There are a great many rewards to being a commission-based, self-employed entrepreneur. Freedom has to be number one. Even in the limited form it takes within our system of centralized decision making, pointless licensing laws and oppressive, regressive taxation, there is still freedom. Another, decidedly less esoteric benefit, is the inherent unlimited income opportunity. To what degree we utilize that opportunity is entirely up to us. I mention this in light of all the discussion lately about Socialist policies and redistribution of wealth. It seems an opportune time to point out how the system self-corrects when left to itself (albeit painfully at times).
It wasn’t more than a year, year and a half ago that social engineers were up in arms over the outrageous pay CEO’s received. They would graph the income of the president of a large company as a factor of the average employee’s income within the same company. “This is wrong!” they would yell. “A moral outrage” they would opine on the talking head shows. “Another example of the evil capitalist system rewarding the rich at the expense of the poor.” We all heard it and quite frankly, I had a hard time myself not gagging over some of the pay structures I saw. I would be the first to stand up and agree that paying a CEO tens (never mind hundreds) of millions of dollars is nearly impossible to justify from an economic standpoint. But the difference in argument should be painfully obvious. The enraged egalitarians may have disagreed with the economic soundness of executive level pay but they decried the morality of it. Few things as scary as a large crowd informing me what morality is.
Those angry groups of ivory tower thinkers and blue collar unifiers do not believe the system corrects. They believe the best option is their option and invariably it involves income redistribution. Pointing to graphs relating a CEO’s pay to that of an average employee on the assembly line is meaningless. Their is no logical nor economic reasoning to justify some type of mathematical relationship. The issue, of course, is whether a company is making the best use of its finite resources and can sustain its competitiveness while spending such vast amounts on pay… and the answer may very well be “yes.” One would have to look at each case individually. But that is not my point. Let us agree that a great many of these pay packages were economically ill advised. The market always corrects. It is doing so now. A free and open market does not promise consistent fairness or balanced equity; but rather a reversion to that mean. In other words: the system will correct its excesses and hone its efficiencies. Let me ask you a question: were many CEOs overcompensated while sitting at the helm of a sinking ship? Has that informatin been disseminated and understood during this financial meltdown? Altogether: YES! Do you suppose future CEOs will see this type of financial largesse any time soon? In our lifetime?
It was not pretty. It is not going to be pretty for some time. But the market is doing what it always does. It is correcting inefficiencies, bringing economic rationality to bear (at least for a while) AND creating tremendous opportunities – some new, some old – for those that choose to see (or listen: Brian Brady and I having been discussing some of these opportunities for agents on our mortgage radio show). I am ever thankful for my Dad’s advice when I was young. He told me:
- There is no security in working for another.
- Those who begin their work life in the cradle of pay-for-time were unlikely to ever be comfortable with pay-for-results.
- Most importantly, he told me that consistently big income was a byproduct of consistently bringing more value to the equation.
You see, the one thing markets do not correct – the one thing not in need of correction – is the correlation between our ability to create value and our unlimited opportunity for income. And that’s why commission is better.
Dave says:
“Few things as scary as a large crowd informing me what morality is.”
Sean, This is a comment that really relates to what has happened in this country. The fact that what you are saying is so true is a very serious and sad observation of the one thing that will divide and ultimately cause the destruction of our country. Unfortunately, most will read your post and say it doesn’t apply to them.
I feverently wish it wasn’t so…and hope that somehow we can reduce the size of the crowd.
October 16, 2008 — 8:40 am
Jeff Brown says:
First Grandma, then Dad, told me that working hard and earning a decent living, whether it was as an employee or for myself, was honorable in and of itself.
They also said that those who were paid — or not paid — based solely on the results of their efforts were almost universally paid more. What was dishonorable, was the envy of those unwilling to rely on the results of their efforts, trying to bring down those who did.
Bottom line is, if ya don’t have the huevos to rely exclusively on results to get paid, then you haven’t earned your way into any conversation with those who do.
Moral to the story: Either put up, or shut up.
October 18, 2008 — 5:40 pm