A Change In Wage Culture

What does a business owner do when his customer service ratings plummet, when his employees’ morale drops, and when the company productivity declines? Some companies take an extremely radical course and give their employees a raise. Guess what; their strategy worked! It was recently reported that Walmart (with 1.3 million people employed in the United States) did just that.

For the first time in its long history, Walmart began experiencing a decline in sales in 2014. They had also received a damning negative stock recommendation from Wall Street analysts, who projected a steady decline in corporate profits.  Walmart, under great pressure from investors, took an in depth look at its performance by polling its customers and asking them what they would like to see different. It concluded that customers were fed up with sparsely stocked shelves, the indifferent attitude towards customers among their employees, and the general lack of concern of how their customers were being treated. Strong competition from other major retailers eroded the advantage of having the lowest prices for merchandise. Online retailers were also encroaching on their customer base.

Walmart is the largest American employer. But the company’s longstanding focus on raising profit at the expense of reducing labor costs earned them a reputation of minimal workers’ compensation and sub-standard working conditions. This policy has been severely criticized by labor groups and employee advocates throughout the country for many years. This model has also been considered a drag on the U.S. economy. By holding down worker’s pay, employees are less productive and have limited funds to spend on goods, which in turn directly impacts the economy and corporate profits.

Walmart’s study revealed that entry level employees saw no path for advancement and accepted their job as a last ditch opportunity for employment. As a result, Walmart made a bold business model change. They decided to build 200 training centers to offer a clearer path for hourly employees who hope to advance to a higher-paying management position. In addition, Walmart raised its hourly pay to a minimum of $10 for workers who complete a training course and raised department manager pay from $12 to $15 an hour. They also offered more flexible and predictable schedules to hourly workers.

The results were dramatic. After a year and a half, sales were up 1.6 percent for stores open at least a year, while overall general merchandise retailers showed a decline of 0.4 percent. Customer service scores improved weekly, without a decline during this same period. Outside analysts also found that Walmart’s customers were more satisfied than they had been.

Walmart’s bold move has enhanced the lives of its employees, improved the overall performance of the company, created more satisfied customers and contributed to the overall economy by virtue of more wages being spent with outside companies.

Walmart is not the only company to experience this phenomenon. Economists have long argued that increases in worker pay can lead to improvements in productivity—it can actually be profitable to pay workers higher wages.

A living wage ordinance has been implemented at San Francisco International Airport (SFO) that was designed to improve safety and security, as well as improve the conditions of the SFO labor market. Most of the 11,000 workers in a group (ground-based, non-managerial workers, including customer service, ramp workers, baggage handlers, screeners, cabin cleaners, and restaurant/retail workers) were being paid less than $10 per hour compared to airline employees, who earned in excess of $15 per hour.

This wage ordinance included a training program, an increase in hourly wages that were on a comparable rate for similar airline jobs, and workers gained access to health benefits. The added direct cost to these companies was approximately $42.7 million a year, or equivalent to $1.42 per airline passenger.

Direct benefits of this change were:

• Employee turnover rates fell dramatically, an average of 34 percent among all surveyed firms.
• Reduced turnover saved employers $ 6.6 million per year – every time an average worker has to be replaced employers pay about $4,275 in turnover costs.
• Employees improved overall work effort and performance, improvements in employee morale was 47 percent, decreases in employee grievances (45 percent), decreases in employee disciplinary issues (44 percent), and decreases in absenteeism (29 percent).
• The wage ordinance mandates increased worker training, which helped improve worker performance. By increasing pay, the QSP also made training more desirable to employers.

Findings based on other actual case studies show similar positive benefits. They include:

• Higher wages motivate employees to work harder
• Higher wages attract more capable and productive workers
• Higher wages lead to lower turnover, reducing the costs of hiring and training new workers
• Higher wages enhance quality and customer service.
• Higher wages reduce disciplinary problems and absenteeism.
• Firms with higher wages need to devote fewer resources to monitoring.
• Workers excessively concerned about income security perform less well at work.
• Other mechanisms by which higher wages can yield offsetting benefits include:

Higher wages are associated with better health—less illness and more stamina, which enhance worker productivity.

Greater job satisfaction can result in less conflict between employers and labor groups.

Enhanced reputation with consumers

Optimizing profits at the extreme expense of your employees can have a significant negative impact on your company. By providing a livable wage and an opportunity for your employees to grow into more responsible roles within your company can be life changing for both you and your employees.