The horizon is not so far as we can see, but as far as we can imagine

The cost of being cheap

Over at Barry Ritholz’s there’s a discussion of the cost of a business being cheap.  Barry recounts how he used to work for a cheap employer and as a result he sent possible employees who could have earned his employer millions to other companies.  He then asks if others are vindictive bastards like him.

Let me answer.  Hell yes.

Some years ago I worked for a medium sized multinational.  I was an hourly employee, meaning I was supposed to get overtime.  I was in sales contact, I was one of the admin people who marshalled new contracts through the system, contracts which were worth, in a year, no exaggeration, in the 10s of millions of dollars.  Some years in the low 100s.

At the time I was handling almost twice the normal case-load.  So I was working a lot of overtime.  I was hauled into my manager’s office and told I had to stop claiming so much overtime.  I pointed out my case load.  My manager noted two other people with about the same case load: “they aren’t claiming all this overtime.”

Me: “they are in before me and they leave after me. They may not be claiming it, but they are working it.”

Boss: “it doesn’t matter, I’m getting complaints from upper management.”

So, for a few weeks, I worked to rule.  I worked 37.5 hours a week, then went home.  The problem with that approach was that when things went wrong, the person the customers screamed at and complained about was me. So eventually, I gave in.  I worked the hours, and I didn’t charge for them.

But I never, ever, forgot.  And in perfectly legal ways, I cost the company millions of dollars of business over the rest of my career there.  After all, I was in daily, hell, hourly, contact with the people who decided whether to send my company business.  And I never, ever, pushed for business to come to my employer unless it was clear cut in the best interest of my contacts and their customers.  If there were any legitimate negatives to sending business there, I gave them.

And because my contacts trusted me, because I always played fair by them, they listened.

Millions of dollars of business, because my employers were too cheap to pay me what would have probably amounted to two or three thousand dollars of overtime.

Because, yes, I am a vindictive son-of-a-bitch when I am treated unfairly.  If I work the hours, you will pay me for them. If you choose not to, you WILL pay a price for it, one way or the other.  (On the other hand, if you treat me well, I will work my guts out for you.  One place had to replace me with 2 1/2 people when I left.)

I discussed with this with a friend who had been a senior executive once, his response was instructive.  “Look Ian, even if they knew, they wouldn’t have really cared. ”

Me: “What, I’m costing them millions!”

Executive: “So?  They figure that as much as they are screwing their employees and causing unhappy employees to cost them money, so is everyone else in the business, so it all evens out.”

Me: “But that means someone who treated their employees well would have a competitive advantage.”

Him: “They don’t think that way.  Screwing employees is how they made their way up the ranks to where they are.”

Me: “that doesn’t make sense.”

Him: “Nope, but it’s true.”

Then, I went to work for our American subsidiary for a few weeks.  And they were far, far worse.

But that’s another story…


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  1. beowulf

    Had a law professor who’d once been a corporate bankruptcy lawyer. He always told executives of companies going down the tubes, “the employees always get paid so take care of them first”. Clients would come up with a 100 different excuses why they didn’t have to, and he’s repeat, “you don’t understand… the employees always get paid”.

    They never listened and then couldn’t understand why the business suddenly was missing all sorts of property (ranging from office furniture to 18-wheel trucks).

  2. Many managers, at least in America, are jerks, and jerks tend to think that everyone is just like them. It doesn’t surprise me too much that they assume their competition will behave the same way they do. What’s more, in the current “long term means six months out” kind of business environment many find themselves in, they’re probably right. Good people find it really hard to turn a tidy profit every quarter.

  3. grayslady

    Gee, I used to work for a company like that. In order to do your job properly, you needed to work 50-60 hours per week, and most of us were doing just that–regardless of department. Suddenly, we were told “no more overtime”. Well, we all knew the company was having financial difficulties, and if they’d just asked if we would help out by “volunteering” even an extra hour per day, I think everyone would have agreed. It would have felt like we were all pulling together. But when management tells you not to put in for overtime, period, it leaves a nasty taste.

  4. guest

    Also, they guys coming down on you for working overtime probably had no more stake in the company’s success than you did. Just like you, they are told to do more with less every year. They might or might not know that you are vindictive and as a result they may not make their goals/get their bonus. But that bonus was just as endangered by your overtime budget busting as by your “vindictiveness”. They just figured they would shitcan you and replace you if it came to that.

    The guys at the top would have been hurt the most, but their overriding philosophy is to keep as much of the profits for themselves. And in the long run they are right. That’s how we got where we are.

  5. Ironically, in my three-plus decades in the corporate world (software) I didn’t have any problems like that (I was salaried, and in spite of that I was still able to avoid the weekend-and-late-hour giveaways.) They did play games with the bonus structures, though.

    Now that I’m a lowly burger-flipper, the private owner of my joint dictates exactly how many hours he will pay for prep-work, etc., so he gets anywhere from 3-5 hours a week for free out of me (and others.) He’s been fined for this, but he just keeps on truckin’…

  6. anon2525

    Me: “that doesn’t make sense.”

    I think that a (much) larger point (than the cheapness — “penny-wise, pound-foolish” of business) about the nature of bureaucracies (they’re not just in gov’t. — that’s right-wing propaganda) is being missed in this post. People in the middle of the business — not dealing directly with customers or production and not dealing directly with stock prices or boards — do not operate based on reality. They operate based on the rules of bureaucracy, where they take their orders from the management above them (which might also be in the middle layers). These rules are arbitrary, relative to the feedback that people in contact with the real world get. As a result, real problems are not dealt with until they reach a point where the problems accumulate to create a crisis, at which point the problems can no longer be ignored by the bureaucracy.

    This is the reason that I do not expect the U.S. or other industrialized countries to respond to the real problems of resource depletion or biosphere destruction before those problems have reached a crisis point(s). The collective culture of thousands (millions) of companies and gov’ts. is a sum of these individual companies and gov’ts. that only respond to crises, not to people who are giving warnings based on observation and reason.

    from –> Class Warfare

    It’s much bigger than that.

  7. anon2525

    Many managers, at least in America, are jerks, and jerks tend to think that everyone is just like them.

    Many are, but they don’t have to be in order to behave irrationally or foolishly. A bigger problem is that many of them are where they are because of academic credentials and not because of experience and success at creating and running a business. Their résumés had to have certain academic certifications on them for them to get their positions, and these people went from high school to college (to business school or law school or whatever) to get those certifications. All that was left out was experience creating and running a business where creating a product or meeting with customers was required. To these people, arbitrariness is the rule that they have always lived by: read the book, do what it says, listen to the teacher, take the test, find a way to get a grade. It is essentially an abstract game, and games have arbitrary rules.

  8. alyosha

    I worked for a big, well-known multinational, where the half-in-jest, often spoken motto was “all the voluntary overtime you want”.

    The culture was so competitive, that many of my peers took this to heart, and did indeed donate countless hours, which in many cases, went a long way toward building their careers.

    It so happened that this particular corporate outpost was in smallish city, where it really was the best employer in town – best pay, best benefits, most prestige. The managers knew this, they knew that few people were going to make the effort to leave for a bigger city and better opportunities. And so, as one manager put it, “they run it like a prison”. They know they can get away with it, and so they do.

  9. dougR

    Is it just me, or has anyone else noticed a complete absence lately of the type of book that used to dominate business bestseller lists: the “happy, motivated employees make a company great” kind of tome, usually written by a B-school prof or a business consultant or a CEO who had turned his company around by freeing employees from BS routine, taking seriously suggestions from the shop floor on productivity, motivating employees by freeing them up to be innovative, expressive, blah-blah-blah? I mean, these books used to be a staple in the business section of any bookstore. There was such a flood of these kinds of books from the late 60s right up through the 80s that it really seemed as if corporate culture was evolving into a place you’d actually WANT to go to. I guess since most CEOs are bossing Indians and Chinese these days, they figure they’ll leave the “motivating” to the locals.

  10. jeer9

    Youthful experience from 30 years ago:
    Idealistic man works in art department of sign company for $5 PH. Head artist likes him, gradually lets on that he gets paid $9 PH though they’re doing pretty much the same job. Teenager coating screens in the press room at $4 PH quits. Idealistic man asked to take on this responsibility too, as well as perform his usual graphic arts work which he proceeds to do for several months. He then asks company supervisor for a raise to $6.50 PH. He is told no. He quits and moves elsewhere. Company supervisor hires a new graphic artist at $5 PH and a new screener at $4 PH. It’s never about the best use of money. It’s about the exercise of power.

  11. grayslady

    You’re right, dougR. I received my MBA in the mid-1970s, and the prevalent B-school theory was that a company’s investment in its people was just as important as its fixed asset investments. That began to change with the rise of the Silicon Valley mentality. Workers no longer felt any loyalty to a particular company and management responded likewise.

  12. Lori


    So, you’re saying that workers initiated the current mindset by not being loyal enough?

  13. grayslady

    Lori, that was certainly part of the problem. There used to be an unwritten contract, if you will, between management and salaried workers: continued training and promotion (or pay increases in lieu, when someone was a great salesperson but wasn’t cut out for management) in return for dedication and loyalty. That really began to change with the tech set, who seemed largely interested in using the experience they gained with their employer as a springboard to either entrepreneurial ventures or simply using that experience to seek out the next employer that would pay the most. The same thing was occurring in elements of the financial services industry; and the feedback I heard from manager friends of mine was that they no longer felt the need to be loyal to employees since younger employees, in particular, were not predisposed to be loyal to the company in return. Immediate gratification superseded longer term investment–on both sides.

  14. anon2525

    Company supervisor hires a new graphic artist at $5 PH and a new screener at $4 PH. It’s never about the best use of money. It’s about the exercise of power.

    That’s an example of the irrationality because the supervisor is not spending his money — he’s spending the company’s money. If that same supervisor hired someone to mow his lawn (spending his own money for his own benefit) and someone else to rake his leaves, and the leaf raker quit, and then the lawn mower took on the leaf raking job for less money than the combined raker&mower, the supervisor would not make the same “mistake” of firing the lawn mower, only to then have to hire two people for a larger amount. He would pay the additional amount to the mower (which was still less than the cost of the mower & raker).

  15. anon2525

    It so happened that this particular corporate outpost was in smallish city, where it really was the best employer in town…

    I hope that it is obvious to everyone that this is a deliberate decision by large companies — locate productive offices in smaller towns (or, nowadays, other countries) where there is 1) a supply of educated (or in, for example, Wal-mart’s case, under-educated) people and 2) no competition for employees from other companies. Basic monopoly pricing strategy.

  16. S Brennan

    This is utter crap:

    “That really began to change with the tech set, who seemed largely interested in using the experience they gained with their employer as a springboard to either entrepreneurial ventures or simply using that experience to seek out the next employer that would pay the most. ”

    I worked in Silicon Valley…complete garbage. Silicon Valley was the last refuge of the loyal worker, long before H1-B & L1’s hit the valley Billy Boy Gates had a lock on the slave trade.

  17. Chris

    I’s say that employee/employer loyalty change began in the early 1970’s with the oil embargo and recession. Employers, faced with an economci downturn and reduced sales fired longterm employees who were very close to retirement, or who had been with the companies for 20-30 years. Employees who remained, remembered the lesson and passed it on. Like a snowball down a hill it gained momentium until it wiped out any obligation.

  18. tBoy

    I was contracted by a small rural hospital to clean up their Medicare billing. The easiest healthcare billing is Medicare. But they budgeted near minimum wage for the billing person because that’s what the sorrounding hospitals paid.

    So I go in, get my expenses paid and a percentage and collect over $1,250,000 in 6 weeks. My total costs were $36,000.00 but we were paid, in addition to expenses, 14% of the amount billed.

    I tell the CFO that they need to pay about $12.00/hr to hire a competent person and spend about $1,000 – 2,000/yr for education & in-service. It ain’t that hard to bill Medicare. Sorry – they cannot budget that much more for the position.

    Two years later I go back to the same place & collect $500,000.00. Two years later I go back and collect $200,000. The last two times I could have collected much more but they went past the timely billing dates. Top management couldn’t even figure out how to call me in time to collect on money which they were entitled to and had already paid to provide.

    This is not an isolated instance. I used to turn down work because this mismanagement was and continues to be rampant.

    On the bright side – that particular hospital did meet their budgets for employee pay.

  19. Bernard

    This is all part of the illegal aliens situation. Why hire Americans when Mexicans, Indians, can be bought off much cheaper.

    the destruction of the American wage system, keeping us poor, was done by opening the jobs/borders by Business. Competition was heralded as “doing more for less.” the hiring of illegals and “contract labor” helped lower the standards of living for everyone but Business.

    the introduction of Indians, Pakistanis and various others to take “Jobs” and “cheaper” paying jobs began the wholesale “capture” of American society. Now organized business bought out the Congress/Governors/ with “cheaper Labor.”

    all under the guise of “Cheaper is Better.” Better for business, not for Americans who needed those jobs to “buy” the stuff Business made.

    now we have come full circle to where Business doesn’t need Americans, period. other than to take what is left, our taxes and our Banks.

    the focus on short term vs. long term is what is “wrong” with America. this is the Business model that America pushed for so long. now the chickens have come home to roost. and Americans are so screwed. once Business captured Government, the End of upward Mobility followed.

    Most Americans understood what “Cheaper Labor/Outsourcing” meant. until this hit home, it was just interesting to have an Indian or a Pakistani doctor. Now all jobs that pay are few and far between.

    Business destroyed the American dream with its’ cheaper is better for the bottom line.

    now it is easy to see the problems caused by Business’s control of society. We are now feudal serfs indebted to Business with very little chance of earning enough money to live as we once did. Opportunity knocked for business, and American society was cast aside in the process.

    Live Better isn’t just a slogan

  20. nihil obstet

    Still hopelessly trapped in naivete, I’m appalled at the illegality of all this. For hourly employees, paying for hours worked and paying time-and-a-half for hours over forty in a week isn’t just a good idea. It’s the law.

    I know sleazy businesses used to try to get away with stealing from their unskilled workers (the so-called hospitality industry was notorious), but I hadn’t realized how prevalent and accepted the theft had become. Another effect of the decline of unions, no doubt.

  21. Most Americans understood what “Cheaper Labor/Outsourcing” meant. until this hit home, it was just interesting to have an Indian or a Pakistani doctor. Now all jobs that pay are few and far between.

    I’m confused. Your Indian or Pakistani doctor—a good chunk of my own family on this continent—legally immigrated and licenced, is not “cheaper labor”: they expect the same compensation (ie exorbitant) as any other medical professional. The undermining of labour happened by allowing manufacturing business to move to places that didn’t have developed-country incomes or labour and environmental regulations.

  22. anon2525

    …now we have come full circle to where Business doesn’t need Americans, period. other than to take what is left, our taxes and our Banks.

    This doesn’t work for the wealthy unless there are people who can afford the products & services that the companies sell. No sales means no profits. No profits means no wealthy people. The missing piece in this puzzle of low-paid workers and high profits is reckless credit.

    Workers were not given pay raises above inflation for approximately 35 years, but housing, medical, and education costs continued to rise above the rate of pay increases. Many years ago, this escalator would have broken except that there were so many people who could and would take on a lifetime of debt in order to pay for housing, medical, and education costs. Of course, many people would eventually declare bankruptcy, but that option was mostly eliminated in 2005 (debtors’ prison would have been restored, but prisons cost money — better to keep debtors out at work).

    Now, we have reached (surpassed) a saturation point where there are no more people willing and able to take on a lifetime of debt. The pyramid scheme has reached the bottom of the pyramid.

  23. senecal

    Terrific thread, here! What we have is the raw material for a study of the new class system. It’s much more complex than Marx’s. In general, labor has been sucked into ownership, in a crappy way, and now identifies with ownership rather than itself, even though it’s not in its self-interest to do so.

    The main subject of this thread is bureaucracy — a sub-class or metastasis of what Marx would have called management. It overlaps, in some ways, with another category, the “service” sector — a clever bit of newspeak because it links work with traditional values of helping others, thus providing a pale porridge of ego satisfaction while disguising the realities of exploitation. And because actual service work, like processing medical claims, telephone customer service, flight-attending, etc. — everything except teaching and burger-flipping – is often performed in high-tech environments, which require some mental skill, and give one a sense of superiority over others — more and more of us are drawn into it witlessly.

    Just as companies have fled the domestic market, leaving behind only their logos as icons, so capital in general has vanished into a global empyrean (heaven), where workers wander helplessly around the walls of a Kafka-esque “Castle”, fighting each other for scraps.

  24. You get what you pay for, and if you pay the absolute minimum you can get away with you’ll get the absolute minimum of effort in return.

  25. “It’s never about the best use of money. It’s about the exercise of power.”

    That’s for sure. There is no business reason why a supervisor should be apoplectic when an employee arrives at 9:03 instead of 9:00, or wears dark grey slacks instead of grey slacks.

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