Sunday, July 22, 2012

In Business, Take Time to Do the Calculations

Reference:  Weiser, Matt . California Parks Director Resigns Amid Scandal. Sacramento Bee. Friday, 20 July 2012.

As California balances between eternal debt and bankruptcy, the Democrats in Sacramento look for excuses to raise taxes and spending. One such excuse, the shortfall of funds to keep California State Parks open, has forced many volunteers into fundraising and forced local governments into shifting their own funds into keeping state parks open to  draw tourist dollars.

The Sacramento Bee found that a deputy director at State Parks "carried out a secret vacation buyout program for employees at department headquarters last year. That buyout cost the state more than $271,000." This led to a much larger find: The State Parks department his hiding $54 million in unspent funds.

State Parks Director Ruth Coleman resigned after the Bee published news of the stash. The employee who bought back vacation time had already been demoted and later resigned. His crime, in my opinion, discriminated between his friends at the headquarters and those who work equally hard in the field.

I believe the withholding of funds could only happen in concert with Democrat attempts to extort more taxes from the public. That's how Democrats do things in California government.

The gem in the original story follows:  For the sake of argument, let's assume we have two employees:

  1. Mr. Buyout sells his vacation time back to the state.
    Mr. Vacation enjoys taking time off to go protest with OWS.

  2. Vacation is earned over the course of the year.
    Both employees make $50/hour.

  3. Both have 160 hours/month x 12 months/year (rounding) and 40 hours vacation

This means

  • Mr. Buyout works 1920 hours for 1960 hours' pay.
    Mr. Vacation works 1880 hours for 1920 hours' pay. 

  • Mr. Buyout makes $98,000.
    Mr. Vacation makes $96,000. 

  • Mr. Buyout has an effective pay rate of $51.042 per hour.
    Mr. Vacation has an effective pay rate of $51.064 per hour.

Mr. Buyout actually makes 2 cents per hour less.

Two cents/hour is not much, but consider a couple more factors.

First, when you add in the effects of benefits and overhead, the difference multiplies to 3 to 4 cents per hour.  Employers love forcing employees to work overtime because the benefits are paid for by the first 1920 hours' labor. With benefits costing 50% to 100% of the base pay, that means employee overtime effectively costs 33%-50% less (assuming pay at straight time rates, if any).

On a tangent, managers often put their directs in a position where overtime is forced and vacation is denied.  Both practices hinder productivity and morale.  When employees forced to work lose unused vacation, it amounts to stealing.  Therefore, vacation buyouts often form an ethically necessary action.

Second, if you multiply 2 cents/hour over a year and thousands of employees, the added productivity and lowered effective cost create a good deal for the taxpayers.

Conclusion:  The state punished the fellow who conducted the buyouts for doing a good thing. THAT, dear friend, is California government, just as much as hiding funds to force increased taxes.  The business-related point is, "do the math."  The worker who violates procedure may have done so because it was right for the company and simply, ethically right.

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