Is Cost-led pricing a Root Cause or a Symptom?

Eric Fetterolf asks:

I wonder if the root of the problem (cost-led pricing and keeping timesheets) is not lack of vision or education. I wonder if the problem actually exists at a deeper level — the law.

Employers are required to pay employees the hours they work. That is why firms that make time cards, physical and software based, are successful. Employees are not paid by the result, but by the punch time clock. Since the law is rooted deeply in the fundamental Marx theory of labor, (isn’t that a shock that the American labor laws are guided by Marx), is it really a mental stretch to see why many firms are struggling with the transition? They are being held to a flawed standard by our government.

The question for the court of public debate: Are we simply attacking a virulent symptom and not the true underlying root cause?

Eric, you are correct in your assessment that most labor laws are derived from Marx and that this is certainly a problem. However, from my (amateur) understanding of the law, this does not force companies to keep timesheets. I know that most companies are required to keep attendance records for exempt employees, but this does not mean that they have to pay by the hour. It certainly does not mean that they have to price and then bill by the hour.

Any other thoughts from the community?


  1. Hi Eric,

    Law is based on experience, so the real question is what is the root of the belief that value = time. This has been traced back to St. Thomas Aquinas, the Just Price, Sumptury Laws, etc. Man has a long tradition of equating labor to value, and the law is nothing more than a manifestation of that experience, not the root cause.

    The real culprit is the wrong theory of value. I actually trace the history of this theory in my book Pricing on Purpose.

    Great question though, as it certainly doesn’t help that the law perpetuates this false belief.

  2. I think the way employers pay their people is a matter of mindset. If employers focus on the manual labour people perform, they pay them for time, that is, the amount of time they sit in front of their computers in the office and warm their seats.

    But employers who are smart enough to recognise that it’s their people’s brains that contribute to the bottom line, they pay them for using their brains to improve the company’s condition.

    And using the brain is a 24/7 matter. Knowledge workers can come up with great ideas under the shower Sunday morning, and then they apply it to their work and something great can happen. Now what do we pay the person for? For the great idea well implemented or the number of hours it took to implement it? I think it must be the former.

    And I believe employers are free to choose how they pay their people. I think it’s plain laziness to hide behind the wall of the law and stay with timesheets and hourly wages.

    Parkinson’s law states that work expands in proportion with the time given for it. With hourly wages, there is no time given. Well, unlimited time. People come to work not to achieve results but to clock in eight hours and get paid for the clocked time, almost regardless of their performance. After all, they put in the time, so they should be paid.

    And even performance appraisal is useless:

    Employer: “Your performance is low.”

    Employee: “What sort of piglet is this performance nonsense. When you hired me you told me you would pay me $$$ per hour. And I’ve been honestly putting in the hours.”

    Employer: “But your performance is low.”

    Employee: “Maybe but I have put in lots of hours which should make you happy. I’m a valuable contributor.”

    And the employer can’t even say a word. No a sausage. The employee was hired incorrectly with the wrong performance parameter (elapsed time) as the basis of reward. And for that, he’s an excellent employee. He’s putting in lots of hours to make his employer happy.

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