Employer Vs Employee

Must employees and business owners be pitted against one another? From WOODWEB's Business Forum. March 5, 2003

From WOODWEB's Business Forum
There has always and will continue to be a certain push/pull between owners and workers. Each sees his position differently. The owner has considerations that the worker does not ever have to have as a concern. He is responsible for the whole business, not just the finishing department. He takes on all the risk of doing business. He must pay the taxes and insurance, and worry about the lawsuits and losing everything. He has much more at stake than just how good the finish is on the cabinet going out. If the finisher loses his job, he can go to another shop and if he is good, can pick up another job without much loss of income. If the business goes under, the owner loses much more than a job. Therefore, the business owner has the right to a larger share than those that work for him, otherwise they would assume the risk themselves and be in business for themselves instead of working for someone else. A good percentage of those I have seen go into business for themselves were back looking for a job as soon as they found out the hassles of owning a business (usually the first time they had to pay taxes and set up an accounting system).

I am not saying that a finisher should not be paid adequately for his skill. I do believe in paying a skilled person for his services. However, he should not be paid more than is justifiable by what he produces. No skill is worth more than it brings in revenue back to the company. I know many business owners who put in half again the hours that any of their men work in a week. Over the years I have found more people who think they are better than the reality they show in their work, and of course they want more compensation than is justifiable from their performance! Somewhere each has to understand the balance of things. The owner cannot do all the work himself and the worker cannot do the job without a company and business owner to provide the necessary work and place of employment. Each should be compensated fairly for his investment of skill, time, risk, and involvement.

Mark Twain commented that if you took a hungry dog and made him prosperous, he would not bite you, and that was the fundamental difference between a man and dog. He also went on to say that when he was a young man he could remember things whether they happened or not. (As he aged he could only remember the things that didn't.)

That being said, you won't elicit a whole lot of response on this (or any other) forum when you want to discuss employee/employer relationships. This is probably the most complicated part of our business but it seems to get the least amount of attention.
The complexity lies in the fact that money has very little to do with motivating people, but they would not come back to work if you stopped paying them. I would recommend that you give this guy a whole bunch of money every time there is extra prosperity to pass around. I would only pay this money as a bonus on top of wages. I would not raise guaranteed wages.

Increases in hourly pay do not cause a whole lot of extra effort. If you raise a guy's wages it won't be long before he concludes you are paying him on the margin because that is what he is worth. That same amount of money distributed as a bonus tends to get noticed. Particularly if you let him know it was because he did a really good job *last* week.

When a lot of employees get together and chat up their jobs they always say "The pay sucks but the benefits are great." This is another big clue. Put the money in a wrapper that they will notice.

Start with the assumption that these people are as good or better a capitalist than you are.
If you don't believe this, try forgetting to pay them for a couple of hours and see if they don't notice this in a nanosecond. The trick is to make them recognize their own self interest in what they do for you each day.

In a lot of ways you have answered your own question. But I can add my two cents on this one. Perhaps what each is looking for is a successful business relationship. That really forces one to look at what will be successful. That is different for each of them as individuals, but similar for them as participants in the company. Each may be forced to make decisions personally that will impact their success that may have a negative impact on the others' success.

Neither one is without vulnerability. I spoke with a gentleman a while back who was selling and managing an average of 5-6 million dollars annually for the company that employed him. He operated at a 20% profit margin. Do the math on that one and see what was happening to the owner of that company financially. I asked him why he did not just go out on his own. He said 'I can perform at these high levels here because I have a very capable secretary, very skilled people in the field, two powerful lawyers to keep that side of the business going, a very trusting boss and a lot of resources in the way of computers, software, transportation, et cetera.' Each of these guys was successful in their jobs. They do have intense discussions about compensation and each is trying to leverage their own benefit, but when that is done each one understands the symbiotic nature of the their business relationship.

A finisher or a cabinet maker or a floor sweeper has the same tension and there is the same symbiosis that happens on that level, only with smaller dollar signs. In my experience, mutual respect goes a long way to keep the relationship civil. And if they are unwilling to discuss matters, the relationship will predictably sour quickly.

Very early in my career a wise manager told me that we were all part of a profit sharing scheme called "salary." If there was no profit, it was only a matter of time before there would be no salary.

What is occasionally depressing about the "tension" between labour and capital is that capital often makes no effort to educate labour about the realities of economics. I really believe that given a reasonable, frank explanation of the economics, most people support sensible decisions. I have experienced this many times in my career.

Just a few other random thoughts around this issue…
1 - The owner of a business will (may) be able to realize a financial advantage at some point in the future by selling all or part of a successful business. He (She) is effectively deferring immediate gratification (more income) in favour of later gratification (capital appreciation). The employee cannot participate in this (except where enlightened owners offer specific schemes). Basically, the owner might be able to sell his business but the employee cannot sell his job.

2 - The owner is the only person in the business who is not able to hand in his resignation and leave. Now I know that he can shut down the business but I would contend that they are not the same thing. Therefore, the owner has to set a compensation level which entices the employee to keep coming back. Unless he doesn't want him to come back, in which case the compensation level should reflect that desire. The owner's compensation level is a factor of the market he is in. If there is insufficient income available in that market, then capital should desert the market, restricting supply and raising price. Simple supply and demand says that, basically, if you can't make a living from running your business, you should move on to something else.

3 - The owner has the opportunity to dictate his own working style to a far greater extent than the employee. That is just one of the intangible benefits that he enjoys.

My basic point is that everybody is taking differently and giving differently. Regrettably, the comparison of apples and oranges can mean that everybody convinces themselves they are hard done by.

From contributor J:
Employees are often PO'd because they don't (and shouldn't) share in the profits. Remind them that they don't share in losses either, even if the losses are of their own doing. If a bunch of panels have runs in them (employee fault), are they fixed for free? If they're stained the wrong color (employer fault), are the fix/replace costs shared? If you make an unusual high dollar profit or loss on a job, do you "share?" Those last three questions have got to be all yes or all no. They'd want it one way, no doubt.

From contributor J:
In response to an email I got on the above: If you make an employee fix his screw ups off the clock, you're a crook. You shouldn't have it one way either. If he makes a lot of mistakes, let him go, but don't short him for being human. Humans make mistakes.

It would seem to me that the employer is usually the one taking the wrong attitude. Guess how much you would make as an employer with a labor force of 0.

Risk versus rewards - I do not know of any owners that deal with the hazards that their workers live with every day in the workplace. Employees daily take the risk for the employer's reward.

Employers invest their money, true. Employees invest their lives hoping for not much more than a weekly paycheck and something to retire on. Fat chance of that in this trade. I am in management, not an owner. I look at what the small to midsize millwork, cabinet shops have to offer, and wonder why anyone would want to join this profession. I talk to others in the profession and wonder where the next generation of cabinetmakers is coming from.

Owners do not care. They take their profits, and when the profits cease, they close the business, file for bankruptcy, move on and never skip a beat. They do not even give lip service to the men and women that worked for them.

When I worked for cabinet shops in the past, what shocked me more than anything was working weekends fixing up jobs while the boss was at his ski cabin or on his sailboat. If you work as hard as the employees and treat them with respect, it will go a long way in employee relations. If you're on a job where the workers have really put out, it also doesn't hurt to slip them a little grease to make the squeaks go away!

I think I must not be running business properly after reading some of these responses. I am the one in the shop on weekends, all alone while my employees are sitting in a tree stand or going to the county fair. All profits go to making the workplace a more enjoyable place to be with modern equipment and incentives in place for hard work. I take a genuine interest in the personal lives and lifestyles of my workers. I feel my responsibility as a small business owner is not to make a profit and buy a huge house or drive the latest car. I live in a duplex and drive a 94 pickup. I even hunt with a borrowed rifle. I want to make more money so that I can pay my men top dollar and see them enjoy life. Nothing bothers me more than to see business take advantage of people just to increase their profits. Paying someone minimum wage is like saying "I would pay you less, but it is illegal." Don't get me wrong, I am not naive to the point that I let slackers take advantage of me (for very long, anyway).

I guess the bottom line is this: As much as possible, I work alongside my help. When times are good, everyone benefits; when they are tight, we all tighten up. Maybe I should take more for myself but I couldn't sleep at night knowing that I have workers barely getting by while I was livin' it up.

From the original contributor:
This has been a very interesting and enlightening discussion from both sides of the fence. It appears from some of the posts that they must be working for larger shops. I have not seen a week where any employee worked even close to the hours that I work. I work in the shop a good percentage of the time myself and work in the finish room when there is an overload of work to do. I do not expect any worker to do anything that I have not done myself or still do. I will say that concerning compensation, unless the public feels that cabinets are worth more than they are now paying, we are limited by the market and what the public is willing to pay for the items they want. With imports and furniture coming in from other countries with cheaper labor, we are fighting an uphill battle. What I am looking for is someone who understands that their performance is directly tied to the profit of a company and that when they slack, it affects us all.

A very direct and frank discussion or point can make a big difference to employees. I have two employees now, one who grew up in his dad's business and understands margins and how hard it is to make money, one who has no exposure to business ownership at all. The second just never seemed to grasp the ramifications of his errors. He just thought it made more work (which he was getting paid for). I think I've got him thinking a lot harder (and he's performing better) after a simple point I made.

"Our margin on this job was to be 10%, it's a $7,000 job, and your mistake this morning has cost us an additional $350 in time and materials. If we can't keep these mistakes from happening, you're not going to be the only one without a job."

That seemed to really open his eyes.

From contributor G:
I was an employer for almost 10 years. I have been an employee for the last 4. Of course this is not the norm and the way I may see my employer is different from other employees because of my past experiences. First off, just saying "Employer vs. employee" is starting off on the wrong step. How about "E"mployer and "E"mployee? The bottom line really is so simple that I cannot believe there is even a discussion about this. Both parties must actually care about what they are doing.

An Employee should care about the company he works for, the quality of work he does and understand the need for his Employer to profit. And at 5:00 go home and have a life. Knowing and accepting and being very comfortable with the idea that I make much less then my Employer. If I, being the Employee, want or need more money, it is up to me to make myself more valuable. An Employer, as far as his employees are concerned, must actually care about his Employees.

If I am an Employee and I see my boss as someone who does not seem to care or show interest, then it is a normal human response not to care, either. Take care of your employees and they will take care of you. I can say that from experience. Just telling me that I am an asset to your company doesn't buy my groceries and get me that jet ski I want. So, if I really am that valued employee you say I am, then if I were you I would somehow show me in a tangible way. And do it with a smile on your face. I work for a company that gives quarterly profit sharing. I take this very seriously. This should tell you, the Employer, something...

I grew up working in the construction business for others. After that I started my own business and have continued in it for 31 years. I've had 34 employees over that 31 year period, including the 4 I have now. Two points have become very clear. First, Employees that had their own business prior to employment here were/are excellent employees and I enjoy(ed) working with them. Second, most employees that were born after men walked on the moon have a very poor work ethic, have little to contribute to the company and are very, very selfish.

My solutions are simple: 1. Pass a law that *everybody* must operate their own business with 1 or more employees using ONLY their own money for a minimum of 3-5 years. (Consider it the "Right of Passage to Employable Status Law.") 2. Retire as soon as the Post-Moon Landing generation starts employing each other because they will *produce nothing*. 3. Buy stock in Chinese companies and sell it soon after they become as spoiled as our post 1969 generation(s). Realistically, I do not believe there are "Magic Solutions" for any of these employee problems. If you want your own business you must sacrifice, take a lot of abuse and learn to "enjoy the ride" because it represents a significant accomplishment if you can succeed against the odds. Question is, once you have succeeded, what then...? Well, it was why you did it in the first place...

Contributor G, great post, beginning to end.

How big is your company and would you explain in more detail about the quarterly bonus and how that is structured? Specifically, how is the quarterly bonus determined? From the gross production or net profit? Is it an equal bonus distribution among staff? Is there any friction among staff when one or more employees may be perceived as not pulling their weight and thus hurting the group's shot at bonus pay? Is there any tendency by some to sacrifice quality in the effort to maximize the bonus? What about new hires? Do they share right away or is there a wait period?

I have for years had interest in such a bonus plan tied to production. I worry that it may produce more problems than it solves, if not well structured. Once implemented, if it failed to reward both "E"s according to expectation, it could create a bad situation.

What I have done instead is simply try and compensate each individual as best I am able based on their performance. Everyone understands there is a baseline of production that has to be met, but the downside here is there is not an immediate incentive to beat the target. Hence, a system of profit sharing is attractive.

From contributor L:
A few have hit around on the most significant issue on this thread. The owner is paying himself every time he works in the shop and it is not just the pay he saves when doing the job. The benefits add up on any payroll. As the owner is more active in the day-to-day work, he needs to realize that this is not really what he is supposed to be doing full time. Getting the job is the most important, but if he is listening to workers he knows if there is a problem with equipment and a better way to do a job (faster is not better). The idea of discussing work with the workers is very good. "Joe, we have this job that will earn US x dollars. If we can do it by this date there can be a bonus of x dollars."

Quarterly is too far down the line. Mistakes by the worker cause lost production, thus loss of bonus. Any worker worth his salt knows if it breaks and he wants the company to continue, he needs to give up weekends and an owner not recognizing this and willing to make the same sacrifice is telling the employee just how important each is to the other. Pay and benefits are important, but once basics are met, then it is job satisfaction which includes the relationship with the boss. As one person pointed out, if the business fails, both lose; if it succeeds, the owner can sell and realize his sweat-equity.

On the subject of bonus pay… How long do employees hit the bonus before they feel safe that it's always there, no matter what? Do the previously unmotivated employees, those who were motivated by the bonus, not eventually return to the pre-bonus problems, lack of effort, and little regard for quality?

Opposite side of the same coin… How many weeks/months/years do they fail to meet the required levels before giving up the effort? Isn't it inevitable for the blame game to set in if they aren't making bonus? If the bonus is reachable week in, week out, is it a sign the bar is too low? What is the impact of raising and lowering the bar? What about similar jobs with different thresholds for the bonus? Is this a recipe for dissention in the ranks?

A few years ago we tried profit sharing; it was a disaster. When we had a period of no profit, we were accused of cheating the employees; some had already pre-spent their anticipated bonus money. For a real eye opener, ask each employee what he thinks your shop overhead costs are per employee hour. I did this exercise, $4±/ hour was the number from those who were the least productive. There was a correlation between productivity and estimated overhead costs. We have 15 employees. The ones that have been in business for themselves have a different perspective than the younger ones.

From contributor J:
My bonus is not based on production - it is based on net profit. That is the bottom line, isn't it? I would much rather have a monthly bonus... Quarterly is too long. But I am there for the long term.

Also, my relationship with my employer is not a "vs" thing. I trust him to a point to do the right thing as far as my bonus goes. I have worked for companies that gave weekly "production" bonuses... Production without quality does not = net profit. So giving someone a production incentive alone is just asking for problems. I never feel safe about my bonus... because it is based on profit... So it always changes. The point is this... As long as I am doing my part in producing a profit, then I get some of it.

And for you employers out there, I take it very seriously. No one gets the same bonus. Everyone's bonus is based on reliability, skill, the length of employment and attitude. So yes, the blame game does set in, which is not such a bad thing. It becomes apparent who is messing up our bonuses. Who is not contributing to making a profit. Those who are not feel the pressure, not only from the owner, but from everyone else. They either become part of the team or they leave. In this racket, you cannot afford to have people around you who really don't care about what they are doing.

In the company I work for I am responsible for the mouldings, materials, tooling, setups, running, charting and getting it out the door. I have 3 men under me. I cannot tell you how many times I have had work not done properly or done wrong, simply because someone did not really care. It is really hard enough to do your job and have to carry someone along with you. And when you are getting a bonus you look hard at every job and at every way to save money and to make money. I have worked for these guys for about two years.

My first year my profit sharing equaled 8% my gross income. Things now are much slower, so my profit sharing has not been so good. And that is acceptable to me. Again, I am here for the long term. I take the good with the bad.

From contributor L:
As I said in my post... "Joe, the order is due the 15 of Nov. If we get this out, I can get another job!" Joe looks at it as "what do I get out of it except basic wage?" I look at what can motivate Joe. If I can get started on another job by the 10, then in effect I'm earning twice. If Joe is any good he will see me making extra and what does he gain? Monthly? Na! Every time? Maybe. But if I can motivate the employees to any extra effort, we all win. We all know that nobody gives 100% all the time. But if I bust my rear, I except something extra! It does not always have to be in the form of money, but that is what puts food on the table.

Also, if there is no need, i.e. there is no extra job, then what's the hurry? Bonuses are for extra effort and not every time. All you need is enough to make payroll and expenses plus profit. Profit should have a margin to cover no production for a reasonable time. Employees will be put to work doing *nonproductive work*. If such exists. Ideally work equals above. Work beyond equals money to carry over.

Depends how you look at it. Perhaps Joe should look at the jobs due out on the 15th, perhaps if we get it out by the 10th the boss earns double and this extra money might just see him through the rough patch ahead so he doesn't have to put Joe off.

Perhaps Joe should get a work ethic and do the best he can for the person who is paying his wage without worrying that the boss is making too much. It's a free world out there and "Joe's Cabinets" is an easy sign to put up if he reckons being a boss pays better.

I went years employing people till I sat down and did the sums. Guess what, I now employ nobody. (Labour force 0, as per 12/10.) I make more money, have more free time and can take on better jobs because I'm not having to have work laid out ahead to cover the wages bill. Oh... did I mention a few less hassles as well!

The comments below were added after this Forum discussion was archived as a Knowledge Base article (add your comment).

Comment from contributor A:
I have read all points with interest. I have worked both sides of the fence for over 25 years now. I am an owner and have 4 employees, 3 of which are "techs," as we call them. While I care about my staff, I am not in business to provide them a job. I am in business to provide for my family. They are not here to provide for my family; they are here to provide for their own. When we both realize this we can then understand that by working together we both shall win. It takes a long time for a staffer to realize this and not think of it as a "job," but a limited partnership with the owner. The Employee reward in this symbiosis does have limits but the downside is locked to almost zero for the Employee.

The person who wrote that the employer that has a staff person fix their mistakes off the clock is a crook is not paying attention to all details. Sure, ethics are important on all sides and not everyone follows the same ethical standards. You cannot force someone to work for free, that is illegal. You can institute a procedure of fines relative to actual costs for mistakes. Yes, everyone is human and will make a mistake. But when mistakes are caused willfully or by failure to follow procedure, that is not a mistake. That is disobedience.

A better way to handle this is a percentage based pay system. The more skills a person gains, the person can produce more and earn more. The lesser skilled person will either wise up and figure a way to become better or leave. Having a serious problem 2 years ago and on the verge of bankruptcy, this was but one of the tools I used to turn the company around. We had a meeting, showed all staff the "books" with reports and financials, payables and recievables. We can't operate the way we have been and make it, they were told. We instituted a percentage pay system.

I had planned on firing two of the workers at that time. Now I left it to them to fire themselves or provide more for the company and themselves in the process. They receive "x" for a job completed satisfactorily. The client says if it is satisfactory when they accept the end result. How long it takes that person to do the job determines how much that person will make. It is up to me to help them, guide them, insturct them, provide the means to be the best they can be. It is up to them to make use of what is available to grow personally. All had doubts if it would work. There was grumbling, of course. But the choice was theirs - this is the compensation available. Take it or move on. One left and found he couldn't make it in this field even at other shops and changed careers. One lasted about 6 months and never could grasp why some weeks he made $20 and hour and some weeks $8 an hour. When the work was done, he could have gone home but still felt a need to drag out work twice as long as needed to get a full 40 in. 2 stayed with it, plus a 3rd hired last year.

Business has ups and downs, feast and famine. Rather than lay off, we share the work. Everyone knows the drill. A bad week for a tech might be $300 but it's in 3.5 days. A good week might be over $600 in 40 or less. I remember the first time I handed out a check for $280 something to one of the techs. I felt bad about it, too. I spoke with him and said I'm sorry it's so light, but this is what you earned for what you produced. He totally shocked me when he smiled and said "that's okay, I know we didn't have much to do last week. It'll pick up soon and I can take the bad along with the good. Besides, last my last check was over $650!"

As to hours, I always put in more than any staff member unless I'm ill or out of town for a seminar or some special occasion. It is up to me to get work in, show them anything they don't know, and let them do what they want as to set their pace and provide for themselves. I set an example and work right along with them every week.

We all clean and take out the trash. We all share in the "no-pay" work issues like these. We all share in the pay in a good production week as we all earn more automatically. No one gets a raise ever. We all get a raise automatically whenever I increase prices to keep up with cost increases. So they will always earn more as the company earns more. I do not suffer from poor work and re-work or out and out sabotage anymore. Neither do any of the other staff. They each help each other as it makes their own job easier. And yes, when one job involves multiple staff, they share equally based upon their input to the job. The job still pays "x" but shared with the producers.

There still are bonuses now and then. I'll have some extra cash on rare occasions when everything goes perfect, a big job is extra profitable, etc. We *all* get some extra cash as a result.

It's tough, no doubt about it. It takes extra time for me to adminstrate the system. too. But it is extremely fair rewarding and docking each person as they perform their tasks accordingly. It really is a partnership with staff. It also commands respect and trust of one another. They can request to look at job paperwork anytime they want to if they feel the compensation was not what they anticipated. I even show them from time to time without being asked to reinforce the frank and open communication channel is always open. But it is in writing as part of my pay system; if you ask on every job all the time there is no trust and it might be better if you sought employment elsewhere, as we evidently do not have a sound working relationship between us.

Besides being equitable for all of us on both sides, it works, I'm still in business, and our client satisfaction rate is over 98%.

Comment from contributor B:
Having worked in the corporate training industry, with a particular interest in Participative Workplace Development and Democratic Workplaces, I was prepared to read some horrific attitudinal comments and biased dialogues on this issue. I am extremely happy to be surprised at the level of discussion in this post. Most comments are acknowledging the very real and necessary simnbiosis of the employer/employee relationship.

Yes, the employer often takes more risk; yes, the employer often gets the most benefit. Yes, the employee often has less tied up in the business; yes, the employee often has the least to gain. None of the preceding comments are the rule and they certainly are not inevitable.

Those employers who have recognized the need for openess, honesty and fairness will eventually (at least in the majority of cases) reap the rewards, though not necessarily in terms of finances only. One of the biggest problems small to medium businesses face is the change process involved in getting the business traveling in the right direction. With change usually comes resistance (from all parties). All I can say (from the "lofty" distance of Australia) is it is worth working towards.

Consider, when it gets hard to stay on track, that almost all businesses which have switched to more participative practices had to go the hard yards, and still do so periodically. It is sometimes just as hard as the antagonistic "us 'n them" norm, but with far more rewarding outcomes.

Great post, heartwarming attidues (mostly) and good luck and prosperity to you all.