First paycheck
America’s labor force challenge may not be purely economic. “This allergy to economic unfairness may well be what unites the ‘quiet quitters’ of Gen Z and the early boomer retirees: They increasingly perceive the terms of employment to be so off-kilter that they would rather not work at all, even if that decision screws them over in the end.”
That assertion comes from the insightful Katherine Mangu-Ward, editor of Reason Magazine. She argues that people care not only about their compensation, but that it be “fair” relative to the boss’s pay. The Ultimatum Game psychology experiment highlighted this issue. Imagine $100 is available. One person proposes a split of how much he would get and how much a second person would get. The second person can accept the split, pocketing his share. Or the second person can reject the split, and neither person gets anything. This is done with both people understanding the rules of the game but not allowed to talk to one other.
Standard economic analysis leads us to expect that the second person would accept any offer. After all, any positive amount is better than nothing. Psychologists remind us, however, that money isn’t everything. In actual experiments, the second persons tend to reject low splits. Thirty percent is a common threshold for fairness. Many people are willing to sacrifice their own welfare for . . . what? Maybe to discourage bad behavior. Maybe vengeance against unfair people. Maybe just anger and frustration about the situation.
Coming back to employment, Mangu-Ward writes, “The perception that conventional jobs are essentially offering workers a pittance while greedily holding back the bulk of the wealth is common….” She quotes an online discussant: "If working for Apple was the ultimatum game, the proposer just got $100. They're offering you 23 [cents], and they keep $99.77. Deal or no deal?"
This hypothesis justifies concern and warrants some investigation. Although workers at Apple can see what corporate profits are and what the CEO earns, what about small business employees? Are they resentful at how much the business owner makes?
Rudy Miick is a great resource on that. As a business consultant, he encourages owners to share financial information with employees. What about the shared information leading to jealousy? For example, there’s a substantial disparity between the earnings of a restaurant’s owner relative to the pay of a cook or shift manager. Workers who see how much the owner keeps should have plenty of opportunity for jealousy and resentment.
Miick first noted in an interview that some employees are not particularly interested in their compensation. And a small number are disgruntled and will use any excuse to complain. He also pointed out that if employees do not know exactly how much profit the owner reaps, they may assume profit to be much higher than it actually is.
For Miick’s clients, financial statements become a tool for determining bonuses. Employees see total revenue and all of the costs. Miick sees little enviousness among the employees exposed to their company’s earnings, even though they can see what the owners are making. He thinks the workers focus on how the financials affect them personally through the bonus system. He also believes the employees are more engaged in the success of the entire operation. That’s partly due to the incentive program, but also because employees are welcomed into the effort to make the restaurant more successful. He easily rolls into stories of average workers helping to boost revenue and trim costs.
Employees who see a company’s financials can also tell that compensation relates to span of control. For example, Apple CEO Tim Cook makes $99 million a year running a corporation with $394 billion of revenue. Contrast that with an Applebee’s restaurant. It averages weekly sales of $50,500. At Tim Cook’s share of total revenue, the restaurant’s general manager should earn $13 a week. (That’s weekly store revenue of $50,500 multiplied by the ratio of $99,000,000 to $394,000,000,000.) A cook or server should earn even less.
Good restaurant managers, Miick adds, talk to their staff members about opportunities to rise. Learning new skills is key to increasing earnings. Putting the focus on increasing employee compensation through upgraded ability will divert attention from income disparities between the top and the bottom.
Mangu-Ward’s hypothesis that many employees feel unfairly treated may be true, but it doesn’t have to be. Good management and sharing facts can avert that sense is mistreatment.
