Is a Bigger Staff Better?

glengarry_rectThe other day I was watching an online clip of Conan O’Brien involving him talking to various staff members on the show. In one of the conversations, he revealed that the show employs over 180 people.

That number surprised me. 180 people working to create 1 hour of content a night? How is that possible? How can the show afford 180 people?

Granted, I’m glad the show gives 180 jobs to people. That’s great. This is more about my curiosity regarding the staff size.

I used to read Inc Magazine on a regular basis, and every year they’d release the INC 500. I’m not exactly sure which factors went into creating the list, but staff size was prominently featured in the profile for each company.

It seemed like Inc was trying to make a correlation between the a company’s staff size and their level of success, which fascinates me. Isn’t it a little like judging a company’s success by the number of staplers they have? In the end, the only number that matters is profit.

I feel kind of coldhearted writing that paragraph. Perhaps I’ve been looking at success the wrong way, especially from the perspective of the sole full-time employee of my own company. Maybe success isn’t about money–or at least not just the money. Maybe success means that your company makes enough money to create jobs for other people too, even if the marginal increase in profits is minimal.

Of course, the general idea is that you hire people if you think they can increase profits. Thus their impact must be at least $X + $1, where X is their salary. Right? Or am I missing something?

Here’s a hypothetical example:

  • Company A makes $100,000 in profit a year and employs 4 people.
  • Company B makes $50,000 in profit and employs 6 people.
  • Company C makes $50,000 in profit and employs 4 people.

Which company is more successful? Company A is more profitable. Company B makes less money, but they survive, and they put food on the table for 6 people. Company C seems strictly worse than Company A, but they’re also able to earn exactly as much as Company B with 2 fewer people. If 6 people have the same earning potential as 4, isn’t 4 better?

What do you think? Is staff size a reasonable metric for a company’s success? Or is profit the only true measure of success? Should I be amazed that Conan’s staff is so big, or dismayed that it seems overinflated?

6 thoughts on “Is a Bigger Staff Better?”

  1. Well that is a great question. The obviuos answer is “better for whom”? A government might wish to promote company 6 as it helps unemployment, and may well make society as a whole better off. Bug we have to ask if the profit is enough to take those 6 people out of poverty/benefits. Assuming that is not an issue then the bigger staff is better for society. The other important question is whether this makes the company profitable, in particular to neighbouring countries. Being able to compete internationally is very significant in our new world. Thirdly, the quality of your staff is very important – fewer people getting paid more attracts more talent and a better quality product; the flip-side is if you can take mre talented staff than you need then this allows you to increase productivity and grow. So there are many many factors, not making this a straightforward maths exercise. Not sure if that’s where your question was headed, but my guess is that the TV show has a high budget compared to costs asside from employee wages, so perhaps they can afford to employ more staff? A manufacturing should employ more talent in order to grow, a service industry should employ staff to satisfy demand, a company that competes internationally should use technology to allow them to be more competitive. A HUGE topic !

    • Rick: Thanks for the detailed comment! There’s a lot to consider here, and I like that you brought up the idea of international impact and the quality of the staff. Is it better to have 3 people doing the work of 2 if those 3 people get paid the same as 2 people? Or the other way around?

  2. Even though this won’t be the case for every “company A” example, as a general rule, the more companies there are like company A, the higher the compensation of employees in the country will be, because a single worker is able to produce more output, and thus is more valuable economically. This is what economists mean when they say “productivity determines compensation/wages.” So whether you’re a a business owner or a worker or the government, you should definitely want there to more companies like company A.

    The worry that creating more companies like “company A” will reduce jobs and increase unemployment is unfounded. American productivity has ~doubled since the 1970s, yet unemployment has fluctuated with the business cycle but not shown any long term trend. This pattern is repeated throughout history and in other countries.

    The worry that businesses will pocket all the productivity gains is not supported by history or data either. Worker compensation as a share of national income has remained pretty steady over time (~60-70%). This statistic would have to fall if workers were being left in the cold as their productivity increased, but it hasn’t. (You may hear people talk about wage compensation as a share of national income falling since the 70s, but this is driven by the fact people are getting more and more of their compensation in the form of non-wage benefits such as healthcare).

    • Andrew: Thanks for sharing this data. That gives a pretty clear answer to me that Company A is the most successful of the three.


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