A caller named Joe from San Diego recently posed a tricky question to “The Ramsey Show“: Can a business owner “dig into” an employee’s personal financial situation to figure out how much to pay them?
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Joe explained that he had acquired another person’s book of business for free, in exchange for giving that person a guaranteed six months of employment. The employee, who now manages one of Joe’s two branches, had previously run his own business into the ground. Joe said the former owner had been paying himself and his fiancée as much as $15,000 to $20,000 a month while neglecting taxes and racking up debt.
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“They didn’t get the insurances they needed,” Joe said. “He owes back taxes for that business for the last three years.”
Joe acknowledged he was trying to wean the employee off a more frivolous lifestyle while still being fair. He said he felt some obligation to support him, partly because of their past friendship and partly because the new branch added significant value to his company.
Co-hosts George Kamel and Ken Coleman were straightforward: Personal debt shouldn’t play a role in compensation.
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“We never look at someone’s personal finances to figure out how much we’re going to pay them,” Kamel said of the process at Ramsey Solutions. “The only reason we do a budget in the interview process is to make sure that what we pay them is enough for them to live.”
Coleman backed him up: “Whether he has $500,000 in debt or nothing, it doesn’t matter. It doesn’t reflect what you pay him.”
Joe admitted that if he were hiring from the outside, he’d offer someone with the same experience $75,000 to $80,000, maybe up to $90,000 tops.
“[That’s] the max number that’s not charitable,” Joe said.
Coleman warned that going beyond that could end up harming both sides. “You become resentful,” he said. “And then this whole thing just becomes a nasty taste.”
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Instead, they advised Joe to treat the employee like any other candidate. Offer a fair market rate and allow for performance-based incentives. If the employee becomes resentful or entitled, they said, it might be time to move on.