As we look toward the future, society and businesses must recognize the symbiotic relationship formed between them. No business can survive long-term without the support of the community which it serves. In addition, no community can survive or thrive without businesses which employee and provide for the common good of the community. The combined reality of these two statements often goes unrecognized by communities and business owners. A crucial link between a business and the community its serves are the people it employs. Paying a just income is fundamental to the financial and sometimes physical welfare of the employee, as well as the health of a business’ culture and the maintenance of strong community ties.
First, let me state that purpose of this article is not to advocate for government intervention into wages, salaries or bonuses. This article should guide business owners on how to identify and pay just wages.
Why should we better define and enact just and fair wages as business owners? The facts show that improving compensation will benefit the health of our businesses and improve our bottom lines. A Gallup study conducted in 2015 showed us that 44% of the employees surveyed would consider leaving their current employer for a higher wage of 20% or less. Even more painful to consider, 37% of employees considered “highly engaged” would consider leaving their current employer for a higher wage of 20% or less. In most cases that would be a wage increase of less than $7,800 per year.
The substantial cost of hiring and training new employees should make any business owner pause. The Sasha Corporation conducted four different studies that found the average cost of training new employees is over $9,000. This does not include the amount of productivity lost during the training period or the time it takes an employee to become proficient at their role in your company. A just and fair wage will save businesses money and allow them to retain and attract the best employees while insuring a return on the initial investment of training new employee.
How do we define a just and fair wage? In defining a just and fair wage we must look at the equation from three points of view: the business, the employee and the community. The business owner, having put their own person capital at risk, has a right to have a profitable return on their investment. Without a profitable return, the business owner will be unable to pay just and fair wages. Next, the employees work to live and provide for themselves and their families. Earning a just and fair wage provides hope for their future and supports the philosophy of the dignity of work. Unfair wages or lack of work strikes at the very core of human dignity. Paying a just wage will also remove an element that sometimes contributes to toxicity in a company culture. A just and fair wage creates greater incentive for a willing employee to increase personal productivity. Lastly, the community must understand and attempt to strike a fine balance between businesses and employees. An unprofitable businesses will often vacate the community they serve, while a community that has an underpaid employee base will become impoverished, not only in goods, but in morale and spirit. This will end in the long term decline of any community, large or small. In short, a just and fair wage will create a balance between the business owner, the employee and the community while providing for the common good and insuring mutual financial prosperity.
As a business owner whose business depends on guiding other business owners on how to properly compensate their employees, I know if you are reading this, you are asking how do I apply this thought process in real life.
Consider the following item as you build your compensation plan for your team:
- The living wage for your market.
- Profitability of the business.
- The five key performance indicators for the team member.
- Quality control indicators by position.
- An individual employee’s contribution to profit and/or expense control.
These five basic items can help build a fair and just compensation plan for your team.
The living wage is your starting point. This information can readily be found online. The average living wage in the USA is approximately $15.15 per hour. If you have team members that are below that starting point, consider how to move them to a higher base pay or identify opportunities for them to increase their pay through performance bonuses.
Business profitability is a key component in any performance based compensation system. Profitability is typically a key indicator of the health of a business. Each industry has its own unique targets for profit and profit margins. These should be taken into consideration. If the business is not profitable, it would be a failure of fiduciary responsibility to pay any member of the team bonuses until it has become profitable. Any balanced performance based compensation plan should include company profitability as a one of the primary measures for bonus payouts.
After considering the living wage and profitability, identify each position’s measurable Key Performance Indicators (KPI’s). Measurability is crucial, as this will give the employer and the employee specific accountabilities and targets. Generally, by identifying measurable KPI’s and removing ambiguity, employees will focus on improving the most important aspects of their job and increase productivity. Consider placing a priority value on each of the KPI’s as a way to direct employees toward the most important aspects of their role in your company.
Caution: Be careful what you measure, you will get it. Productivity alone cannot be your only measurement. Including quality components will eliminate mercenary type behavior and increase product output quality for your customers. Include measurable items such error rates, product failure rates, regulatory compliance or items specific to your industry that will improve product quality and service.
Lastly, consider the employee’s individual contribution to your company’s profit and/or expense control. This is typically not difficult to measure. It is not unusual for your most productive employee to know and have access to this information even if the business owner does not. This last component can give your employee a sense of destiny control and begins to build an ownership mentality that improves work ethic and the company bottom line.
In summary, creating that balance between the employer, the employee and the community is vital. It will require creative thinking and team collaboration and at the end of the rainbow you will find improved bottom lines, increased employee loyalty and retention and a stronger community.
Retail Management Resources, Inc.