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Want to Make More Money? Pay People More.

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Here’s a business improvement tip you don’t hear every day: If you want to make more money, don’t slash salaries for your front line workers. Research shows that you should pay them more.

This is the advice from an article in the Ivey Business Journal, which notes:

While companies use diverse incentives such as high wages, performance rewards, and stock options to recruit, retain and motivate highly skilled professionals, they assume that employees at the bottom of the corporate ladder can be replaced easily — and don’t need incentives.

Isn’t that pretty much what everyone thinks? Employees that are paid only a little more than the minimum wage must be easy to find. After all, there’s always unemployment. If someone doesn’t want to work, wouldn’t we assume there is somebody else waiting take that job?

Business improvement - warehouse job

© Flickr user MJRImages

Researchers Jody Heymann and Magda Barrera studied different companies in 9 countries all over the world. One large firm stood out: Costco, the wholesale retail club. They write:

Leaders at Costco believed that providing advancement opportunities for entry-level workers was necessary for the company’s continuing success. Given the company’s continuing growth, senior managers explained that preparing workers for management positions was the only way to guarantee that they would have managers who knew and understood the company’s operations. Costco executives believed that experience on the warehouse floor made for better leaders. Managers with warehouse experience understood how the warehouses functioned, how to improve operations, and how to best support their staff. The company’s commitment to promoting from within was evident in the fact that it promoted from within 98 percent of the time. Sixty-eight percent of warehouse managers had started with the company as hourly employees.

The case studies also looked at small firms as well. One was a packing supplies company from Canada:

“[The] commitment to sharing profits extended to all employees. Every month, 15 percent of the company’s pre-tax profits were split equally amongst everyone from managers to workers on the factory floor. As a result, workers at every level were aware of how the firm was performing and were motivated to find ways to improve productivity and reduce costs.

…profit sharing and incentives gave workers a personal stake in the company’s success. Workers were motivated to increase the company’s profits, since this meant that their own incomes would increase at the same time. At the same time, they understood how the company was doing and how their actions could result in improvements. The resulting increased sense of ownership meant that employees worked harder and watched co-workers, since a drop in productivity and product quality would lead to reduced profits for the company — and reduced earnings for employees.

Although we sometimes assume that high turnover and wage cuts are just part of business, this research shows that they may be part of a larger issue. What happens if we treat all employees with respect? Companies that provide real opportunity and genuine incentives to contribute have the chance to become the most successful of all.

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