Risk, Return, and Employee Pay

People always seem to think that they know how much others should be paid. Most people accept that certain skills are scarce, and thus people with those skills can command a higher salary. What people don't accept is that some people make almost nothing while the company they work for makes a huge profit. The question seems to be that if a company is profitable, why should all the money go to the shareholders? Why not give some to the employees who are barely getting by? I think I have an answer to this, based on my own recent experience – the profits belong to those who take the risk, not those who do the work.

I am in the process of starting a company. After being rejected for a bank loan, I found an investor who will be my business partner. We hope to be open for business by April, so in January and February we will be interviewing applicants for some of the positions in this business. We need 5-6 people. The type of people we will be hiring will have college degrees, but the nature of the work (sorry, still can't disclose specifics) is such that market salaries are in the upper 20s to low 30s. Personally, I think this is horrendous. It may be enough for one person, or even two, but it is not enough to support a family on, in my opinion. So I should pay them more, right? No. I can't. I don't know if I will make money as it is. That is what those on the left seem to forget. I am the one who, by doing this, is on the hook for 300K if it fails. I am the one who may lose my house and file bankruptcy if it doesn't work. This could ruin my life. Why would I take such a risk? Because if things go well, I will have significantly more money than I do now. If I thought I would make just 10-15% on my money, I would buy stocks instead. If the government were to take away the potential for profit, it wouldn't be worth the risk I am taking. The people who will work for me aren't taking a risk. If we can't make it, they will simply move on to another job. They won't owe a bank huge sums of money, they won't have lost tens of thousands of dollars of their own hard-earned cash. So from this perspective, who should the profits go to if there are any?

I will agree that it is good business practice to give employees a cut of profits. It gives them incentive to perform better, and more loyalty to the company. That is what I plan to do. But, they do not have some "right" to the profits just because they helped generate them. (If I buy a house, hire someone to paint it, and sell it for a profit, does the painter deserve a cut of the profit? I don't think so.) If they did, it would limit the potential game from a venture so that many people would not be willing to risk their capital to fund it. That means less job creation and less economic growth. This is a bit of a simplistic take on what could be a very in depth and complex topic. But I think this simple lesson is one that many people fail to grasp.