I was noticing that a lot of companies are getting excessively high profits, but meanwhile worker compensation is stagnant or decreasing against inflation.

So when a company gets large profits, obviously the stock price will increase as will executive compensation, but should excess profits be given to shareholders or workers??

I watch CNBC all the time and I always hear "give the money to the shareholders".

But if the company is more productive why shouldn't you compensate the people that made the company earn more money? What if you are asking people to work overtime and not get pay raises so the company can earn more?

Those people are not bound as slaves to work for companies that don't share profits, are they?

If everyone decided to go and work for the competition, it would take a big chunk out of earnings wouldn't it?

Shouldn't those who take the risks reap the rewards? Do these same people take pay cuts or not get paid at all when the company profits are down? If so, then I think it would be fair to get compensated during the good times.

If I buy a stock, I am taking on the risk that my investment might be lost totally. I don't get a paycheck, health benefits, and a steady cash flow in return. If the stock makes money, I SHOULD be compensated because if they company tanks, I surely will be punished.

What if the competition is making record profits and they aren't paying their employees for a job well done either?



What if you moved across country, bought a house where the company is, became vested in the community, isn't that a risk? These same people could lose their jobs and if the city is dependant on that industry they could lose their life's savings as well.

So yes, workers fair badly during down times as well. Don't they?

I can show you companies that requested worker paycuts when the times were tough, asking employees to sacrifice. But then never compensated them for sticking with the company when times were better.



Well you are compensated by the increased value in stock. But if there are EXCESS profits, i.e. the stockholder is already getting a dividend not to mention increased stock value, why shouldn't the employees ALSO benefit from profitability?

So when a company gets large profits, obviously the stock price will increase as will executive compensation, but should excess profits be given to shareholders or workers??

Shareholders. Perhaps in order to craft a more meaningful question, you should define "excess." If a company makes a profit of 1 billion dollars, is that excess? What if the company makes a profit of $100,000? Perhaps a profit of $5,000,000,000 is excess?

Let's say profits are up over 20%.

If the competition were making "record profits" then the market would obviously be big enough to support a start up company to take on those fat and happy companies and relish the competition. Of course, to start that company, these same people would have to find capital to start their enterprise.... and likely a LOT of it. Of course, people don't give others cash like that with zero string attached since they are taking on a lot of risk... so they'd want their HEALTHY Cut of the action if it succeeded. Venture capitalists are not philanthropists necessarily.

Well, there are other companies, who value the work of top employees and who pay profit sharing to ensure that their investment in those good employees stayed and paid the company back for their investment. I would go work for them. And, I'd move BACK across the company if that would it took.

We're only limited by the choices we choose to make. Life is one big risk. But if you say, "I'm not moving, changing jobs, and learning something new".... well, you're at the MERCY of a company then. Companies are in business to make money. Period. If you don't like the company's policies toward profit sharing or compensation, then find one you agree with.... or START your own. You're allowed to in this country.

Excess profit? What is that? If I invest in a stock, should my return be "limited" to some arbitrary return? Based on what?

That's a communistic concept if you ask me.

Not necessarily. Look at the oil companies, all are doing very well right now. That doesn't mean there is room for competition or that there even is competition to begin with.



Then you agree the workers should partake in the additional profits?



This has nothing to do with the question.



Well often companies find they make excessive profits and decide to do many things. One could be an additional dividend to stock holders. Another could be buying back stock. Or another could be paying back the workers for a job well done.

Watching CNBC they seem to think the automatic response would be to give the money to the stockholders. But what about the workers that actually made the profits? It seems a bit heartless to not consider labor, but of course CNBC is a financial program so they never consider labor in their discussion unless it's how they affect the bottom line.

If a skilled worker wants to get a share of the profit outside his own salary, then he needs to become a shareholder by purchasing some stocks using his own salary. A coorporation is a large scale business that needs workers, as well as large sums of money to get started. With the excessive salaries that CEOs earn and the tiny dividends that too many investors get paid, it's understandable that most workers are not motivated to become investors.

But if the US cracks down on excessive CEO salaries and the book cooking that goes on, workers will be motivated to actually invest money instead of feeling at the complete mercy of their employer. RedCedar, if corporations were required to give a much larger share of profits to the shareholders, it would keep CEO salaries in check and prevent a CEO from making 400 times as much as the average employee. Also, it would help drastically reduce the US trade deficit by forcing coorporations to make products, instead of merely selling out to banks or other investors. That in turn would help restore manufacturing jobs in America.

Now, for the average worker bee who can't afford to invest, learning practical skills and working hard is still the best way to go. My advice is to get out of Detroit and look for a city with more job opportunities.

So, if last year a company had a profit of 10,000,000 and this year their profit is 12,000,000 you would consider that to be excessive?

So what about people who don't have money to invest?



But that's not practical. Not only is it more difficult to get such a job regardless of your education, but many people simply don't have the time or money to get those extra skills. Why shouldn't a worker get paid a bonus when the company does well?



I don't see how that plays out. I agree CEO wages need to be addressed along with the shananigans that happen in the backroom. But increasing stock dividends goes to the wealthiest people, for the most part. The majority of stocks are held by a small percentage of people. So instead of giving the bonus to the workers for doing such a good job, it's going to a 3rd party that just had extra cash to invest.



This has nothing to do with the question. I never made this personal about me.




Excessive as in "in excess", not as a value judgement as in "those profits are excessive!".

So if your profits rose by 20% over last year, then this would be EXCESS income for the company to figure out "what do we do with it?".

And so the question goes:

What do you think it should go to ? Stockholders or workers, if those are the only options.

RedCedar,

The problem is that you're confusing work with ownership. If you owned a house for 20 years and then managed to sell it for a large profit, would you give a large share of the profit to the construction workers who built the house 25 years earlier? I don't think you would. Merely putting in the hours for the paycheck does not necessarily make you the owner. The difference between the workers and investors is that the workers get paid for their hours, regardless of whether a business profits or not. The investors on the other hand, actually lose money when the business does poorly.


RedCedar, there are no easy answers to the education mess. America's education system needs reform plain and simple. This country needs to make sure that the unskilled workers get those needed skills. American workers need to learn more skills and the economy will not and cannot pay any worker $20 for a $5 job. A worker can get a bonus when the company does well, but the worker needs to have the necessary job skills to negotiate that pay raise. If your only contribution to the bottom line was sitting at a cash register, then you're not going to get that pay raise under any circumstance.

So when a company gets large profits, obviously the stock price will increase as will executive compensation, but should excess profits be given to shareholders or workers??

It is at the company's discretion.

Contrary to popular belief, there are companies that reward their employees during boom times. Sometimes they do it to keep workers during down times.

Microsoft is a great example. In the early lean years it gave out stock to loyal employees. Those that took the offer (and stayed employed there) are now very well off.

I used to work for a company that had an ESOP (employee stock ownership program) that handed out shares every year. During the good times of the late 1990s those shares amounted to about 25% of my salary.

Some companies are even owned by their employees.

It's a business decision whether or not to do something like this. There are clear drawbacks to muddling the ownership/employee relationship, including conflicts of interest, slow decision making, and diversification.

Take the examples of Enron and Worldcom(I know: boo!!). They gave employees shares of stock as a part of their 401(k) plans. When the company went belly up, the employees lost much of what they thought they had socked away. The knife cuts both ways.

Aside for ESOPs, many many companies offer bonuses, especially at Christmas time. These bonuses are usually based on the company performance for the year.

My last company had individual and department incentive bonuses based upon certain goals for the year. That worked fairly well to keep everyone focused on goals.

I think the premise that companies do not offer bonuses in years that they do well is a myth.

A house is not a company. Once they've completed the house they've stopped working. So that's not a very good comparison.



Regardless, people still work jobs that have high skills. Do they deserve a "part of the action" when the company does well? You could argue that in fact the workers are getting underpaid if the company is making such high profits. Don't the people that actually CREATED THE PROFITS deserve to be part of them?



What's funny is that recently I've been going to Home Depot and they must be treating their people horribly. The last 3 times I've gone a manager or cashier has given me something for free or reduced the price for me.

So I guess when the CEO is making $250 million/year and they aren't bumping those profits back to the cashiers....the company suffers. So that may be a reason to compensate the employees when profits are high, simply for morale purposes.

You still haven't given me an argument why workers shouldn't get a part of the profits. You talk about getting skills, moving away, etc. but nothing terribly supportive of why workers shouldn't partake in the rewards of the company.

Why not just prove us all wrong Cedar
start your own company and run the the way you beleive it should. high minimum wage and profits to the employees.
That way we cannot possibly argue you are wrong.
the obvious success of your ideas should be clear very quickly.
I have the feeling that in a year we will have Red Cedar 2.0
just a hunch.

There are examples of what you like, such as Costco

but simply it comes back to who owns the company and how they choose to run it.
Employess have the choice to accept the offered deal or go elsewhere.

You still haven't given me an argument why workers should get a part of the profits. They knew the deal when they accepted the contract--why should the business give them anymore than agreed to outside of it would give them the warm fuzzies. businesses are in existence to make money from a good or service.
Can they be set up to be community/worker Happy happy.
Sure -- but that is at the discretion of the owners. freedom of choice cedar.

Sure I understand the situation, obviously there is freedom of choice. But I'm asking what is best. I'm not ignorant of HOW THINGS ARE, but thanks for trying to explain it to me.

First, RedCedar, it may surprise you to know that although I think you and approach the whole issue of worker rights from opposite perspectives, I think a good company should indeed take care of its employees. That being said, I am also in agreement with LH here, in that employees are already compensated by the company. Perhaps the company did so well because they already paid employees above average wages and bonuses, in which case there would be little reason to compensate them further. There is also an inherent problem with the process you are advocating. That being that if employees should automatically be granted higher compensation when a company is doing well, that they should also have their compensation automatically decreased if the company is doing poorly. If the company actually loses money in a given year, does it then follow that payroll should, across the board, be slashed accordingly? Clearly, if workers are responsible for any 'excess profits', then they must equally be responsible for any 'excess loses' as well. Although we frequently see employees clamoring for more money when the company is doing well, you seldom see the other side of the coin, even though logic would dictate such an arrangement would have to work both ways.

But they are. It's called DOWNSIZING. And how often do the stockholders benefit when workers lose their jobs? Clearly in down times the workers are often the FIRST to feel the pain and often the execs are the last to feel it.

I understand how things work. And I watch CNBC all the time and they apparently feel the money should ALWAYS go back to stockholders. It's just my confusion why the people that did the work aren't getting the benefit or at least a cut of the profit.

I guess it's more of a moral issue than how capitalism works deal.

So the line workers and oil drillers at Enron were responsible for their collapse? When a company does good chances are everyone contributed in some fashion. However a below manager level worker can do the exact same level of work the following year and bad management/executive decisions can cost the company profits. It’s the strategic thinkers/planners that usually make the decisions that directly impacts profits, it’s extremely difficult for a lower level employee to impact a companies bottom line.


Not sure about Worldcom, but with Enron they didn’t just “give” away stock for an employees 401K (in fact I believe it might be illegal), they had a match (which is legal) to a certain percent of the employee’s donation. What many don’t realize is when the stock started to fall in price the pension fund managers at Enron refused to allow their employees to sell or shift their Enron stock to other investment vehicles within their 401K fund. And as I mentioned above, those “line workers” weren’t the ones cooking the books and making poor decisions, so your knife only cuts one way here.

So when a company gets large profits, obviously the stock price will increase as will executive compensation, but should excess profits be given to shareholders or workers??

The number of companies that actually pay dividends has shrunk considerably over the last twenty years, no coincidence I’m sure that executive level grew at a ridiculous rate during the same period. So a shareholders payoff is most often found with increased stock price.

Another part of the equation is a lot of executive bonuses are based on Earning Per Share, so by failing to significantly increase their employees pay rates (hourly, salary and bonuses) it keeps the EPS high and more money in their own accounts. However, I do think companies need to be careful how they reimburse their employees with bonuses and pay raises.

An example at Ford Motors. Ten years ago they were paying nice bonuses to their line workers which stopped several years ago. With the current financial crisis at Ford some of those same line workers who are now retired are hoping their pensions will be around in five years. But once again, these line workers had nothing to do with managing the financial assets at Ford and I’m sure if they knew big bonuses today may translate to a failed pension fund tomorrow they would have refused the bonuses.

Redcedar, I think I see where you’re going with your questions. In the last ten years our average raise has been about 2.5% per year (excluding promotions and above level performance) while executive salaries have followed the national trend. The pure capitalists will say things like “go start your own company” or “work harder to get to the top and enjoy those big salaries”. But what many fail to see or “get”, is these executive are paid an exorbitant amount of money to produce excessive or large profits. So in reality they’re only doing their job just like their lowest level employee and all should reap the same level/percent of benefits. But unfortunately for the average American worker a “holier than thou attitude” has taken root in the board rooms.

It sounds like you're agreeing with my argument then? For using the logic above, there wouldn't be any reason to reward employees for good company performance either, as you state it's extremely difficult for lower level employees to impact a company's bottom line, indicating that any excess profits probably weren't caused by them either. Unless you're trying to have it both ways, which would also be agreeing with my argument that that happens too much.

Excellent! I was trying to get around to that without actually stating it. I can certainly understand this sentiment. As I stated earlier, even though I tend to disregard the moral aspect (which is why our philosophies are different), I think we might still arrive at the same endpoint. I strongly believe that it is good business to treat your employees well, and that well-treated employees then usually turn around and outproduce those less well-treated. Consider just training costs alone if turnover is high, or the loss of knowledge and experience if those that have worked there a long time all leave. This is almost impossible to replace. So, while I don't agree that there is any moral imperative to share profits with employees, I think it is very good business to do so. It creates more employee loyalty and satisfaction, and loyal satisfied employees work harder and are more productive--which then leads to more profits, and higher shareholder value. This is definitely a situation where everyone can win.

How I think this should be done at most companies is through a profit sharing plan. This way, employees are motivated to do those things that do increase profit, giving them a stake in the very goal they, the company, and its shareholders should all share. This also deals with how to handle situations in which profits are low or non-existant--no profits, nothing to share. Generally, places that offer this usually have lower than average base pay, so the worker has to buy in to that when they take the job.

So when a company gets large profits, obviously the stock price will increase as will executive compensation, but should excess profits be given to shareholders or workers??

I'm not sure I believe in excess profits. I think American corprations do not value hard workers enough. The rhetoric in today's society tends to focus on the damage caused by emplohyee groups that have won high salaries or wages. The last thirty years has had international competition lowering our wages and benefits and increasing the payout that goes to capital.

How to change this? Perhaps use bond issues more than stock issues? Perhaps decrease the ratio between high executives and lower tier employees?

But as the arragnements have already been made for the year, when a windfall profit comes to a corporation it should look at its needs first. Capital should be invested in the corporation in a way that makes it likely more profitable in the future.

So I think the value at that point should go to the capital holders. I think some companies have good programs that try to build a team concept by issuing stock options to employees to give them a more vested interest in the company. I think this is a good idea, despite the Enron's. individuals should work past this bonus income and make sure that they keep diversifying their capital interests.

Ideally, I would like to see the world place a higher value on labor based income and less of one on capital. I think capital interests warp the market and find ways to make the shar of capital get more than its fair share of the return on investments. In my more ideal world, capital would pay out and average like the increase in GDP and labor would increase at double that rate for a while.

I would like to see executive pay addressed more effectively. too many CEOs et al have their system rigged with peers and cronies who have a vested interest in helping overpay executives. I'd like to see them hungrier and working more for big paydays when a company earns high profits and making the money of a mere mortal when the company founders.

I type all of this to point out some things I don't love about our version of a market economy, but when high profits are in, they should go out the way the were prearranged. Don't punish a company after it has scored big if it hasn't broken the law.

Kind of a sidetrack, but I suspect a big part of the impetus behind the debate, so I'll address it. Personally, I think what needs to be done here is to make executive compensation more tied to long term shareholder increase. Most of the issues stem from the fact that there are a lot of things that can be done to turn around short term financial performance that are often detrimental to long term performance. Further, investing in anything, including your employees, often also has a long term performance impact. So, given current structures, executives might not be willing to sacrifice near term gains for long term ones. The culprit here, though, is not the company, but the shareholders. Although the majority of shareholders are in it for the long term, nearly always the vocal shareholders are looking for a much quicker payout. Further, traders react to much shorter term news, and traders are the only ones, well, trading, so they set the stock price. In short, it is our system that causes companies to behave as they do, so you can't change the companies much without addressing the system at large. You'd have to get the average stockholder a whole lot more involved than they currently are, and then get them to force companies to change the way they operate.

Not really, I was probably a bit too vague. Lower level employees can impact the bottom line, but not to the degree of upper management.

I stated that if an employee performs at the same level as the prior year, if they didn’t perform any activity that cost the company additional money to correct mistakes and they’re performing at a level that’s expected (same as prior year) they really can’t negatively impact the bottom line (should have included negatively in my original post).

If the VP of Operations, a strategic decision maker, decides to expand hog farming in the Middle East (bad decision/performance) and the lower level employees executes the plan to perfection (good performance) that one bad decision could severely impact the bottom line. Whereas if the lower level employee didn't execute a bad plan well, the bad decision would still impact the bottom line more.

I do agree with you on profit sharing, probably the most equitable plan to keep everyone happy and motivated.

Alright, the ownership of a house was a bad example.

But RedCedar, I'll give you some other examples of why profit sharing with the employees is not necessarily a good idea. You do seem to be confused about the priviledges that employees get and the priviledges that owners get.

There are tradeoffs between being an employee and an owner. An employee is guaranteed to get paid to an agreed wage regardless of how the business performs. An owner or investor on the other hand, only gets paid if the business makes a profit. By getting paid, I mean earning enough money to recoup the financial cost of the business. Often, it can take months or years to get paid if you happen to be an investor.
The priviledge that the investor gets in return is a 100 percent claim on the profits after the employees get paid according to the wages that they agreed to. If a business is doing great, an employee is free to bargain for a better wage. But as I mentioned before, a person's bargaining power is limited by his actual contribution to the bottom line. Rarely will a cashier get a pay raise. A good salesperson on the other hand can negotiate for things like higher commissions.

RedCedar, suppose you opened a small business in your house and managed to make a profit. Would you share that profit with the kid who mows your lawn? Or would you give some extra tips to the person who sells you your supplies? Probably not. They do some work that helps keep your business running. And they continue working as well. But they're not the owners. There is a difference between being an owner and being an employee.