Perhaps I’m one of the few people in America who hasn’t eaten there but I haven’t. My friends who frequent Chipotle regularly tell me it provides a far better dining experience than its competitors. And while I enjoy Mexican food, I don’t go out of my way to get it. Now open a great dim sum restaurant and we’re talking a whole other story.
The genesis for this story has nothing to do with the quality of food or the dining experience at Chipotle. It has to do with the compensation of the company’s CEO, Steve Ells. In an advisory vote, the majority of shareholders recommended that the Board not increase Mr. Ells annual compensation to approximately $25 Million. Apparently, several unions and others who hold the stock in pension plans were responsible for the overwhelming “No” vote. As shareholders, that is their right and that they exercised their voice is their responsibility.
This story, which has received more coverage on the Huffington Post than the scandal at the VA which apparently has now spread to include eleven separate facilities, also generated far more comments than the second story. Most of those comments applauded the vote and went on to comment about how CEO’s are overpaid to the detriment of the poor schlub counting out twenties at your local bank or slinging guacamole at your local Chipotle. I engaged in a conversation with one person who left such a comment.
In response to this individual, I asked, “If $25 million is too high, is $1 a year too low? If so, what would you consider to be equitable and how would you determine what is fair?” While I was waiting for him to get back to me, and I still am, I decided to try to look at this situation in as objective manner as I could.
The first thing that occurred to me is that many who have not been in the situation personally can only theorize, if they take the trouble, to understand what it is like first to conceive of a business and then to make that vision turn into a reality. If they had done this themselves, they might have more respect for those CEO’s whom they denounce.
What if Mr. Ells had never had either the moxie or the good fortune or the work ethic to start this company which now employs 45,000 people? Where would these individuals be going to work on a daily basis? In this Obamaconomy where new business start ups are few and established companies are laying off and trimming the fat, would they even have a job or just join the ranks of the gainfully unemployed?
But then I thought, not that it’s my business since I’m not a Chipotle shareholder, what if the company reduced Mr. Ells’ compensation by 90% to $2.5 million a year and the $22.5 million difference was passed along to Chipotle workers in the way of pay increases. How might that impact their lives?
Well, it would result in a $500 a year annual increase for each of the company’s other employees. Of course, after they paid Federal income tax, FICA, Medicare Tax and in many cases state income tax, that pay increase would shrink to about $350 per year. That works out to a little less than $7.00 per week or, based on a forty hour work week, seventeen cents per hour.
Now the people who man those fast food lines at their outlets earn more per hour than the typical fast food restaurant worker who makes minimum wage. But if we were to apply their percentage increase in earnings attributable to stripping Mr. Ells of 90% of his income, we would not be talking about raising the $7.25 minimum Federal wage to $10.10 per hour but to $7.34 per hour.
There are two other points we should consider.
The first is that should the Board enact the hypothetical pay plan I created and Mr. Ells agreed to work for a 90% smaller salary, it might occur to him to put forth only 10% of the effort that he previously expended in his job.
Instead of opening 100 new outlets this year, he might decide only to go ahead with 10 of those – if any at all. After all, the company is doing very well so why rock the boat? Why go through all the trouble of doing site surveys, negotiating leases, overseeing construction, purchasing equipment, interviewing and hiring and training employees and management, negotiating contracts with new wholesale grocers, conducting on-site audits to make sure that these new facilities were meeting high corporate standards? Why indeed? That would leave approximately 2700 prospective employees who might have been hired for jobs in the 90 restaurants that were never opened sitting home collecting unemployment – if it hasn’t run out.
The second point is that no one is forced to work at any job they don’t like or want. In our current Obamaconomy that is more theoretical than real since this administration has not only not encouraged the creation of new businesses, but has done everything possible to make starting a new venture difficult if not impossible. If we had a vibrant economy, a worker who was dissatisfied with his job could find another one – or even accept a second job if he were so motivated
So if we want to have a debate over the minimum wage, we should focus our attention not on “greedy CEO’s that want their employees to suffer” but to a government which has made sure that they will. This may be one of the few times that I agree with the president when he said, “You didn’t do that. Someone else was responsible.” He’s right – it’s him.