“We hire the best people in the industry, so they make more money than their counterparts do at our competition.” Those are the words of Arthur Blank, co-founder of The Home Depot.
Blank’s statement about personnel and pay is really a statement of the obvious. For the businesses that aim to be great, they have no choice but to pay well. Better yet, it’s their goal to pay well. Those who want to win don’t strive to divine “what the market will bear,” nor do they consult supply/demand curves. Their goal is to overpay so that they can attract the best of the best.
It’s something that rates consideration amid the seeming proliferation of strikes around the U.S. Labor unions are seemingly having their day, and enjoying it. Their self-regard is overdone. Skilled workers don’t require labor unions. Neither do unskilled workers. This is an old truth.
Think back to Henry Ford over 100 years ago. He didn’t raise employee pay to $5/day because of union pressure, rather he boosted compensation because it was too costly to not have the best individuals in his employ. The $5 wage was a lure for able-bodied strivers across the U.S. The above market pay also kept the workers around. This mattered a lot to Ford too. It’s expensive when talented workers quit. He would pay well to keep those in his employ from looking around.
Of course, looking around is what workers can do in a growing economy, and it’s what they do, in fact, do. They can take their talents to better pay, better hours, better benefits, etc. Companies like Starbucks recognize this now. Their greatest competition isn’t other coffee chains, rather it’s the myriad prosperous U.S. employers who might lure their most talented employees away. Fearful of this, Starbucks offers health insurance, college tuition, and surely other benefits meant to shrink the odds of their employees looking around.
Yet the underlying justification for labor unions is that they’re necessary to protect the labor side of businesses from exploitative conditions foisted on them by ownership. Except that the greatest source of protection for workers doesn’t come care of threats from union heads or collective bargaining, rather it comes from owners. They once again want to overpay and over-benefit those who work for them because it’s in their interest to do so. And if they don’t see that it’s in their best, most-profitable interest to compensate well, their competition will remind them that it is.
Bill Gates arguably explained it best back when he was still running Microsoft. Goldman Sachs was Microsoft’s investment banker, but also its biggest competitor in the eyes of Gates. He viewed GS as competition for talent. Hopefully readers see a theme here. The good and great strive mightily to remain great, and they do so by retaining or attracting the best around them.
Notable here is that Blank owns the Atlanta Falcons. His employees pay dues to the NFLPA, the union representing players. Blank would never say it publicly, but the union is superfluous while at the same time costly for the players. Figure that teams routinely trade up in the draft to pick better, more expensive talent, plus they court veteran players assiduously in the offseason. Owners know what it takes to win. Basic stuff.
Blank lived it in building The Home Depot, which is presently worth $300 billion. Eager to win, he and his colleagues searched endlessly for the highest priced talent in the home improvement space. The desire of business owners to grow rich is what protects workers, not unions.