June 29, 2017


















Article 5.31

SHARE THE SECRET -"PROFIT" IS A CLEAN WORD !

Most privately-held companies in the US do not share the general financial numbers with all of the employees on a regular basis and are suffering increasingly for it. Companies need employees who are willing to suffer continuous change. If they know that good profits reinvested are their future and have the data to score the game daily, then they will invest more of themselves into the cause.

EXPLOITATION AND MIS-TRUST:

Withholding numbers says at least two things to employees. "Profits are embarrassingly great and worth hiding", and, "management doesn't trust us." Because wild imaginations and rumors fill reporting voids, uninformed employees will feel, if not partially state, the following:

1.   "Profits are great," so everyone has job security except maybe the least productive people. The key is to be a little better than the worst producers. Because the company pays about the same for the best to the worst within any job category, there is no reason to stay late, work hard, and suffer changes to make things happen.

  When management complains about costs or sells us on why we have to do more, it is a joke! When you consider what they take home, they have a lot of nerve (surveys find that employees guess that 20 to 100% of sales is "taken home" by owners every year!). Karl Marx was right; "profits" are obscene and we are being exploited.

  I pay lip service to management and the American (capitalistic) way, but I vote for the politicians who promise to tax rich corporations and individuals. The government can spend/invest those obscene surpluses better than greedy, rich corporations and individuals.

2.   "Management treats us like children who ask parents about family income and expenses. But, we are adults who have to be highly resourceful and disciplined at home to live well on a small income. Because they don't trust us, we don't trust them. When management pushes something new, you have to look for the exploitive angle and be cautious; they are always trying to make more profits off our sweat without paying us our fair share."

POOR RESULTS:

  Employees’ cautious, withholding behavior confirms management's suspicions that they are not to be trusted, which often sparks new policies to keep employees from stealing time or other resources from the company. The employees resent such policies and become more passively aggressive. Vicious mistrust cycles are quietly common. Sometimes they escalate into labor/management battles that destroy companies.

  Should we be surprised that most employees do just enough to get by, but then race home to turn on hobby energy and financial ingenuity in their personal lives. They would love to play the same game on the job, but only if they could understand the whys and hows of customer satisfaction and economically "what's in it for me."

GUIDELINES FOR TURNING EMPLOYEES ON:

1.   Sharing numbers is a powerful first step towards signing up employee commitment, and turning vicious mistrust spirals into virtuous trust building cycles.

2.   Uncover both the dated assumptions and personal, emotional, and ego reasons for not sharing numbers, and get over them. Plenty of high performance, private companies and all public companies have the answers for excuses such as: "we have never done this before; they will be confused; they will want a raise; the numbers are bad; they will start looking for other jobs; I can't explain this stuff very well; I will look bad; we cheat on taxes and think it is a secret; we grossly over compensate the family, etc."

3.   Start the sharing process with a few years of trailing profit and loss statements. If it is sobering news, employees may be shocked and worry for their jobs. But, point out both management's enormous financial exposures and calm optimism for what the team might do together for a better future. Explain that there are cycles both to the economy and the investment/expense stages of a firm that can periodically depress earnings. What we all do to grow long-term, sustainable profit power is what is important. Starting with monthly figures is problematic, because big profit and loss swings and adjustments can amplify anxieties. Once the longer-term past and future possibilities are established, then the monthly results meetings can start.

4.   Most employees will take at least 6 to 12 months to start to understand the monthly results and why reinvested profits are critical and perhaps insufficient to finance their expectations. At some point, consider delegating the presentation to team members. Create a schedule starting with the most able to the least. Assure everyone that when their time comes, there will be as much pre-coaching as necessary. The objective is to let everyone be a first-time teacher, because that is who really learns the most from the experience.

5.   Each month have two parts to the presentation - the numbers and a related lesson. The first two lessons should be on "the purpose of profits" and "where do wages come." Explain that profits are first a cost of capital. If investors don't get a competitive return for their levels of risk and liquidity, then they will liquidate both capital and employee jobs to reinvest. Reinvested profits are also the primary source of growth capital and the cost of a secure and improving future for the employees, customers and suppliers. Reinvested profits finance asset growth to support higher sales which includes more contribution dollars out of which wages and job expansion raises are afforded.

  Wages, in the short run, are independent of profits and are instead set by the supply and demand for labor in the marketplace. Even if a company is losing money, it must pay competitive wages or risk losing its best employees. Each job niche has a low-to-high wage range for a given cost-of-living market. Professional athletes make more than financial vice-presidents who make more than pastry chefs who make more than data entry operators. Within a specific job niche, the graveyard shift pays more than the first. Pay has to be high enough to get qualified people to show up and stay for some reasonable amount of time to master the job and minimize turnover costs.

  Most of us are guilty of some wage-envy and would like someone else's wages while keeping our current job. We especially would not like to have to deal with the negatives of that other job or pay the high entry costs such as necessary education or upfront risk taking. Subjective opinions of what are "fair wages" never consider whether the buyer of those wages will continue to buy labor if the rates are legally coerced. Nor, do "comparable worth" promoters ever think through the distorted supply problems that would result from interfering with free markets.

Are free markets fair? Today’s global free trade system is a complex outgrowth started by two or more labor specialists who bartered for each others services or goods long ago. Free markets and the wages that they set aren't "fair or unfair", they are like gravity, a fact of life, that teaches with tough love.

The team’s challenge is to maximize the annual gross margin dollars per full-time employee. Margin is the value-added that the customer is willing to pay for whatever a team of employees thinks it is providing. A high ratio of margin to employee, can afford maximum wages for each job niche, high return on investor capital, some dividends, and sufficient remaining profits to reinvest to grow everyone’s future.

CONCLUSIONS

Distinctive quality goods and services are produced cost efficiently by the bottom 80% of the payroll. In times of accelerating change, it takes extra, coordinated effort by all employees to successfully adapt or die. Without financial data sharing, some free market enlightenment, and a virtuous cycle of trust building, the majority of employees will not quickly and responsibly invest enough of themselves to achieve excellence and successful change.

To convert passive dependents into high-performance partners isn't easy. But, sharing the numbers and making all employees responsible for them is a vital pre-requisite and a gut-level management challenge. Why do we as managers resist it so? The first step towards a high performance environment may begin with us.

Ó Merrifield Consulting Group, Inc. Article: 5.31