Tuesday, June 14, 2016

How a Raise to $15/hr would be the Downfall of McDonald's and everyone it Employs

Just a moment ago I prepared, once again, to masochistically tease myself too close to the event horizon of the super-massive black hole of the ideology of yet another pro-regressive on the internet. Why I continue to do this to myself -- I couldn't tell you. I'm apparently a glutton for mental anguish, punishment and frustration.

As it goes.

Anyhoo, this zealous ideologue spouted a quote from an article about how "[McDonald's] chief executive, Steve Easterbrook, brought home a whopping $7.91 million last year — a 368% raise over his 2014 salary of $1.69 million —while low-wage McDonald’s workers are striking around the country for a livable income." and naturally followed up with a predictably inane, "Sure, they obviously can't afford to pay people better." Of course, in the bizarro world of a pro-regressive ideologue where basic math and common sense don't apply, this means that McDonald's can afford to pay their line-level workers $15/hr. Obviously.

Of course, Steve Easterbrook didn't merely get some kind of merit pay-raise just for being a good chap. He actually got a massive promotion from 'Chief Brand Manager' to Chief Executive Officer -- an important tidbit of information the ideologue conveniently ignored that was found within his own citation. Additionally, this doesn't tell the whole story, as it turns out that the vast majority of that $7.91 million is in stock options -- which is usually how a CEO's pay is structured for large, publicly-traded corporations. It's done this way to tie the CEO's pay very closely with the performance of the company. His base rate in 2015 was actually $1.1 million, and he received an 18% pay raise in March, 2016 to $1.3 million. If the performance under McDonald's tanked by the end of 2015, quality dropped, customers stopped coming and employees lost their jobs as a result of said tanked performance -- then he would have made far less along with probably having to step down in abject shame.

McDonald's is a company that took in $25.41 billion dollars in revenue last year. CEO Steve Easterbrook has taken on one of the most important jobs in a modern economy. This means taking on the ultimate responsibility of managing a massive entity consisting of '1.9 million employees and around 68 million customers daily in 119 countries across 36,535 outlets'. His mere words, actions, and inactions could anywhere from destroy to sustain to improve the jobs of its employees and the customers who enjoy their food -- very much so including myself. And while I'm more of a Wendy's man, I'm actually a solid fan of their 'Number 6' Crispy Chicken Club sandwich meal (hold the mayo!), add bacon, add ranch dressing, with large fries, a large Diet Coke (gotta watch my girly figure), and always add in the 4-piece chicken McNuggets... but I digress, and no I'm not a paid shill. I'm just here, calling out the bullshit.

As noted, executive pay is often tied directly to stock performance in large, publicly traded companies -- so while pro-regressive ideologues will naturally point out the increased income CEOs get, you'll never find them point out a CEO's massive drop in income for when their company doesn't perform. It's the same old story with 'speculators'. Pro-regressives absolutely love -- love, love -- to pounce on faceless 'speculators' when prices go up. But of course, you'll find them suspiciously, shamefully silent when speculators push prices down.

Now, on to the fast-food meat of the matter. Of the 1.9 million total employees, let's play super nice and give a very conservative estimate that only 1.5 million of them are primarily line-level employees making under $15/hr, whereas the remaining 400,000 could be corporate employees and managers. McDonald's ended 2015 with $4.53 billion in net profits, so let's say we were to try to make pro-regressive ideologues happy (it's impossible, btw, there's always something they feel entitled to) and eliminate all profits and turn it directly into a raise for all line-level employees -- since this is the 'extra fat' or 'surplus value' that the company has nefariously, unjustly 'stolen' from them and 'should not have' and 'should go back to the workers'. Since line-level McDonald's workers typically make anywhere from $8/hr to $10/hr, let's say they make $9/hr. Now, let's take the $4.53 billion in oppressive profits, cut it up into into 1.5 million cute, little, socially-just slices, and hand them right out so very equitably (!) to all of the line level employees.

So what have we effectively accomplished by wiping out the profits of one of the largest companies in the world and handed it over to the 1.5 million line-level employees? What we've done is signed its death warrant. 

Here's the simple math. $4.53 billion into 1.5 million employees means that we've only given these people an additional $3,020 into their gross (that means pre-tax for you entitled folk) yearly earnings. Since the pro-regressive argument goes that it 'should be' a 'livable wage' (we'll get to the consequences of a raise to $15/hr soon enough, trust me) -- they should consider this their full-time job to live decently off of. Full-time means 40 hours per week for 52 weeks, which brings us to a massive raise of -- drum-roll, please...

... an additional $1.45/hr, bringing their new wage to $10.45/hr! Social justice secured! 

Understand -- when a company makes profits, those profits don't suddenly all go into the pockets of executives. Most of that money is either, 

a) tucked away into savings for a rainy day of bad performance so they can still pay their bills and continue employing 1.9 million people, 
b) to expand the scope of their operations by opening more locations to bring more jobs to more workers and more food to more consumers at low prices, 
c) to invest in existing infrastructure to improve working conditions and/or quality of the food and/or the experience for the customer, 
d) pay out into shareholders of various ages and classes (oftentimes including the employees themselves if they opt for 401k plans, IRA accounts for retirees, et al), or
e) some combination of these.

In the end, these profits are needed to sustain and/or expand the company -- not for some nefarious, oppressive, exploitative purpose, whatever pro-regressives dogmatically believe is considered so by attaining profits. 

So what does this all ultimately mean? What about the demand for a so-called 'livable wage' of $15/hr if wiping out their current profits only means achieving an average wage of $10.45/hr?

If, let's say, McDonald's ever caved into these destructive, economically ignorant demands (hint: they won't) and gave these employees a raise from $9/hr to $15/hr -- for a conservatively estimated 1.5 million 'line level' employees, they would need to absorb $18.72 BILLION in additional costs. We're talking a necessary revenue increase of 73.7% -- revenues they've never achieved and likely won't for many, many years into the future where other costs will continue to grow as well. If they had to suddenly absorb these costs, without a change to their prices, and with last years' performance, they would be operating at a yearly loss of OVER $14 BILLION. Not only does that mean that they would not be able to expand and add more locations and thus hire more employees around the world, but they would absolutely go out of business. To shore up revenues an additional $18.72 billion to both maintain $15/hr line-level workers as well as achieve $4.53 billion in profit to continue business as usual, they would have to raise prices significantly and somehow manage, with said prices, in the face of serious competition, to achieve the same amount of demand for their food. No one in their right mind would put up with the massive price hikes necessary to generate $18.72 billion in additional revenue for their existing setup, and I'm even less convinced that $15/hr 'just because' workers are suddenly 67% more productive than their $9/hr former selves (which still assumes their locations would get the requisite over 67% uptick in demand). 

That's bad for everyone, all around. That means 1.9 million people out of work, and a more concentrated market share into the remaining big fast food companies. It also means less competition for both customers and employees, which translates into higher prices for customers and less negotiating power for employees at the remaining fast food companies. Less leverage for employees and less leverage for customers means everyone loses, everywhere.

Oh, and I'm not even done, yet. Believe it or not -- you thought $18.72 billion in additional costs is rough? That was actually another super-nice, extraordinarily conservative estimate, as it doesn't include significant additional costs needed for each and every employee due to the higher rate. I'm talking about Workers Compensation, Unemployment Benefits, and Tax Liabilities -- all of which are a heavy burden placed upon businesses both large and small that are charged as rates according total wages earned, risk of injury or unemployment, and other factors. These additional expenses would effectively grow by about 67%, putting another nail into the coffin of the $15/hr minimum wage.

They say that the road to hell is paved with good intentions, but I don't think this analogy is entirely accurate with pro-regressives. The pro-regressive road to hell is paved with a hack-job, fly-by-night, scummy operation built on willful economic ignorance and dogmatic ideology -- and it uses the livelihood and dreams of the poor as the asphalt.

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