The Higher Pay Payback

Screen Shot 2015-11-16 at 12.15.01 PMIt is widely acknowledged that service industry jobs have the highest churn rate of any job occupation. Why? While part of the problem is the demographic (historically, many service industry jobs were held by teens and people in their early twenties), increasingly, these jobs are held by adults but still produce high churn rates, because the pay is low, the work is often boring and repetitive, and workers rarely have any real opportunities for persona growth or advancement. High churn on the floor, however, can and usually does have consequences. It generally means lower customer service and of course, higher training cost.

So what is the solution? Can paying employees higher wages, even in traditionally low paying jobs, payback? A recent report on Walmart’s success suggests that higher compensation for workers, even in positions that have traditionally been minimum wage jobs, can payback on myriad levels.

The Walmart Case Study

In 2015, Walmart, American’s mega-sized retailer, experienced something new—for the first time in 45 years, their profits fell. In many respects, the writing was already on the wall—they have suffered losses for five straight quarters. Something was wrong. What the company discerned from market research was that sales where slumping because their stores were a mess—customers reported poor customer service, dirty restrooms and chronically under stocked shelves.

In most cases, when profits plummet, retailers and other businesses cut back. They slash wages, cut staff, cut back on training, and in all possible ways, work to tighten the belt, so the speak. Walmart decided to adopt a different approach to its crisis—they decided to pay their workers higher wages instead. The experiment was risky but simply put, they were exploring something that unions have long argued. Pay workers more money, give them more opportunities for advancement, and everyone will gain.

As reported this past week a New York Times feature on the company, however, higher wages are just part How to manage overachieversof the equation. Store managers across the nation felt that years of cost cutting meant that Walmart was now seen as a last-ditch option for a job (basically, not somewhere that attracts ambitious workers). As Walmart’s chief operating officer told the New York Times, “We realized quickly that wages are only one part of it, that what also matters are the schedules we give people, the hours that they work, the training we give them, the opportunities you provide them…What you’ve got to do is not just fix one part, but get all of these things moving together.” To this end, along with the raises, Walmart built 200 training centers to help ambitious hourly employees more easily move from hourly jobs into higher-paying management track positions.

Did it work? So far, the experiment appears to be paying off. Walmart recently reported that customer service ratings have rebounded by 75% and sales are also up again. Profits, however, have not necessarily shot back up again. The question that remains is whether or not the company’s investment can see a huge return over time.

Reasons to Raise Compensation

Raising compensation and investing in training workers comes with its own risks. It can be a costly endeavor and the payback depends a lot on whether or not workers rise to the occasion. What we know, however, is that when workers feel valued (and compensation is part of making workers feel valued) and when they are hopeful (when they feel they have a future in their organization), they are more likely to be invested in the company’s brand too. This means that in general, well-compensated workers who are striving to advance within an organization are more likely to be invested in good customer service, making sales, and promoting their organization’s brand both on and off the job. Raising compensation, then, can both raise productivity and act as a form of preemptive damage control too. There is also another benefit—when workers love their jobs, they are more likely to talk up their organizations and attract other engaged workers too.

October 17, 2016   Updated :November 16, 2016   compensation, executive compensation   

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