Friday, July 24, 2015

Worth, Water and Salaries

Price is not a signal of value. It is a management tool that helps control supply and demand of limited resources. Water and oxygen are the obvious examples of something that is incredibly valuable, yet this is not reflected in the price because (for now) there is enough. 

Enough Oxygen and Water for Now
NASA's latest blue marble

I have heard of bars that display an electronic price board that changes depending on how much people are ordering, and how much is left. As a particular brand runs out, its price increases. The less popular brands prices fall. The price moves to best meet the demand of the customers. Betting odds are also a great example of price as a signal. Jeremy Corbyn started out as a 200/1 outsider to win the leadership of the Labour Party. Only 5 people took that bet. He is now a close favourite and only getting 2/1 odds. Plenty of people are willing to take that bet. Price is a signal of supply and demand.

YET we sell our labour for a salary. A salary is the price of our labour. Since we often define ourselves by our work, lots of the strengths of pricing fall away. If you aren't going to listen to the signal of price because you are going to do what you are doing anyway, those who are more flexible will set the price. A price is a negotiation. If your position is fixed, good luck. If I was to choose one rule for investing, a strong candidate would be 'Never be a forced buyer or seller'. I have learnt to my peril that the same rule applies in dating. Nothing is as unattractive as desperation. Arguably, work is a lot more like marriage than marriage given how much time we spend with our colleagues.

On the front lines of a business, the customer is the boss. For all the accusations of Corporate dominance of the world, they live or die by the commands of supply and demand. Ask Kodak, Blackberry, A&P or perhaps even the all powerful oil companies as they look at Mr Musk pointing at the ball of energy in the sky and saying 'Isn't that free?'. 

But the signal of supply and demand determining profit falls away when it comes to employees. When you are an employee, you want your salary to reflect the difficulty of your education. You want it to reflect how well you work with your teammates. You want it to reflect your integrity, commitment, effort and status. We demand a lot of salaries as a measure of value. I am not sure they ever offered that. Management have to somehow wave a wand between the pile (or hole) of money the business creates (or destroys) and the emotional expectations of the employees looking for recognition and motivation.

If we weren't defined by our jobs. If we weren't working for just one company. If our skills were flexible. Things would be different. The reason talking about salary messes with happiness is it strikes at the heart of us measuring our worth. That is just silly, but we can't help it. Numbers are like sugar, fat and salt. We are addicted to their simple, powerful signal. Worth is more nuanced and complicated. Worth is personal and social. Worth is about meaning. Worth is our water and our oxygen.

If salary was a measure of worth, it wouldn't be a number, it would be a discussion.

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