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How to Make More Money? Pay Your Employees More

A spate of articles argues that, paradoxically, paying retail employees more leads to higher profits. Is this a lesson for your business?
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You're in business to make a profit and need to invest in your company so it survives for the long haul. In a perfect world, generous wages for every member of your team would be great, but here in the real world, sometimes you need to pay less than you'd like to improve the bottom line.

That's the standard thinking anyway. But what if it were wrong?

What if paying your employees more actually resulted in such a rise in productivity that the decision to be generous not only paid for itself but improved profitability?

We're accustomed to that sort of thinking when it comes to highly skilled knowledge workers (think of the lavish pay and perks for programmers, for example), but according to a couple of recent, in-depth articles the same might actually hold true in lower-skill sectors like retail where employees have sometimes, sadly, been thought of as largely interchangeable.

In a thoughtful article in The Atlantic Sophie Quintin argues that paying retail employees a living wage isn't just fair and decent, it's also good business. The piece opens:

The average American cashier makes $20,230 a year, a salary that in a single-earner household would leave a family of four living under the poverty line. But if he works the cash registers at QuikTrip, it's an entirely different story. The convenience-store and gas-station chain offers entry-level employees an annual salary of around $40,000, plus benefits. Those high wages didn't stop QuikTrip from prospering in a hostile economic climate. While other low-cost retailers spent the recession laying off staff and shuttering stores, QuikTrip expanded to its current 645 locations across 11 states.

Many employers believe that one of the best ways to raise their profit margin is to cut labor costs. But companies like QuikTrip, the grocery-store chain Trader Joe's, and Costco Wholesale are proving that the decision to offer low wages is a choice, not an economic necessity. All three are low-cost retailers, a sector that is traditionally known for relying on part-time, low-paid employees. Yet these companies have all found that the act of valuing workers can pay off in the form of increased sales and productivity.

"As global competition increases and cheap, convenient commerce finds a natural home online, the most successful companies may be those that focus on delivering a better customer experience," she says, while also noting the public companies face pressure for short-term cost cutting and businesses that invest in higher wages often must make savings elsewhere – hence, Trader Joe's limited product range and infrequent sales. (Read the whole article for much more detail.)

Quintin isn't the only writer and The Atlantic not the only gold-standard publication making this case. Several months back, James Surowiecki argued pretty much the same thing in The New Yorker citing Harvard Business Review research.

"The general dogma in recent decades has been that, in order to compete on price, you need to keep labor costs down—hiring as few workers as you can get away with and paying them as little as possible. Although leanness is generally a good thing in business, too much cost-cutting turns out to be a bad strategy, not only for workers and customers but also for businesses themselves," he concluded. The complete piece is also well worth a read in full.

Do you think that your business could benefit financially from paying employees more, or does this reasoning only apply in special cases? 

 

IMAGE: jmrosenfeld/Flickr
Last updated: Mar 28, 2013

JESSICA STILLMAN

Jessica Stillman is a freelance writer based in London with interests in unconventional career paths, generational differences, and the future of work. She has blogged for CBS MoneyWatch, GigaOM, and Brazen Careerist.




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