Money: What's Your Perspective?

Particularly during this period of record-high inflation, many of us are bound to be thinking about money more than we would like.??

This afternoon I was pondering the topic myself, alternately considering my own perspectives as a working parent of three teenagers and small business owner, and also the range of perspectives I hear through my client companies, that of the owners and the employees.?

A realization that comes to the forefront quickly is the vast difference in perspective depending upon whether you are in the seat of the person cashing the paycheck or the seat of the person writing the paycheck. All have bills to pay, whether just for themselves or for the business plus personal expenses.? I believe it is helpful for all of us, whether employer or employee, to consider the perspectives of each.?

Since I really enjoy fact-finding and random research, I turned to Dr. Google for some flashes of brilliance to add to my own ramblings on this topic.? I’ll share some of the more fascinating findings.??

Company Profits?

When a random sample of American adults were asked by the Reason-Rupe poll in May 2013, “Just a rough guess, what percent profit on each dollar of sales do you think the average company makes after taxes?” The average response was 36%!?

How do the public’s estimates of corporate profit margins compare to reality? Not surprisingly, they are off by a huge margin.

According to this NYU Stern database for more than 7,000 US companies (updated in January 2018) across 100 different industries, the average profit margin is 7.9%. And this number is actually a bit inflated due to the impact of a select few highly-profitable industries such as tobacco (43%) and financial services (26%)?

Interestingly, for nearly 100 industries analyzed by NYU Stern, only 28% of industries had a profit margin in the double digits.? For all others, profit margins averaged only six to seven percent, and for businesses with less than 100 employees, the numbers can be much lower. ??

A recent study conducted by the consulting firm, KickAss Entrepreneur, revealed that over the past 13 years, average small business profit margins have been as high as 7.5% in some years, but as low as 1.5% in other years.?

Owning a Business is Risky Business

After digesting the above statistics, consider also that in the highly competitive US business environment, there’s not a large margin of error. If a company is not operating efficiently and watching costs very carefully, it’s pretty easy for a business to go from a 6-8% profit margin to a 0% break-even situation, and then from there to losses and bankruptcy.?

Think about the number of businesses that fail every year.? Lending Tree reports that almost 20% of businesses fail within their first year, and 65% fail within ten years. JP Morgan Chase reports that 51% of US small businesses are less than 10 years old, and recently Economic Times reported that half of the S&P companies will be replaced over the next ten years.

Inflation vs Salary Increases

Inflation is now above eight percent, the highest it has been in 40 years.? As recently as last month, the average monthly inflation is continuing to outpace market expectations.? Yet the average increase in salaries across the US this year is only 3.4%...and many businesses haven’t yet been able to give an increase at all since the beginning of the pandemic.?

What Else?

There are plenty more statistics like the above to consider, but I’ll boil all of it down to just one data point:? perspective matters.

When you are the employee, perspective matters.

Yes, inflation is horrible right now.? It’s stretching the wallets of all of us. But we do need to keep in mind that inflation is affecting not only our individual wallet; it’s also affecting the profit margins of the companies that employ us.? If you believe a business is being stingy when they don’t provide frequent enough salary increases to keep up with inflation, consider the reality that perhaps they are just trying to survive on what are sometimes very thin profit margins.??

Everyone wants to make more money, and it’s tempting to think about jumping ship from one job to another that pays more.? But before you hit send on your acceptance letter of a new job, perhaps it’s helpful to think about what’s more important for the long run…having a job that pays above market wages but may not necessarily be as safe in the long run, or having a job that pays steady wages at a long term company that has proven the adage of “steady always win the race.”??

When you are the employer, perspective matters.

Many small businesses are struggling to hire and keep employees, and the recent pressure on wages is impossible to ignore. I’ve talked with several business owners who are in a quandary about how to handle this in the short term while also ensuring long-term viability of their business.??

Consider also the impact of pay transparency laws that are sweeping the country, and all at once the task of compensation planning is even more monumental.??

On the bright side, there are many creative ways to compensate employees well in ways that keep pace with the competitive wage market and the cost of inflation that both employees and employers are experiencing.? Unfortunately, many businesses seem to be stuck in the mindset that the only way to do so is to raise wages x dollars per hour or x percent per year.? This hundred-year old method is outdated and simply doesn’t make sense in today’s economy.??

Whatever you do, and however you do it, recognize your responsibility to employee concerns around money, along with your goals for company profits and the long term viability of your business in an especially volatile market.

And remember, whether you are the employer or the employee, money is important, but it isn’t everything.?

Far and wide in survey after survey by Gallup and all the rest, the best indicator of happiness in a job isn’t about pay. According to the Society for Human Resources Managment, employees rate respectful treatment of all employees as the most important factor in job satisfaction.? Thrive Global identified three factors more important for job satisfaction than income level: culture and values, senior leadership, and career opportunities.??

Yes, the economy is extremely difficult right now, no matter which seat you occupy.?

If you are an employee, think about what matters to you about your job other than money:? long-term stability, the way you are treated, and opportunities for personal growth.??

If you are an employer, think about what matters other than just profits:? long-term stability, the way you are treating your employees, and opportunities for business growth.?

Pay is important and always will be.? Just remember, money never did buy happiness.

Author:? Amanda Shevette, July 2022 Author’s Email:? [email protected]