The American Dilemma and How We Can Fix It

CHIPOTLE MEXICAN GRILL

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.

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Comments on: "CHIPOTLE MEXICAN GRILL" (15)

  1. Yep. 😐

    • Some people are just unclear on the concept. A lot of them.

      • I know. I can’t decide whether they’re just uneducated or willfully ignorant, or maybe both.

      • You omitted apathetic.

      • I did, but I also think part of that is rational apathy. I think a fair percentage have decided that they have so little influence that there is little point in being well informed, although that wouldn’t really apply to those who comment on blogs, left or right, we (at least) like to think we have some influence. 🙂

        Gene Volokh (sp?) has been doing a lot of writing about rational apathy in voters, and I think it applies here as well.

  2. Although I agree that some CEOs receive obscene and unwarranted compensation packages, I do like to also ask the complainers what they think a highly paid CEO does with his/her money? Do they not directly create/support jobs by their spending on things large and small? Do they not also invest their money in ways that allow more money to be lent to borrowers (such as small businesses) or to be used by other companies to do research or expand (i.e., again creating/supporting more jobs)? Just what DO we think happens to all this money? Does a rich man simply use it to stuff pillows and mattresses? It seems to me that no matter where s/he puts it, it will find its way back into the economy (unless he invests most of it overseas, of course).

    • Essentially, the super-compensated sort of act like a medium-sized company themselves in their impact on the economy?

    • I believe the “stuffing it in the mattress” theory predominates. That is the only reason that by “giving it to the worker” promotes a stronger economy because they’ll spend it argument can have any credibility. They’ll spend – CEO’s won’t.

      If we could do one thing to improve the educational system, we should have a grammar school course in “How Money Works.” We so often focus on the income side and seldom on the outflow side. (See Congress).

      • Illerio makes a good point here, although obscene is one of those words whose definition is in the eye of the beholder. I would have much less problem with that sort of compensation if it was a reasonably low salary and most of the rest tied to net profitability. There are, of course, problems with that as well in our corporatist economy.

      • As God discovered some while back, it’s almost impossible to legislate morality. People who are unscrupulous are going to act that way no matter what the rules and restrictions are. Short of a morality chip implant, I doubt that will ever change.

        If a person is totally money motivated and those who are investors don’t object, then I believe they have reaped their just reward. If they get fed up they can institute a change of leadership.

        I am less concerned with a few uber-greedy CEO’s than mid and low level bureaucrats among the 22 million in our public sector who have no such accountability and seem happy to fade into the twilight like Lois Lerner and Dr. Robert Petzel at the VA.

      • Couldn’t agree more with you.

        Somebody once said (I think Chesterton, but I’m too lazy to look it up) that, it’s better to be ruled by a robber and thief because at some point he may be satisfied, than by a man that is oppressing you for your own good, because his oppression will never end and can never be sated. Horribly paraphrased no doubt, but that was the sense of it.

        We need to kill Leviathan, and soon too, or it will kill us.

      • G. K. was right. And I’m already feeling the giant’s nibbling at my toes.

      • He was rarely wrong, and yep, I do too.

      • Yeah, the biggest problem I see with the net profitability approach, having seen (and been a part of?) income and spending games that corporations play, is that we always negatively impact the next year by pulling revenue into current year, and then the problem accumulates going forward. Thus the short-term “success” of the company is highly emphasized over long-term health and growth. But then this game goes back decades — and every executive knows it is wrong, but plays the game anyway — hit your annual goals at all costs, no matter how much adjusting you have to do. When 60% of my income depended on hitting/exceeding annual goals, do you not think I played the game rather than make waves and get fired?

      • Yes, everyone in management has heard the old story about how to select an accountant.

        The correct answer that the gifted accountant gives to the question, “How much is 2 + 2?” is not a specific number.

        The correct answer is, “How much do you want it to be?”

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