Thursday, June 16, 2011

Some clarifications

Wow.  I really wrote that last post poorly, based on how it's been interpreted by several people.  I'm really sorry, and hope that this post will correct any misimpressions I've given. These are mostly addressed to commenter Steve Kaplan, who seems not to know me very well, and seems to have made several assumptions about me and why I am writing this blog.
  • I am very much pro-labor and pro-union (perhaps not pro- some particular unions).  Just because I owned a business and hired people for a while doesn't magically make me "management."  I have spent by far the larger part of my 28 years in the VFX trade as a freelance worker. The entire idea of rigid early-20th Century labor or management roles is an impediment to finding a solution to the industry's current problems.
  • I have exclusively worked as a freelancer or consultant for nearly 2 years, not as an employer.  I have had no employees or subcontractors in that time, other than an IT specialist for a handful of days. I have no intention of starting a new VFX business under the current conditions. I have no interest in promoting the agenda of shop owners over that of workers -- quite the opposite.
  • I have been a labor representative on a negotiating committee for a CBA.  I and my fellow reps had to repeatedly tell the business agents to take a stronger, less-conciliatory stance.  We voted to authorize a strike in the face of pressure from the local to take a bad deal.
  • I spent years on the Executive Board of Local 659, was a founding member of the National Executive Board of Local 600, and proudly sat on Haskell Wexler's subcommittee to help draft 600's constitution and bylaws.
  • I have never, and certainly not in my previous post, advocated misclassification of employees, advocated violation of labor laws, or passed on the costs of an underbid job to my hires. I went into considerable personal debt to not only pay every single one of my workers every cent they billed, but to do the same for my subcontractors and vendors. I have never asked a worker to put in overtime when I didn't put in at least as much myself. I (and my then-partner) have been stiffed by clients to the tune of 6 figures over the past 5 years, and I have never passed that on to anyone working for me.
  • I think a level playing field is essential to the survival of the US VFX business, and have been an outspoken proponent of not only not underbidding or "buying" jobs, but switching to a cost-plus model.  
  • Steve's appalled reaction notwithstanding, it was very much the norm for VFX and mograph/design shops in NYC to pay everyone not on staff as 1099 workers, up until the past 2 or 3 years. Now that the states are hungry for revenue, they are auditing like crazy, and many shops have reacted by requiring their freelance workers to contract with and bill through one or another fly-by-night EOR (Yucor, MBO). A long time ago, I proposed an organizing drive targeting the EORs.  As far as I know, no one has tried to card-check them.  
  • It may also appall Steve to know that the vast majority of freelancers that I hired and worked with preferred and asked for or demanded 1099 instead of W2 status, even if they didn't have a legitimate business entity. Some of those people even went on to file claims for unemployment insurance, citing me as their employer, triggering audits that ultimately resulted in my paying substantial fines (which I did not contest).  This last scenarios has happened to every single VFX/post/mograph/design business owner I know in New York.
  • Unless and until we can bill our clients cost-plus, yes, paying a 20-30% increase in labor costs would prevent any small shop from breaking even, much less making a profit.  I believe this is less of an issue for large shops, for obvious reasons of economies-of-scale, and leverage relative to clients' demands.
  • The money for benefits and legally-mandated OT has to come from somewhere.  It can't come out of existing shall-shop margins, because they're too small right now with current payscales and the much-abused-by-clients firm-bid model.  If small shops quoted rates high enough to make the margin healthy, they'd never win a bid the way things work now. ONLY if the field were level, and everyone were paying the same rates and billing their clients more than we can now, could any small shop owner stand a chance of surviving while also hewing to both the letter and spirit of wage laws.
  • As a freelancer, I now work 40-60 hours/week.  As a shop owner, I worked 50-110 hours/week (without health benefits, and not much of a retirement plan)  Most small shop owners I know work just as hard, and make just as little.  That's one reason they're closing up and going freelance -- at least in NYC.
  • Unless you want a world in which there are only big shops and their time-card employees, in which you can't be a worker this month and a vendor next month -- a world without opportunities for entrepreneurship -- you can't just take the "Goodfellas" approach of "f__k you, pay me."  You have to think about whether you could afford to treat your (perhaps hypothetical) employees the way you want to be treated.  And if you couldn't, then you either have to work for a world in which you could, which may include tempering your own demands, or you need to stop complaining.  Personally, I vote in favor of complaining and working hard for change.
  • The main point of the previous post was simply this: if you want to not be pressured into working when it's unfair, if you want to have more time for your family, if you want to have portable healthcare for everyone in the business (not just yourself!), then you have to be willing to level the whole playing field, not just between the studios and the VFX shops, but between the VFX shops and the workers.  If you want a kid starting out to not have to "pay dues" by working in sweatshop conditions, even if you did, you have to be prepared to organize, fight, and, yes, pay for it.  You'll have a better life.  Your children and colleagues will have better lives. That kid starting out will have a better life. You'll still have a US industry to work in.  But you may have to take home less cash at the end of the year, if you're in, say, the top third or quarter of industry workers.  You'll be making more per hour. You'll be more secure. But you will no longer have the option of saying "screw it, I'm gonna get mine right NOW," and devil take the hindmost.
  • And that would be a very good thing in my opinion.  We all, workers and shop owners alike, need to stop shooting ourselves in the foot (or face) by working too hard for too little, "just this time," or taking advantage of the inequities in the system, "just this time." That's going to take hard work, discipline and sacrifice on all sides.
  • Maybe in feature film tentpole-land, the studios will loosen their claws enough to add to the pool.  If they were long-term smart, they might. But in the commercial world, there's no additional money to be had for our work -- it has to come out of someone's pocket. Maybe the big shops have something in there. The small ones don't.
Sorry.  That turned into a bit of a rant. But, hey, it's a blog, right?  I hope it's clearer where I stand.  We need to hang together, or separately, as the man said.  But we also have to deal with the real world and not create straw-man enemies or raise unrealistic expectations  in order to pander to the widest group while serving only a narrow one -- we've had enough of that for generations to come.  This is not being defeatist. This is about facing and dealing with what is real, not wishful thinking.  Hope and change, yes, always and forever. Fantasy and wish-fulfillment, not on this blog.


Wednesday, June 15, 2011

What's best for *you*?

The VFX and Motion Design labor movements are real.  Maybe better to call them 'workplace reform" or "fair trade" movements? Regardless, they are resonating with a lot of people in those fields, both artists/craftspeople and employers/managers.

Let's put aside, for the moment, what might be the best way to achieve the goals of the movements -- union, guild, foundation, code of ethics, pistols at dawn...

We can pick out some common goals:  affordable/portable health benefits, portable retirement plan, proper tax/employment classification, Social Security payments, overtime pay, prevention of workplace abuses.  That should be good for a start, right?  Sounds good to me.  Now, regardless of how these goals are achieved, they have to be paid for.  By whom? 

The VFX/design shop owners who are supposedly getting rich off the sweat of your brow? 

That might be possible if that were true.  However, most shop owners are practitioners themselves (let's ignore the Carlyle Group, Barclay's, Wyndcrest, Lucasfilm, and anyone else big enough to not pay taxes), and tend not to be as focused on the bottom line as they perhaps should be.  Based on my experience as a business (co-) owner, I'd have to look at what those things cost, and see what I could afford to carve out of a not very large margin.  Let's see -- okay, union P&W adds about $4/hour/employee.  Adding someone to payroll -- maybe $75, but that's for *each* time that person is hired for a project.  Overtime -- well, we usually assume a 50-hour week, so that means 2 hours of OT every day, at 1.5x.  Gee, this is getting complicated, I'd better hire a payroll service and pay my accountant to keep things straight. And unemployment and disability insurance -- nearly forgot that! (The last time I forgot that it cost me well into 5 figures...)

Okay, let's wave our hands and say that the traditional freelance/staff differential of 20% applies.  That is, if you're used to making $1000/week freelance (1099 and all that), you'd be paid $800/week for a staff position with nominal benefits and PTO.  So to an employer, if your effective hourly rate (assuming your day rate = 8 hours at straight time and 2 hours at 1.5x) were to stay the same as it currently is, labor costs would go up by 20%.  But that's a minimum. Whenever there's a need for OT, you'd be working the same 15-hour days as you do now, but the employer *must* pay 1.5x for those hours -- no more "comp days!".  So that's, oh, maybe another 10-20% of total annual labor costs, based on personal experience.  So total labor costs would rise by 30-40%, instantly.

Now, I'm a demonstrably poor businessperson, so my math might not be right, and maybe my experience isn't relevant.  But for the sake of argument, I'm willing to look even more foolish and say they are.  For small owner-operated shops, on VFX jobs, I think gross margins (EBITDA) may hover around 30%, net profit around 5%.  Design/mograph -- gross margins may be around 50%, net around 20%.  Labor costs seem to run about 30-40% of budgets in either area.  So for VFX, increasing labor costs by even 30% would cut gross margins to 18%, and net profit to, uh, a 7% loss.  Design goes to 38% margin, 8% profit.  Uh-oh.

That's unsustainable, especially for VFX-oriented small shops.  In fact, 5% profit is unsustainable, unless you assume the shop owner will work 100-hour weeks forever to make up for every mistake or shortfall.

So maybe design shops will pay for some of this.  VFX shops can't.  That means if you want those good things (affordable/portable health benefits, portable retirement plan, proper tax/employment classification, Social Security payments, overtime pay), you're going to have to pay for them.  You want OT after 40 hours (because the IRS says you're an employee, and there's no way around that)? Then you'll have to charge less. Probably not as much as it would cost you as an individual to buy your own health care, set up and manage your own S-corp or LLC, buy your own hardware and software, pay your own insurance, unemployment, disability, Social Security, vacation and sick days; but still a significant amount.  (If you're at the earnings level where this isn't true, you should already be taking care of those things yourself -- congratulations!)

Let's say that somehow, VFX and design shops manage to convince their clients to pay cost-plus or time-and-materials instead of firm-bid. Which means that shop owners won't have to eat every bit of overtime regardless of cause.  Even then, in order to just stay in the same un- or barely-sustainable position they're in now, *you* would need to be willing to earn 20-30% less per year. (This would be a result all these changes; for example, diligently paying overtime to employees -- if an employer has too much OT per employee, it's more sensible to add more employees, so no one will work tons of OT, even if they want to.) In return, you'd have more time for yourself and your family, less stress, some health insurance, decent retirement savings, unemployment insurance, probably more steady work, and probably fewer hassles from the IRS in the future.  Would you really choose that?

If you're over 35, and/or married with children, I'd bet yes.  For everyone else (the majority of the employee pool), mmmmmaaaayyybee not.  When I was young and stupid(er), I thought "make hay while the sun shines," and worked every chance I got. Now I regret some of the hours, days, and months I spent working when I could have been in the world, living. I think most of us in the business tend toward this behavior.

So, really:  are you willing to take a 25% annual take-home pay cut in order to help secure a better life for yourself and your family, and a healthier industry in which to work?  If you're not, then all the talk about organizing, sustainability, and fairness is just... talk.  Are we serious about all this?  Then we have to be willing to pay for it.