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BIG PICTURE

Why employees should always come first

Jeff Bezos speaks as his brother Mark looks on during a post-launch press conference after they flew on Blue Origin's inaugural flight to the edge of space.
REUTERS/Joe Skipper
Still not quite getting it.
  • Carey Smith
By Carey Smith

Founder, Big Ass Fans and Unorthodox Ventures

Published

When I was a boy, my mother’s boss once gave her a turkey as a year-end bonus—not money to buy gifts or help pay bills, but a lifeless bird to lug home and overcook.

Memories of this helped nudge me at an early age in the direction of going into business myself, if only to treat people better than that. Most of the jobs I held at the start of my career suggested my mother’s boss wasn’t much of an outlier; I repeatedly saw employers put their own interests and pocketbooks above everything else. One vice president I worked for even told me and a few colleagues that he could afford to pay us all twice as much, but why should he? Good question!

It was so good, in fact, that it led to my resignation.

From then on, I’ve been my own boss. I started one marginally successful company, then a second, very successful one. In 2017, I sold the second, fan and light maker Big Ass Fans, for $500 million. I could have retired to the south of France and counted my money, but instead I chose to start a third company with a chunk of those proceeds and a few of my old colleagues. We advise and invest in founders seeking to grow their startups. And meanwhile, I continue to rail against bad capitalists; they irk me to no end.

Giving capitalism a bad name

Why is it that the arc of the capitalist universe so often bends toward avarice? What is wrong with people like Jeff “Still Not an Astronaut” Bezos, who allows his employees to be worked to the bone, only to skyrocket into space and then giddily thank them for paying for it? AYFKM?

They give capitalism a bad name, and that galls me because when it’s done right, there’s no better system for creating economic prosperity. All my life, I’ve tried to practice good capitalism. Somehow, between observing my mother’s stingy boss and absorbing the moral of Charles Dickens’ Christmas Carol, I grew up understanding that loyal, hardworking employees are the most valuable asset a company can have, and that it’s much better to be a Fezziwig than a Scrooge.

A few years back, a Seattle CEO was all over the news for cutting his own $1 million salary to pay each of his employees and himself the same reasonable living wage. While everyone was singing his praises, I thought people were missing the more important story: What was he doing paying himself $1 million in the first place, when that amount was nearly half of his projected net profit? Why would he siphon off that much from his company for his own personal comfort?

If you can’t afford to pay employees a fair wage, then you shouldn’t be in business in the first place

Operating a business that pays people fairly is not a hard thing to accomplish, so long as you keep your margins healthy, stay ahead of the competition, and make your employees a priority.

I can’t imagine paying myself the same percentage of my company’s profits as that Seattle CEO. There were years early on when my take-home pay barely covered the weekly grocery bill. But I always made sure our employees were paid what they deserved, and then some. I knew I needed them. Our salaries were higher than average not just for the company’s home state of Kentucky, but 30% higher than average for the whole country—and of course I bragged about it every chance I got, because it was worth bragging about. I was as proud of our salaries as I was of our annual leaps in revenue (30% or more on average) and our glowing customer reviews, neither of which would have been possible without employees who felt valued.

I also boasted about our perks, and our holiday parties, where we gave away thousands of dollars in cash prizes, with taxes already covered. And that was on top of generous annual bonuses (memories of mom’s crappy turkey bonus made me determined to do better). We always set aside a percentage of our profits for bonuses. The amounts weren’t based on salary or title. Our production people worked as hard as our top engineers, and I wanted them to know they were appreciated. Even during the worst of a recession, when our company barely broke even, we managed to give everyone a few hundred dollars extra—and we avoided layoffs, too.

When I finally decided to sell the company, many employees got the biggest bonus of their lives, thanks to the stock appreciation rights program we set up early on. The rights program was a big deal to me, because from the very start I was asking people to take a trip with me as we built the company. I didn’t want it to be just a job for them. I wanted loyal employees from the production floor to the executive team to share in the prosperity. So we set aside up to a quarter of the company for the program to reward employees. How much an employee’s stock appreciation rights became worth over time depended upon how much the company’s valuation grew. A third-party firm performed the valuation each year.

Why employees come first

Ten years after we set up the program, I was ready to do something else with my life. I decided on a sales price of $500 million largely because that seemed a reasonable number to ensure that the people who had stuck with me would see a good return.

When the deal closed, about 15 people became instant millionaires. A few who’d been invaluable in building the company from its earliest days made around $5 million. In all, $50 million was distributed. People came up and told me, “You changed my life.” I didn’t need all that money. What I needed were the great employees who helped me get the business off the ground.

Plenty of capitalists say they appreciate their employees, but too few follow up their words with actions. I thought that I could do better, and I knew it began with the Golden Rule: Treat your employees, your vendors, and your customers as you would want to be treated. But employees come first, because they make everything else possible.

Carey Smith founded Big Ass Fans in 1999, bootstrapping the fan and light maker to nearly $300 million in sales and more than 1,000 employees. Ready for a new challenge, he sold the company in 2017 for $500 million and then founded Unorthodox Ventures, an investment company based in Austin, Texas.

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