A few weeks ago, I noticed a headline:” Street drills Costco because its paying workers $2 more and hour during COVID-19 .” Investors were punishing Costco for doing something positive for its employees despite earnings for the quarter far exceeding expectations. I shook my head in disgust and kept scrolling through the headlines.
Around the same time I noticed a new initiative between PayPal and Just Capital focusing on financial security of workers. The announcement started by saying that, “leading research shows that when workers are more financially secure, key business outcomes such as productivity, customer satisfaction, and employee turnover and engagement also improve.”
In an interview with the New York Times about the announcement hedge fund manager and Just Capital founder, Paul Tudor Jones said, “what we have to do is get away from this mentality that I’ve got to keep my labor costs as low as I possibly can, because the only purpose of a business is to make a profit à la Milton Friedman.” He and PayPal CEO Dan Schulman argue that higher pay boosts the economy and helps companies recruit, both important factors for long-term success.”
Mr. Tudor Jones said that so many great CEOs spend so much time and money on philanthropy when they should be doing this in their own businesses. As the old expression goes, “Charity begins at home.”
The influence we have as shareholders is not just through proxy voting but by buying and holding. We do this by recognizing companies which are building for the future rather than scrambling to meet quarterly earnings expectations. What I think is clear above is that paying employees more is good for business, and we as long term investors can help companies recognize that.
I’m reminded of the story of David Crane and NRG energy. He was fired as CEO of NRG because shareholders punished him for his vision of moving the electric utility away from dirty fossil fuels to clean solar and wind power. Shareholders feared losing their quarterly dividend payment, without any evidence it would disappear. They couldn’t appreciate the future of energy, and the robust transition plan Crane was executing.
Just like burning fossil fuels for power is being replaced by cleaner alternatives, paying employees a pittance is relic of the past. Its how we did things in kingdoms, and autocracies. Capitalism will work as Adam Smith wrote if businesses reinvest and one of the best opportunities business have for reinvestment at this point is investing more in employees. There is plenty of money to go around. Companies are sitting on a lot of cash and executives are making way more than they need. Executives work hard, and some are brilliant at what they do, but they can’t do it without the rest of the company.
According to AFL-CIO, CEOs alone of S&P 500 companies made on average of $14.8 million in total compensation in 2019. The elephant in the C-suite is the question, “why is there such a stark gap in pay between the top and the bottom of the corporate hierarchy. And is it really good for business?” The stock market for the last few decades has suggested it is. But is it sustainable?
Look around. Listen. I think not.
The views in this material were those of the Advisor at the time of writing this report and may not reflect the views Wealthcare Advisory Partners LLC. These views are intended to assist clients and do not constitute investment advice. Advisory services offered through Wealthcare Advisory Partners. Wealthcare Advisory Partners LLC is a registered investment advisor with the U.S Securities and Exchange Commission.