The Economics Thread

[TinyRedLeaf]

Originally Posted by DonQuigleone

Doing "proper" Journalism is a lot harder then it looks. A lot of hard work goes into it.

Of course. That goes without saying. Anything worth doing well takes a lot of effort and, sometimes, a fair bit of personal sacrifice. Even "bad" journalism takes a lot of work, but would readers and viewers really care? I don't think so. It's always easy, and far more enjoyable, to be an armchair critic.

I would qualify, though, that journalists — American journalists, especially — would do a lot better by dropping all pretence of being "champions of free speech and democracy". That's self-deception at best, and an outright lie at worst. We like to think of ourselves as storytellers but, more often than not, we're really no better than glorified gossipmongers. Once we're clear about this, that we are ultimately part of a business, there would be a lot less hand-wringing about the imminent demise of the "Fourth Estate" and more focus on what really needs to be done to save the industry and the profession.

=====

Here's a little something else to get more discussion going: Why should some jobs pay so much more than others? I mean, seriously, how does one justify the millions earned by bankers and sports stars, versus what's earned by an engineer who designs and builds something that's actually useful, rather than something dubious or simply for entertainment?

[Bri]

Originally Posted by TinyRedLeaf

Here's a little something else to get more discussion going: Why should some jobs pay so much more than others? I mean, seriously, how does one justify the millions earned by bankers and sports stars, versus what's earned by an engineer who designs and builds something that's actually useful, rather than something dubious or simply for entertainment?

Top talent is scarce. If that talent is hard to replace and has a major impact on earnings in an big industry, they can command high wages.

Although engineers as a professional group may not earn large amounts, the top people in the field can earn considerable wages. For example in the car industry key technical designers have switched companies for large sums.

A big problem of the free market is that it has trouble dealing with externalities: costs or benefits to third parties not incurred by either a company or its clients. Positive benefit engineers have on society is not reflected in their pay. For that reason governments in some countries subsidize technical studies, making the profession more attractive for young people. Other means a are tax breaks for tech starters etc.

Same way taxes can be used to keep top earnings in check.

[Solace]

Originally Posted by TinyRedLeaf

This is irrelevant, but is there such a thing as good porn, regardless of price?

The clips of people having sex? Not so much. But there is plenty of stuff out there that is classified as pornography that uses sex as a tool for storytelling and not just the act itself. Erotica basically: there's a story, a point to all of the sex. Personally I have no issues with the traditional porn industry being made obsolete, but it has an upside: control. Regular checkups for disease, abuse prevention, etc. It's far easier to exploit people and much riskier to spread disease when everything is "amateur".

Anyway, it all comes down to something simple: people won't pay for something they can get for "free". That's the fundamental challenge to all media-content producers, regardless of genre (yes, that includes anime).

Well it's basic market principles: people will only pay money for something they think is worth it. Even if copyright protection was iron clad and people couldn't watch things for free, that wouldn't translate into sales. If people don't want to spend money, they won't. The absence of pirating and free content won't change that.

Originally Posted by TinyRedLeaf

Here's a little something else to get more discussion going: Why should some jobs pay so much more than others? I mean, seriously, how does one justify the millions earned by bankers and sports stars, versus what's earned by an engineer who designs and builds something that's actually useful, rather than something dubious or simply for entertainment?

Oooh boy. That's a can of worms. I'm not sure I could give a good answer to that at the moment.

[DonQuigleone]

Originally Posted by TinyRedLeaf

I would qualify, though, that journalists — American journalists, especially — would do a lot better by dropping all pretence of being "champions of free speech and democracy". That's self-deception at best, and an outright lie at worst. We like to think of ourselves as storytellers but, more often than not, we're really no better than glorified gossipmongers. Once we're clear about this, that we are ultimately part of a business, there would be a lot less hand-wringing about the imminent demise of the "Fourth Estate" and more focus on what really needs to be done to save the industry and the profession.

My thinking is that one big problem in Journalism right now is that there a lot of what I would call "armchair" journalists, who don't do any original research themselves and just repeat what others have said. Newspapers need to do more of their own information gathering and fact checking, otherwise they're no better then news aggregators .

[TinyRedLeaf]

Originally Posted by DonQuigleone

My thinking is that one big problem in Journalism right now is that there a lot of what I would call "armchair" journalists, who don't do any original research themselves and just repeat what others have said. Newspapers need to do more of their own information gathering and fact checking, otherwise they're no better then news aggregators .

"Armchair" journalists have always been around. It's just that it has become a lot easier today to set up your personal soapbox and broadcast to the world.

As for news aggregation, that's basic economics at work: the division and specialisation of labour. As revenues fall, newsrooms the world over are increasingly cutting back their foreign bureaus and relying on newswires like Reuters and AFP to bring in stories from abroad. What you'll find is that the Internet is forcing newsrooms to become "hyper-local", focusing more on news in the community that isn't covered by news agencies.

As for information gathering and fact-checking, those are basic requirements of any newsroom. Journalism is "old" enough that the processes are more or less the same no matter where you are. I find that it comes down to individual personalities, whether or not any newsroom shines. Economics, I think, has little to do with it. Well, insofar as the pay did not deter people from becoming journalists in the first place.

Originally Posted by Bri

Top talent is scarce. If that talent is hard to replace and has a major impact on earnings in an big industry, they can command high wages.

That's the same logic that the Singapore government uses to justify the world's highest salaries for Cabinet ministers. Which raises all kinds of questions, such as whether politicians ought to be paying themselves millions on the basis that they do a job that's just as important as (if not more so than) that of chief executives at top multinational corporations, and therefore require the same level of "talent" that commands top dollar.

One could argue that you get what you pay for, politically, in the United States, for example.

[Bri]

Originally Posted by TinyRedLeaf

That's the same logic that the Singapore government uses to justify the world's highest salaries for Cabinet ministers. Which raises all kinds of questions, such as whether politicians ought to be paying themselves millions on the basis that they do a job that's just as important as (if not more so than) that of chief executives at top multinational corporations, and therefore require the same level of "talent" that commands top dollar.

One could argue that you get what you pay for, politically, in the United States, for example.

There is a difference between having "creative" talent like can be seen with athletes, traders, designers, developers, researchers. There is a tangible performance that can be assigned to a particular individual. The demand for and valuation of their skills by organizations sets their wage. Simple supply and demand mechanism.


Management (and politics) is a different ballgame. Talent is not scarce at all but proven talent is. A bad applicant assigned to an important position could have disastrous results. The problem is that it is much harder to spot the "lemons" among applicants. Managerial performance is hard to measure directly, judgement is based on recommendations and organization performance.

Organizations simple pay overly high wages in order to maximize the chance of attracting top people with large, solid track-records. The argument is that if they don't pay the highest wages only inferior candidates will apply. The wage premium paid therefore can be seen as an insurance. (I personally don't agree with this reasoning, but it happens)

However, often the people who "judge" the quality of applicants come from the same social group as the applicants, creating all kinds of opportunities for nepotism and insider networks.

[TinyRedLeaf]

Originally Posted by Bri

The demand for and valuation of their skills by organizations sets their wage. Simple supply and demand mechanism.

Agreed.

Originally Posted by Bri

Organizations simple pay overly high wages in order to maximize the chance of attracting top people with large, solid track-records. The argument is that if they don't pay the highest wages only inferior candidates will apply. The wage premium paid therefore can be seen as an insurance. (I personally don't agree with this reasoning, but it happens)

I don't see why "management" should be valued so much more than any other kind of "talent", especially when high pay is no guarantee against lemons or corruption. In fact, I could also argue that the high pay increases the number of lemons you get simply because you are attracting so many more applicants. Simple law of averages.

So, while every Tom, Dick and Harry graduates hoping to become a banker or a lawyer because of the high pay, relatively fewer talented individuals go to other sectors in the economy. You get a vicious circle in those sectors starved off necessary talent. They atrophy day by day, and with less and less spending power at their disposal, they find it increasingly harder to attract the people they need.

Then what? I guess this is where the society and the economy as a whole needs to decide what to keep and what to let die. On paper, a cut-and-dry affair. In practice, a wrenching issue, when you have to tell someone he doesn't have a job any more because the industry he works in is no longer competitive in that economy.

[Bri]

Originally Posted by TinyRedLeaf

I don't see why "management" should be valued so much more than any other kind of "talent", especially when high pay is no guarantee against lemons or corruption. In fact, I could also argue that the high pay increases the number of lemons you get simply because you are attracting so many more applicants. Simple law of averages.

Yes, I agree.

Originally Posted by TinyRedLeaf

So, while every Tom, Dick and Harry graduates hoping to become a banker or a lawyer because of the high pay, relatively fewer talented individuals go to other sectors in the economy. You get a vicious circle in those sectors starved off necessary talent. They atrophy day by day, and with less and less spending power at their disposal, they find it increasingly harder to attract the people they need.

Yes, that has become a major problem by the dominance of financials in developed economies. The best and the brightest don't go in to science or engineering any more but work for these institutions on market models.

Technological improvements increases the total output of an economy, which in turn increases total wealth. Financials making a profit on the markets only redistributes wealth, they don't create anything.

I'm not saying finance has no important role, but it should facilitate markets and the economy by increasing efficiency. It's not a goal in itself.

[SaintessHeart]

Originally Posted by TinyRedLeaf

So, while every Tom, Dick and Harry graduates hoping to become a banker or a lawyer because of the high pay, relatively fewer talented individuals go to other sectors in the economy. You get a vicious circle in those sectors starved off necessary talent. They atrophy day by day, and with less and less spending power at their disposal, they find it increasingly harder to attract the people they need.

When local talent is not available, hire foreign ones; especially those from countries who have smaller currency than you.

Then you further dilute the wage benchmark, underwaging the less certified but better trained individuals (known as "amateurs"......in fact with the expansion of the internet these "amateurs" perform significantly better than "certified individuals"), resulting in lower consumption > greater volume of bank loans > higher interest rates > increased CoDB + lower entrepreneurship levels > less hiring of locals, more hiring of cheaper foreign talent........it is a really vicious cycle.

I think the problem lies with the desire for consumerism - as much as it is a good personal motivator for a person to work harder, sometimes it is pretty worthless to display an object of pride to other people who won't be around you when it is gone.

[DonQuigleone]

I think the reason that managers earn more is that they're the ones that set the wages...

[Xellos-_^]

Originally Posted by TinyRedLeaf

One could argue that you get what you pay for, politically, in the United States, for example.

the US has best government money can buy.

[ganbaru]

Originally Posted by Xellos-_^

the US has best government money can buy.

You used ''buy'' insted of ''get '' on purpose, right ?

[Sumeragi]

I'm currently enjoying the Apple lawsuit against Samsung. I'm hoping for the Apple Rebels to be taken down a floor or two.

All Hail Samsungia!

[SaintessHeart]

Originally Posted by Sumeragi

I'm currently enjoying the Apple lawsuit against Samsung. I'm hoping for the Apple Rebels to be taken down a floor or two.

All Hail Samsungia!

Most people in the tech sector does. Most of us are sick of having to service something that requires borderline illegal methods to open up.

And so are many traders......can't wait for the stock price to decrease and buy up more since Apple has a pretty strong and stable, yet recycable customer base.

[oompa loompa]

Originally Posted by DonQuigleone

I think the reason that managers earn more is that they're the ones that set the wages...

I'm going to go with don here for the most practical best answer. If I remember my microeconomics correctly, there are a couple of justifications for why managers (should) earn more.

The first has to do with the fact that there's something of a fundamental gap between opinion of the wage-earner and wage-setter on whats the right wage. first (for arguments sake) i'm taking a look at wage in a broad(er) manner, including the prestige, responsibility etc. ( of course, this would imply that certain jobs attract certain types of people based on what they want out of a job). Unless both the employer and employee know that they both know exactly how good the employee is, there'll be some kind of gap between what people earn and what they think they should earn. If the employee thinks hes earning less than he should for the work he does, he'll shirk, and by shirk i mean he might work less hard, work less hours, steal money, w/e. Since finding that information out beforehand is impossible (or lets say, prohibitively expensive), you gotta enforce the rules within the organization post hiring. But then the same problem arises; how do you enforce the enforcers? Obviously, by increasing the severity of consequences, but more importantly, by linking the managers wage to the overall size, and profits of the company. The regular employees on the other hand, are paid according to the 'output' they produce. This problem is confounded for government jobs; there's no profit to peg wages, and there is at best a set of fluid goals to use as benchmarks. That was a bit of a tangent, but anyways since the management has the power to set the wages, this is one of the more popular justifications, at least in standard economic academia. Theres a lot of brain-frying stuff on corporate management models that I have little no expertise in however.. its explained a lot better in the original article, so pm me if you want to read it

The other reason is often has to do with the lifetime of an employee in a firm; by paying managerial 'senior' positions higher, you increase the incentive of employees to remain and work harder to reach higher positions. Even if its only an illusion that there is that amount of vertical mobility for employees in an organization. This is all excluding the argument that managers do more for the company in terms of profitability, hence they should be paid more (its quite a weak argument)

*Sigh* I guess I respect economics point of view that by modeling individuals behavior under somewhat restrictive assumptions we can extract meaning and results that otherwise wouldn't be apparent. Unfortunately, this injustice ( i guess you could call it that.. though feel free to put in any word you like) is the consequence of following a (restrictive) system based purely on mathematical selfishness, a.k.a economic effciency. Despite our best efforts, the way we are now doesn't look particularly efficient in the economic sense either.

[DonQuigleone]

Originally Posted by oompa loompa

I'm going to go with don here for the most practical best answer. If I remember my microeconomics correctly, there are a couple of justifications for why managers (should) earn more.

The first has to do with the fact that there's something of a fundamental gap between opinion of the wage-earner and wage-setter on whats the right wage. first (for arguments sake) i'm taking a look at wage in a broad(er) manner, including the prestige, responsibility etc. ( of course, this would imply that certain jobs attract certain types of people based on what they want out of a job). Unless both the employer and employee know that they both know exactly how good the employee is, there'll be some kind of gap between what people earn and what they think they should earn. If the employee thinks hes earning less than he should for the work he does, he'll shirk, and by shirk i mean he might work less hard, work less hours, steal money, w/e. Since finding that information out beforehand is impossible (or lets say, prohibitively expensive), you gotta enforce the rules within the organization post hiring. But then the same problem arises; how do you enforce the enforcers? Obviously, by increasing the severity of consequences, but more importantly, by linking the managers wage to the overall size, and profits of the company. The regular employees on the other hand, are paid according to the 'output' they produce. This problem is confounded for government jobs; there's no profit to peg wages, and there is at best a set of fluid goals to use as benchmarks. That was a bit of a tangent, but anyways since the management has the power to set the wages, this is one of the more popular justifications, at least in standard economic academia. Theres a lot of brain-frying stuff on corporate management models that I have little no expertise in however.. its explained a lot better in the original article, so pm me if you want to read it

What you say I think is the generally received wisdom in management. Personally, I don't agree with it. I think the logical end point of this kind of setup is a "police state" mentality, where people only do what they are supposed to do, and only put in effort out of fear of losing their jobs and not out of any genuine desire to improve the company. People working out of fear will do anything, including activities that may harm the company. People working out of "love" will go above and beyond the call of duty.

To get good output from employees, I think 2 ingredients are required: Solidarity and Mission.

Solidarity: Employees must feel a sense of solidarity with their fellow employees, managers and the company itself. They must feel that "they are on the same team". This requires trust, trust in the idea that the company has their best interests at heart. If the company doesn't trust them, why should they trust the company? If the company will throw them away at the soonest convenience, why should they display any loyalty to it? The idea of increased pay for good performance is not about greed (good performance is rarely driven by greed, stealing money on the other hand...), it's about fairness. If I work hard and I achieve something that makes the company lots of money, is it fair that the shareholders benefit while I walk away with nothing? If this kind of thing continues the employee will feel like his work is only being exploited.

However, merit based pay can often lead down a road of greed, where employees try to deceive their managers into thinking they work harder then they actually do, while downplaying how hard other employees work (as any bonus the other employee recieves is a bonus I can't get). Instead, I think all members of a particular team should all receive the same pay, and the same performance based bonus. That way it's very clear from their own paycheck that they will all succeed and fail together. If possible all employees in the entire company should have the same performance based bonus, from the highest CEO to the lowest line worker. The line worker should feel solidarity with his CEO, as should the CEO with his line worker.

Now Solidarity alone isn't enough. I think you also need the organization to have a genuine sense of mission. Now it doesn't need to be saving the world (though that always helps), but the organisation does need to be permeated with the idea of customer service. That the organisation is infused with a mission to provide the very best service/product to the customer, the most efficiently, at the lowest cost. The customer should not be a walking bag of money waiting to be conned.

You can see elements of what I'm talking about with certain very famous companies, for me the stand out is Toyota, their takeover the NUMMI plant in California is quite interesting.

As I see it, companies begin to fail when the managers separate themselves from their employees (and even look down on them...), and employees become apathetic towards the work of the company as a whole. It's a question of motivation, rather then greed. If you create the right kind of company culture, employees will be willing to go so far as to voluntarily cut their own wages if they see the company getting in trouble. That kind of loyalty and commitment is rare in the world of fortune 500 companies...

[oompa loompa]

For the sake of discussion I'm going to play devils advocate and take the managers side of things

Originally Posted by DonQuigleone

What you say I think is the generally received wisdom in management. Personally, I don't agree with it. I think the logical end point of this kind of setup is a "police state" mentality, where people only do what they are supposed to do, and only put in effort out of fear of losing their jobs and not out of any genuine desire to improve the company. People working out of fear will do anything, including activities that may harm the company. People working out of "love" will go above and beyond the call of duty.

At the end of the day the goal of the company is to make lots of moneh (it can always be translated into a version of this); thats it essentially. This is a subjective question, but do you think its easier/cheaper to make/find a 100 people to love their work, or get a 100 people to work out of fear? If only 25 out of a 100 love their job though all of them have job security, would the output actually be better than the 100 people working out of fear? (Probably depends on the industry, I hear working at google is a pretty sweet deal for what you're talking about). Obviously, enforcement is a second best solution, ideally you'd want a solution where the incentives of all agents are aligned, but its difficult to go around since that amount of information transparency is difficult to achieve. If I had to think of it simply... it would be like maximizing a function where a part of the function can only be approximated as a constant. Depending on the amount of information transparency, maybe this solution is counter-productive, but I'm not sure I can say that the best solution stays the same always.

To get good output from employees, I think 2 ingredients are required: Solidarity and Mission.

Solidarity: Employees must feel a sense of solidarity with their fellow employees, managers and the company itself. They must feel that "they are on the same team". This requires trust, trust in the idea that the company has their best interests at heart. If the company doesn't trust them, why should they trust the company? If the company will throw them away at the soonest convenience, why should they display any loyalty to it? The idea of increased pay for good performance is not about greed (good performance is rarely driven by greed, stealing money on the other hand...), it's about fairness. If I work hard and I achieve something that makes the company lots of money, is it fair that the shareholders benefit while I walk away with nothing? If this kind of thing continues the employee will feel like his work is only being exploited.

You probably won't walk away with nothing, not unless they cheat you out of it. One could argue that the shareholders faith played a much bigger role in the success of the company than a single employee. Thats one of the biggest problems with the 'we work on researching and innovating so we should be paid more' is that its very very tough to actually know whether a researcher will come up with the goods. Should they be paid enormously for their achievment? Absolutely. Why don't they? Cos they probably signed a contract with both the employer and employee thinking that they wouldn't create anything amazing. If a dude is GUARANTEED to make a world-changing invention, I am completely sure he'll be compensated accordingly. I don't actually think companies want people to have too much loyalty, they want to be able to get rid of people and hire new ones as fast and as cheap as possible.

However, merit based pay can often lead down a road of greed, where employees try to deceive their managers into thinking they work harder then they actually do, while downplaying how hard other employees work (as any bonus the other employee recieves is a bonus I can't get). Instead, I think all members of a particular team should all receive the same pay, and the same performance based bonus. That way it's very clear from their own paycheck that they will all succeed and fail together. If possible all employees in the entire company should have the same performance based bonus, from the highest CEO to the lowest line worker. The line worker should feel solidarity with his CEO, as should the CEO with his line worker.

what about the free-riders on the team if everyone is paid the same? Should probably be a balance between individual and overall success, which it generally is. The problem with the performance based bonus being the same is, that the same percentage increase in performance for two individuals in different positions ( even if they are identical), to have a very different effect on output. What people forget is the time variable in all of this. Its all well and good to have an ideal, robust, long-run system, but not if it takes forever to come together. and not if a more cut-throat, short-sighted firm drives you out of the market in the short/medium run. I think its up to the big companies to set standards of business fairness, and some do.

Now Solidarity alone isn't enough. I think you also need the organization to have a genuine sense of mission. Now it doesn't need to be saving the world (though that always helps), but the organisation does need to be permeated with the idea of customer service. That the organisation is infused with a mission to provide the very best service/product to the customer, the most efficiently, at the lowest cost. The customer should not be a walking bag of money waiting to be conned.

The mission is moneh, by which i mean REAL liquid tangible and emotional consumption for those involved. Wrong I know, but again, if you don't take that mentality someone else will and destroy you. There are exceptions; but they are exceptions.

You can see elements of what I'm talking about with certain very famous companies, for me the stand out is Toyota, their takeover the NUMMI plant in California is quite interesting.

As I see it, companies begin to fail when the managers separate themselves from their employees (and even look down on them...), and employees become apathetic towards the work of the company as a whole. It's a question of motivation, rather then greed. If you create the right kind of company culture, employees will be willing to go so far as to voluntarily cut their own wages if they see the company getting in trouble. That kind of loyalty and commitment is rare in the world of fortune 500 companies...

Maybe that has something to do with why they are fortune 500 companies, (though a lot of fortune 500 companies are really good with the employees, again, maybe this depends on the business?).

I don't think we're morally twisted. I genuinely just think we as economists are too dumb to think up a better system.

Disclaimer: If I use words like 'always', or 'never', don't take it to be binding, I'm not writing this too carefully.

[DonQuigleone]

Originally Posted by oompa loompa

For the sake of discussion I'm going to play devils advocate and take the managers side of things

Sure. Always good to put ideas to the test.

At the end of the day the goal of the company is to make lots of moneh (it can always be translated into a version of this); thats it essentially.

I'd disagree, the purpose of a company is to serve the needs of it's customers. The purpose of the sharholders in investing in the company is to make money (and there's nothing wrong with that). However, the concerns of the employees should be in satisfying the customer. For providing a good service, the customer compensates the company for it's work, which is then largely distributed to the employees (with the remainder going into further development, or back to the shareholders).

The Employees are the company. The employees in working should not be working purely for their own selfish personal advancement, but rather to further the goals of the company. The company then compensates the employees, because that is fair.

This is a subjective question, but do you think its easier/cheaper to make/find a 100 people to love their work, or get a 100 people to work out of fear? If only 25 out of a 100 love their job though all of them have job security, would the output actually be better than the 100 people working out of fear? (Probably depends on the industry, I hear working at google is a pretty sweet deal for what you're talking about). Obviously, enforcement is a second best solution, ideally you'd want a solution where the incentives of all agents are aligned, but its difficult to go around since that amount of information transparency is difficult to achieve. If I had to think of it simply... it would be like maximizing a function where a part of the function can only be approximated as a constant. Depending on the amount of information transparency, maybe this solution is counter-productive, but I'm not sure I can say that the best solution stays the same always.

Fear is easier then love, that is why many companies work based on fear. People will often take the easy way out after all. But in the modern workplace, work is largely skilled, and so to get good results you need commitment from your employees. In a fear based environment you can extract meaningful work from unskilled workers, as you only have to police them doing a set of physical actions. But for skilled workers, they can simply pretend to work. Instead of pushing for the companies goals, these skilled workers will instead expend their energies in the easiest way possible, which is to spend most of your time on office politics, in order to seem like you're working, while in fact not doing anything at all.

You probably won't walk away with nothing, not unless they cheat you out of it. One could argue that the shareholders faith played a much bigger role in the success of the company than a single employee. Thats one of the biggest problems with the 'we work on researching and innovating so we should be paid more' is that its very very tough to actually know whether a researcher will come up with the goods. Should they be paid enormously for their achievment? Absolutely. Why don't they? Cos they probably signed a contract with both the employer and employee thinking that they wouldn't create anything amazing. If a dude is GUARANTEED to make a world-changing invention, I am completely sure he'll be compensated accordingly. I don't actually think companies want people to have too much loyalty, they want to be able to get rid of people and hire new ones as fast and as cheap as possible.

I would argue that they should be paid based on the current performance of the company, or their segment of the company. Doing this is tricky, however (for instance, how do you assess the performance of Customer Service?). But ideally, the employee needs to feel that if the company is successful, they will also be successful, and that they can't be successful if the company isn't successful.

I personally think that shareholder's faith plays much of a role in the success of a company. Rather, I would say it's a symptom, rather then a cause of problems. The failure or success of a company is in it's employees. What is a company but a group of people working towards fulfilling the needs of a set of customers? If the people aren't working to fulfill those needs, your company is paying people to do nothing.

what about the free-riders on the team if everyone is paid the same? Should probably be a balance between individual and overall success, which it generally is. The problem with the performance based bonus being the same is, that the same percentage increase in performance for two individuals in different positions ( even if they are identical), to have a very different effect on output. What people forget is the time variable in all of this. Its all well and good to have an ideal, robust, long-run system, but not if it takes forever to come together. and not if a more cut-throat, short-sighted firm drives you out of the market in the short/medium run. I think its up to the big companies to set standards of business fairness, and some do.

In terms of the free riders, they're brought into line by social pressure. IE "we're all working really hard, what are you doing?". It's not simply the manager policing, but all the workers looking at one another to ensure everyone is working effectively. If you have a worker who is stubbornly freeriding, then you just need to fire them.

In terms of performance based pay, I don't think the bonus should be a percentage of their wage, but an absolute quantity. I believe in lieu of other bonuses, a percentage of the net profit should be distributed equally between all employees (with the newest trainees receiving less, until they're integrated into the company). I mostly speak of industries where most of the work is skilled, however. So if a company does well, all employees will find themselves with a $4,000 bonus.

The mission is moneh, by which i mean REAL liquid tangible and emotional consumption for those involved. Wrong I know, but again, if you don't take that mentality someone else will and destroy you. There are exceptions; but they are exceptions.

Disagree, if all you're looking at is the bottom line, your customers will leave you for a company who cares a bit more. Likewise, a company where money is the mission, will funnel all the cash up to the top layers of shareholders and managers. The employees lower down the chain (who might I add are the ones doing the actual value-adding work), will look on in disgust as they're exploited, and find ways to exploit the company back.

The mission is customer satisfaction, money is simply the result.

Maybe that has something to do with why they are fortune 500 companies, (though a lot of fortune 500 companies are really good with the employees, again, maybe this depends on the business?).

I don't think we're morally twisted. I genuinely just think we as economists are too dumb to think up a better system.

I think you'll find out that most Fortune 500 companies start somewhat as I describe (they may not have such radically egalitarian pay structures though ), whereby they start out with a focus on providing a great product. Later as they grow and fossilize, companies will then settle into corrupt power structures, leading to the eventual downfall of the company (look at, say, GM or Enron, companies where it was all about the money...)

I take my queues from some very successful companies. For me, Toyota is what particularly impressed me. The reason Toyota at it's peak managed to produce such high quality cars with such efficiency is that they managed to create a sense of mission throughout the organization, whereby every level of the company was engaged in trying to continuously improve the company (the jargon for this being "Kaizen". The Toyota assembly line became incredibly efficient because every single line worker was continuously looking for ways to improve it. When problems occurred, employees weren't punished, but rather worked together to solve the problem.

To get this level of motivation and commitment from employees, Toyota had to get their trust, and they did this by paying them a decent wage, paying them bonuses if they improved the line, and rarely laying off workers. If you look at it's record, Toyota has had very few plant closures and large scale layoffs. Toyota employees stand by Toyota because they know that Toyota will stand by them. They might get their wages cut in bad times, but they know Toyota will do it's best not to lay them off, instead Toyota might invest in them by putting them through training programs.

Now Toyota is not perfect (and it's probably not as it good at it was at it's peak), but it shows you the power of employee participation.

The contrast is GM, where management never trusted it's employees, and consequently it fell behind. Again, this program illustrates it nicely.

Other successful companies with interesting management structures are Valve and Semco.

[Anh_Minh]

Originally Posted by DonQuigleone

Sure. Always good to put ideas to the test.
I'd disagree, the purpose of a company is to serve the needs of it's customers. The purpose of the sharholders in investing in the company is to make money (and there's nothing wrong with that). However, the concerns of the employees should be in satisfying the customer. For providing a good service, the customer compensates the company for it's work, which is then largely distributed to the employees (with the remainder going into further development, or back to the shareholders).

I'd say the purpose of a company is to serve the interests of its stakeholders. The customers are stakeholders, certainly, but so are the employees. And the shareholders.

The different interests are sometimes in contradiction with each other, so it's a balancing act. And I don't put much stock in the concept of "fairness". Too subjective. Too top down, too. (Someone somewhere deciding the specifics of what is "fair".) I prefer more peer-to-peer concepts such as "contracts" and "acceptable".

[DonQuigleone]

Originally Posted by Anh_Minh

I'd say the purpose of a company is to serve the interests of its stakeholders. The customers are stakeholders, certainly, but so are the employees. And the shareholders.

Disagree. A company cannot exist without customers. A company exists to perform a function, and that function is defined by the customers that the company serves.

If customers no longer desire the company's services, it may as well not exist.

If a company does not serve the interests of the stakeholders you refer to, the company can still go on (although it may be weakened), but if it ignores the customer it's doomed. So the purpose of shell is to serve it's customers (pretty much everyone) by providing them with oil quickly, cheaply and efficiently. The purpose of your local restaurant is to provide it's patrons with an excellent dining experience. The purpose of the restaurant is not to satisfy the waiter's desire to wait tables, or the cook's desire to cook.

As for what the company is, the company is the employees, and whatever equipment and capital it has accrued. Depending on the nature of the business, the balance of company ownership will fall more towards shareholders (who own the "capital") and employees (who operate it). A fast food chain would lean more towards the shareholders, as the worker's labour is of less value then the equipment. An IT company, on the other hand, would have almost all value held by employees. The equipment is of little value compared to value of the worker's skills.

The different interests are sometimes in contradiction with each other, so it's a balancing act. And I don't put much stock in the concept of "fairness". Too subjective. Too top down, too. (Someone somewhere deciding the specifics of what is "fair".) I prefer more peer-to-peer concepts such as "contracts" and "acceptable".

Fairness is very important in terms of personnel management, and it is inherently subjective, and judged by every single individual worker. If a worker doesn't feel his work place is fair, he will contribute less work, and will feel aggrieved. If a worker feels like the company has been generous towards him (and he respects the company), he will do his best too repay that debt out of gratitude.

You cannot define fairness is a simple manner. A new immigrant from the Philippines will find work conditions fair that an Irishman or American would find exploitative. However so long as any degree of inequality exists within a company, eventually the worker will inevitably find his conditions unfair. It is in manager's interests to ensure that his worker's always feel that they're being treated fairly (and if you want to be manipulative, even through deception).

Personally, I don't feel "fairness" is "top-down" I view it as "bottom-up". It's not managers that decide whether arrangements are fair, it's individual workers.