow is based on their stock price. 99% of companies operate with massive amounts of debt. A falling stock price can dry up their ability to borrow and if they can't borrow they aren't long for this world. 

 

If you relate large companies to modest companies like yours.  Your ability to borrow money depends both on your credit rating and your history of earnings.  Why doesn't that also work for major companies?

We're a business to maximize profits.  Who cares (I do but....) if we pay well or run a stable organization.  I don't totally agree with this but it's the reality of a lot of businesses.

I own Allstate stock and they are expensive so I go to State Farm. It might be the same price in reality.  Jam your customers and charge high dollars and keep those dividends coming.

Put as much money into the owner of stockholders pocket.

I don't think Toyman was saying that as opinion, he was saying that as fact. Our system, currently at least, is not designed to equally distribute corporate earning among individual wages. There is no incentive there, unless your goal is to grow your company market share and you need the best and brightest to do so. 

Once a company has reached a certain level of market dominance, what incentive is there to search for the best and brightest when you can lobby, monopolize, and use protectionist policies to preserve your place? 

And perhaps that's the challenge - for some businesses, take the local grocery store, there is just no interest, from a corporate standpoint, in growing that market share. They know they will never outcompete Walmart, so they don't even try. In those cases, paying a cashier a few bucks more in hourly wages just means less profit for the ownership, less salary for the management, all who are just "coasting" until another entity buys them out. How do you convince ownership in this scenario to give up profits to pay people better?

RevRico said:

There's also a massive level of inequality of stock ownership. 

Top 10% of Americans own 89% of the stocks

So berkeley the stock investors, they don't count. 

Retirement plans are almost entirely invested in the stock market:

How many Americans have 401(k)s? In 2020, there were about 600,000 401(k) plans, with about 60 million active participants and millions of former employees and retirees.Oct 11, 2021

This of course does not include other retirement accounts (e.g. private and government pensions), which will add a lot more.

So, screw those people also?

pheller said:

 

I'm a business with a few hundred employees. My revenue last year was a 100 million. After payroll and taxes, I'm left with 50 million in profit. My expenses are 25 million. 

 

Right off the hop, those numbers are absurd.  There is not a company in the universe that makes anything even remotely close to those numbers, except in some exceedingly weird situation.  If they do, there will be about a hundred companies undercutting them to bring prices down to a reasonable level.  Also, did the company make $50M or $25?  Payroll and taxes are a significant portion of any companies expenses, so there is no reason to break them out into a separate category.

To the original question, that is already what is happening. Ignoring the benefits of a well paid, happy staff, a company that pays higher wages will pay less tax, because they will have less money at the end of the year. Their staff will pay more, because they make more money.

Also, a generic "employee" doesn't provide nearly enough basis for comparison.  Is the task at hand something that requires real skills, learned over years?  Or can you train a puppy in three weeks to push that button when it beeps, to keep the line moving?  Two very different things.  

Meritocracy is a word I like.

Streetwiseguy said:

To the original question, that is already what is happening. Ignoring the benefits of a well paid, happy staff, a company that pays higher wages will pay less tax, because they will have less money at the end of the year. Their staff will pay more, because they make more money.

Can dividends or whatever paid back to shareholders or ownership constitute wages to reduce overall tax burden? 

If so, then if I owned a business as a majority shareholder, I'd just pay myself a hefty hourly wage, no? Company reduces tax burden, pays less tax, I make out like a bandit, my employees struggle to pay rent. 

Elon Musk is majority shareholder of Tesla, as well it's CEO. Can he reduce Tesla's tax burden by paying himself more (either through his salary or his shares?) 

That's probably a pretty complicated accounting question for tax lawyers. 

I guess my point is, can companies avoid paying the majority of employees a decent wage, and instead just pay upper management, ownership, shareholders, etc really good wages to make up for it enough to lower their tax burden by the same amount as had they just paid their employees good wages?

You have a core contradiction. 
 

You want to devalue the importance and value of money to corporations (as in, "employees are more important than profits"), but you want to reward workers with more money. 
 

Is money valuable, or not?

You are attempting a basic Robin Hood scheme, but trying to claim that the money that currently belongs to the rich is not important to the operations of the business, but let's take it anyway and give it to the poor because it might have value to them, although it has no value to the business. 
 

Nope. 

Your points are hard to follow because the structure of them is so convoluted. 
 

For example...

"I'm a business with a few hundred employees. My revenue last year was a 100 million. After payroll and taxes, I'm left with 50 million in profit. My expenses are 25 million."

You are assuming a structure for corporations that is essentially (GROSS INCOME) - (PAYROLL) - (TAXES) = (PROFIT) - (MATERIALS AND OTHER EXPENSES) = (CASH). That's a completely wrong equation. 
 

Corporations look more like this:

(GROSS INCOME) - (PAYROLL) - (MATERIALS AND OTHER EXPENSES) -  (CAPITAL INVESTMENT) = (PROFITS) -  (SHAREHOLDER DISTRIBUTIONS) = (NET TAXABLE INCOME)  It's more complex than that, but that's the idea.

Note that taxes are LAST. Not first (like your paycheck). Corporate profits are determined after expenses are deducted for the purpose of tax calculations. 
 

And you are totally kidding yourself if you think there are corporations making 50% profit. Companies in my industry feels fortunate if we make 3% in profits. 

pheller said:

One thing I've been thinking about, and often proposed (pie in the sky ideas) was that of a tax system based on voluntary distribution of profits in a company. 

IE - a company that paid its workers a better average wage relative to corporate profits would be taxed less than one where profits were not shared with employees. 

If you are trying to make more money go to labor instead of capital one proposal is to tax ownership more heavily. If there is a dollar of profit management has the option of either re-investing it in the business (could be better technology, better machinery, but could also be higher wages) or paying it out to ownership. If the owners have a 35% tax rate on that income they may decide differently than if they have a 91% tax on that income. 

From post WWII through the early 60's the highest marginal tax rate was something like 90%. The argument is that it wasn't to collect revenue but instead to make sure that profits were reinvested back into businesses, some of which would end up in labor's pocket.

pheller said:

 

The arguments I've heard against this was the idea the stock market and shareholders were also employees who instead of putting in their time, put in their capital, so their "wage" should also be considered. The investors who contributes more money in his stock buying than the average worker would ever earn therefore would see 10000x the pay increase if profits were distributed among employees and shareholders. I get a few cents added to my paycheck, he gets a few bucks return on his share.

 

 

One thing about shareholders- the only ones who's money goes to the company are the ones either getting the stock as it's originally distributed OR if the company is selling stock it owns.  Otherwise, all of the "investments" go to the trade of the ownership.

A gross majority of stock sales, which is what defines the value of the stock, happens between a stock holder who wants to selll and one who wants to buy- the company profits zero and gains zero on those trades.

As for valuation- I really don't understand.  Why is tiny Tesla worth so many times more than GM or Ford?  Yea, they have a lot of potential to expand- but what they do isn't in a vacuum- everyone is also expanding into the EV market.  And realistically, the auto market is totally saturated- it grows at roughly the rate of population expansion, and requires that vehicles are permanently taken off the road every year.  It's nothing like the cell phone business was recently, or computers not far back- where the potential market is much, much bigger than the auto. 

Let alone the time valuation when the opposite direction of the kind of news. 

Given all of those variables- how can one factor that kind of randomness into taxes, when you need a pretty reliable and repeable source.

At the end of the day it's all driven by the consumers. 

Americans vote for big corporations with their dollars every time they price shop. It's the race to the bottom. They want more for less and the corporations squeeze every aspect of the company to give them those prices. It's the reason Walmar and Amazon are so big. Whoever can do it cheaper and faster will knock them off their pedestal. 

Most companies operate on very narrow margins. Sub 10% in many cases. Grocery stores are in the sub 5% range. A blip in the market or a news report can erase their profits instantly. 

Durable goods get the worst of it.  Ceap clothes. Cheap food. Cheap TVs. Cheap cars. That is what drives the corporations to get cheap employees. Employee costs are usually a companies single largest expense and it is one of the few that they have direct control over. 

You want better paid employees, buy the more expensive goods. Stop buying from the mega corps and buy from the mom and pop stores. Be willing to accept slower service and understand the they can't stock everything. 

Also understand that employees have a lot of control over their own income. Not only by where they work, but by what they train to do. My best employee started at $10/hr. By sticking with me and being trainable he has increased his income by almost 3 times over the last 15 years.

An employee at a factory that is sticking tab A into slot B isn't going to be able to do that. Tab stickers are a dime a dozen and are paid accordingly. Tab stickers are building a product that consumers have put a price on. Their work therefore has less value and less pay.

Throw in every 3rd world country where people will work themselves into an early grave for a cup of rice or a hunk of bread and higher wages here just means the products will be made overseas. 

If you don't like it, all you can do is vote with your dollars. It's the only real vote you have. 

One more thing!

There is nothing that says businesses have to be a C-corp with separate groups of shareholders and workers who have vastly different interests. Patagonia (yes, the puffy-jacket guys) led the charge in California to create a business structure called B-corp. A B-corp has a legal requirement to pay attention to three things-the environment, their workers, and to make a profit. 

There are probably a dozen other ways to better align owners and labor. Shared ownership structure, open bookkeeping, quarterly bonuses, etc. 

I hear what you are hoping for, but I think you need to consider the purpose of a corporation. 
 

The purpose of a corporation

There are a few variations, but most agree that the purpose of a corporation is to benefit the stockholders. Some would add other entities, like staff, vendors, corporate partners, but the benefit of the stockholders is still high on the list. 
 

You are hoping corporations can function as non-profits. That simply isn't what they are designed to be. 
 

Non-profits exist for the benefit of a cause. For-profit companies exist for the benefit of the stockholders. 
 

It's a nice vision, but misplaced. 

https://en.m.wikipedia.org/wiki/Great_Compression
 

look to history for some direction and answers. It may not be all of what you are getting after but the country was more equitable from a wage standpoint before. 
 

tldr. Unions and high taxes made it happen. 
 

Gilded age 2.0 started in the 70's.  The 2nd rise of unions has started so I'm guessing crushing taxes will be around the corner here in a decade or so. Well probably need much more civil unrest to get there.   

aircooled said:

RevRico said:

There's also a massive level of inequality of stock ownership. 

Top 10% of Americans own 89% of the stocks

So berkeley the stock investors, they don't count. 

Retirement plans are almost entirely invested in the stock market:

How many Americans have 401(k)s? In 2020, there were about 600,000 401(k) plans, with about 60 million active participants and millions of former employees and retirees.Oct 11, 2021

This of course does not include other retirement accounts (e.g. private and government pensions), which will add a lot more.

So, screw those people also?

Majority of them are already getting screwed and that's nothing new either. Hell 30 years ago the owners of the company my dad worked for just disappeared with everyone's retirement accounts.

Municipalities, schools, and long term production companies like steel mills have been destroying/slashing/eliminating pensions/retirement plans for the last decade and they keep getting worse. 

Stock market is just a fancy casino. The house always wins, but sometimes you gotta make it look like the little guy stands a chance.

In reply to frenchyd :

I see the need for white collar unions and stronger retail unions. 
 

I also hate the old school unions.  Too many grievances I had to answer.  Too many bs claims.  The union made my company hire back a child molester who was waiting for sentencing. Then I had to provide a safe environment for him to work because all the union guys on the floor wanted to kill him.  What a nightmare. 
 

anyways back to self loathing and zoom meetings. 

Fueled by Caffeine said:

In reply to frenchyd :

I see the need for white collar unions and stronger retail unions. 
 

I also hate the old school unions.  Too many grievances I had to answer.  Too many bs claims.  The union made my company hire back a child molester who was waiting for sentencing. Then I had to provide a safe environment for him to work because all the union guys on the floor wanted to kill him.  What a nightmare. 
 

anyways back to self loathing and zoom meetings. 

No Union is perfect.  It's made of average workers. Some of who are very good some are lazy and some are just plain crooks just like any cross section of  people.  
    Hopefully white collar workers would be slightly more advanced than other groups. But if you look at teachers Unions it doesn't give you much hope for that.  
    I think the main"correction" needed with all unions is instead of striking for wages they need to strike for a share of the profits.    
   If Stock holders get a 10%  return on their investment. A portion of that should go to the workers who make it possible.   Then when profits are down workers income is reduced accordingly.  
 Also,  wages should not include benefits. Except time off compensations such as holidays, vacations, sick leave &PTO