Thursday, March 13, 2014

Learning about business from Herb

I usually spend my drive time listening to news / talk radio, and yesterday I heard something that really got me to thinking.  The topic was raising the minimum wage and of course the arguments were the same as we've heard time and time again:

The conservative speaker pointed out that raising the minimum wage would help some, but would cost many jobs in the process, making it a net negative to the economy.  He went on to say that no company can pay employees more wages if they don't make the company any more money along the way.

Then the liberal speaker said workers (inflation adjusted) pay, especially at the lowest level, hasn't gone up in 20 years, while the top tier execs have seen their pay go up 200%+ in the same time.  For these people the American dream is just a mirage.  Working even two minimum wage jobs won't support a family.

Both good points, and the argument ended just as it began....square peg, round hole.  



Wanna know what I think?  I think somebody needs to sit down with Herb Kelleher and pick his brain.

This self effacing, hard drinking (Wild Turkey) smooth talking "naturalized" Texan was one of the co-founders, and later the long-time CEO, of Southwest Airlines.  He grew a handful of employees and 3 leased airplanes into the low-cost (?) juggernaut it is today, with over 550 aircraft and 45,000 employees. And they all love him.  (At least the people do, not sure about the planes.)

Herb wasn't noted for throwing around mega paychecks.  In fact, his employees were traditionally some of the lowest paid employees in the industry.  And he was one of the lowest paid major corporate CEO's, too, never receiving a salary of more than a few hundred thousand dollars a year.  (That "good for the goose, good for the gander" thing.)

When their company did well, and it almost always did, they all shared the profits and received stock options, too.  And with that, they all did just fine.  Herb might come across as just an "aw shucks" kinda guy, but I promise you he is ALL business, he is brilliant, and his people trust him.  The unions worked with him because he was fair.

He took care of his employees, never laying off even one, and if they played their cards right, more than a few retired multi-millionaires.  True!  To this day people fight for a job there, positions are that coveted.

Oh, and Herb retired in 2008 filthy rich, too.  (He had juuuuust a few more options than the rest of 'em, rightfully so.)  Herb proved that business doesn't have to be a zero-sum game....for someone to win, someone else does NOT have to lose.

And I don't think many if any of those 45,000 employees give a damn if he's a liberal, a conservative, or a pink unicorn.  So why can't the rest of us figure it out?

S


16 comments:

  1. Thanks for the insight on Herb Kelleher. Sounds like a hell of a man and boss.

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  2. If you raise minimum wages beyond a certain point it will be a net negative for the economy and for workers. The question is...what is that point. If you keep wages too low, you will attract lower quality workers. What is the right wage. The same arguments always surface. They are almost the same arguments as the too much/too little tax question. Both sides are correct, but at what level. I suspect there is still some wiggle room on the upside of minimum wages. In the northeast, few jobs are at min. wage because that wage is not enough to attract workers.

    Costco is another company that pays well and also has stock options...it is tough to get a job there, their turnover is zilch and the company keeps making money hand over foot.

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  3. So, what you are saying is that companies like Walmart (who oppose raising the minimum wage) could learn from Herb? Or is it that they haven't learned on their way to becoming gazillionaires?

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    1. Walmart (the Walton family, execs, and stockholders) have obviously done well, but the rank and file....not so much, and today "the natives are restless". Following Herb's model they could have been better paid, productivity could have been better, and over the long term family, execs, and shareholders could have still been richly rewarded, too. It's all about a long-term mentality vs a "next quarter" mentality.

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    2. Sounds like the Warren Buffett philosophy on investing... long term vs. next quarter. You related to Warren? :^)

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    3. I am available for adoption, but Warren won't return my calls. :(

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  4. Conservatives say that raising the minimum wage will kill jobs, but when have the conservatives ever been correct? I recently read an article about Conservative economic predictions and they've been totally wrong in their predictions for over forty years.

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    1. This comment has been removed by the author.

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    2. corrected link

      http://bellatore.com/2012/10/11/which-political-party-is-better-for-the-markets/

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  5. Good ole Herb! Happy Birthday Herb! (His birthday was yesterday!) I will probably see him next week when I am in town! ~GG aka Justfly :)

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    1. Whoa! GG! It's great to hear from you. Do you blog still? I'd love to keep up with you. :)

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  6. No, I don't. I wish I did! Maybe someday I will get back into it. Good reading you! ~GG

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  7. Yesiree, Herb had a good idea with Southwest Airlines. It's still favored by many frequent flyers.

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  8. I think the economy (and maybe the whole country) would be better off if there were more CEOs like Kelleher. However, for people making minimum wage, stock options and bonuses (once a year?) wouldn't work or eliminate their daily struggle to pay for food, heat, car repairs, insurance, etc. We taxpayers would still subsidize their healthcare and grocery expenses.

    My guess is that Southwest Airlines probably doesn't have a huge number of minimum wage employees (like Walmart or McDonalds). I'm guessing their employees make at least middle-class wages and (hopefully) were able to budget for leaner years with lower bonuses and stock options.

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    1. Good points Betina. Still, if I were struggling by on minimum wage, I would like to know there was at least a little light at the end of the year than just more abject hopelessness.

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