In 2018, 20 states will be increasing their mandated minimum wage.  Washington and California will both increase by 50 cents, to $11.50 and $11.00 respectively.  But it is the cities that have taken the lead on minimum wage increases, according to the National Employment Law Project.  Washington, New York and several cities in California will join Seattle and Sea-Tac, Washington at $15.  And more are coming.

What to do?  To answer that, let's examine what not to do.

Bad Example

I was once close to company that ran over 100 fast lube stores. This is a hyper-competitive field where margins are in constant danger from discounting, new entrants and cars' reduced need for lubrication changes.

In response, my client adopted a so-called low-cost labor strategy.  They paid $9.35 per hour to start, with a 25-cent increase after an employee survived 6 months.

But few employees stayed around long enough to get their increase.  The turnover rate was 300% per year.  Average tenure was four months.  And the workers?

They were unreliable, untrained and unhappy.

False frugality

What was surprising to me? The management team saw themselves as frugal and acting out of necessity.

Together, we reviewed the hard costs of this strategy:

  • A hiring assistant to keep up with the recruiting needs. She cost some dollars.
  • Drug test charges for each applicant. Also some dollars.
  • Policy charges--that's what we called the repairs for the cars the untrained workers damaged. Crikey! Huge dollars

And the soft costs? 

  • The wear and tear on managers struggling to find replacements for no-shows? 
  • The suspected losses from pilfering? 
  • The terrible on-line reviews?

As the saying goes, these were priceless.

The economics of the situation mandated a-pardon the expression--quick change.

Building great people

Has anybody ever built a great company without building great people?  I mean, I suppose you can get by with a low-motivation workforce, but will your customers rave about you?   This makes getting great customers easier.

Will your employees rave about you? This makes getting great employees easier.

Will you build a culture of accountability, collegiality and innovation? This makes getting new ideas easier.

So the challenge is not how to evade the minimum wage laws. Rather, it is this:  How can I create people advantages that overwhelmingly outweigh any cost increases.

The Restaurant Challenge

The hardest laboratory for this challenge is not in an existing multi-unit retail chain, like my quick-sub example.

It is a smaller business that depends on unskilled labor for critical components.  Like a restaurant.

Dishwashers, line cooks, busboys. All critical to the operation, which typically does not have an HR department. It has a chef-owner. And he's worried sick that increases in mandated pay will increase his costs without relieving any of his worry.

I have a friend in this position. He owns a single store in a mid-west city.  His patrons are locals. The overall market is static and a significant number of them live on a fixed income.

What strategies might he employ?

Here are a few:  

  1. Treat your your employee pool as customers. What messages can you give that will attract the right people? There's a famous example of a carting company that recruited garbage haulers by telling them they would be paid to work out. Why not say you will be paid to learn the restaurant business?
  2. Interview first line people the way GE interviews executives. Brad Smart developed a system for GE he called Topgrading. It invest heavily in the interview, recommendation and offer process as a way of discovering people who had an affinity for the business. He increased his retention by 80%.
  3. Create work cells. Volvo decided to build cars in work cells, rather than in traditional production lines, as a way of fostering pride and learning.  Many observers feel that work cells are the foundation of the lean manufacturing movement, because they provide good opportunities for accurate measurements and individual accountability.

Here is the real challenge

The challenge is not  to defeat the rules, or evade them. It's not even to reduce costs. Rather, it is to take those costs that we are so worried about and think of them as potential strategic advantages.

Put differently, it's about how to do our work--even minimum wage work--in ways that our customers easily love, but our competitors can't easily copy.

I am not saying that the challenge is an easy one. It will take hard thought mixed with trial and error. But the goal is to make your new employees reliable, trained and happy.

That's a goal the survivors will aim for in 2018.