Pay / Prevailing Wage Problem:

March 13, 2008 6:23 PM

Help me convince company execs that it's time to bump entry level starting pay.

A search of previous questions turned up a lot of good advice on getting a raise for oneself, but this is not about MY compensation, which is fair, fine & dandy.

I'm a salaried manager, but 90% of our workforce is hourly, unskilled factory labor. The starting pay for these laborers is low. Not minimum-wage low, but down in the bottom 10th percentile (according to our city and state gov't wage data).

No shock: this contributes to poor morale (constant complaints about their low pay), very high turnover, and makes recruiting / retention extremely difficult.

It has been nearly TEN YEARS since this starting pay rate was increased. What used to be a competitive wage now lags behind all other major employers in our area.

There are advancement opportunities, and factory employees can work their way up- but the pay for these 'advanced' positions is still less than the starting pay at many local companies. There are also annual raises (which range from 1.5 - 3%.)

Important note: this company is not evil, and is not run by Mr. Scrooge. Or Mr. Burns. I love my job and am completely loyal to the organization. I respect our execs and believe that their intentions are generally good at heart.

But on this starting-pay issue, I am up against a mindset which just baffles me.

When I broach the subject, I try all of the afore mentioned arguments: it's been almost a decade, gov't wage data shows that comparable employers have raised wages 16% during this same period, our employees constantly cite our low pay as their reason for quitting, morale suffers, quality suffers, recruiting suffers, etc. etc.

The response is the same each time:

'Sure, Guff, we could raise wages-- but that would not solve all of our problems. These companies that pay twice as much as we do... they still have high turn-over, they still have morale problems, they still have trouble finding quality workers. So why do it?'

This always shuts me down and I have no idea how to respond.

Please, help me find an answer to that question!

If it helps: we have approx 300 employees; business is good, but it has been a tough year. We can't afford a large increase, but they refuse to see the value in making any change.

Any ideas, suggestions, logical argument / debate tactics that elude me would be greatly appreciated. THANKS!!!!!

posted by GuffProof to work & money (17 comments total)

Well, there's always the direct route - paying a living wage is the right thing to do. And they're assholes if they don't.
posted by notsnot at 6:39 PM on March 13, 2008

If they have proof that the statement "These companies that pay twice as much as we do... they still have high turn-over, they still have morale problems, they still have trouble finding quality workers." is true, then they have no good business reason to raise wages. If you have proof otherwise and they ignore it, there's something more at play. At the end of the day they are not going to make a decision that doesn't make good business sense. Do you have proof that in your industry or class of workers raising wages correlates to lower turnover?
posted by saraswati at 6:39 PM on March 13, 2008

It seems to me that your arguments are quantitative, theirs are vague and qualitative (assuming you are giving a fair summary of the exchanges).

If a real estate agent used that argument, they would say "Hey, we spent money improving curb appeal on a lot of houses and they still didn't sell at our asking price, why spend the extra money?"

Isn't the essence of business seeing where an investment is appropriate based on rate of return, not vague feelings or frustrations?

I would also add that bonuses are a way of temporarily increasing employee remuneration which you are not committed to forever, plus it can be targeted to employees or departments which are most productive.

Just my 2 cents worth.
posted by forthright at 6:43 PM on March 13, 2008

Do you have proof that in your industry or class of workers raising wages correlates to lower turnover?

Hmmm, that's an interesting approach. I keep showing them how our low pay = high turnover. And it's getting me nowhere.

Anyone know of resources I could search to find data to show that higher wage = lower turnover?
posted by GuffProof at 6:43 PM on March 13, 2008 [1 favorite]

300 employees, 2080 work hours in a year, a buck an hour raise... that's $624k.

Any chance that management is thinking that they can put up with a lot of discontent and the turnover it brings, along with the additional load on the hiring people, in order to save themselves over half a million dollars a year?

Do you know enough about the company's numbers to quantify/estimate how much productivity could increase due to better employee morale, more volume due to less downtime on the line because of empty chairs, and less time spent bringing new bodies in? That number would need to beat the math above.

Otherwise, maybe you just have to play the "It's the Right Thing to Do" card.
posted by TheManChild2000 at 6:49 PM on March 13, 2008

You need data from other employers to answer this question. Turnover costs money; decreased productivity costs money. Would they cost more money than you're proposing on salary? You need experimental data from others in your industry.
posted by a robot made out of meat at 6:55 PM on March 13, 2008 [1 favorite]

Do some research on the efficiency wage model. I think you might find some ammunition there.

I have to disagree with "it's the right thing to do" as a valid approach to this. You're working for a business, not a charity. I would wager that in the context of their business, these people would much rather save money than do the right thing. It's cold, but that's life.
posted by saraswati at 6:57 PM on March 13, 2008 [2 favorites]

I agree with "a robot made out of meat" that data from other employers could help your argument tremendously. They may have high turnover, but how high is it exactly? Basing your economic argument on more than conjecture might not get you all the way to justifying the wage raise. But if you can show that productivity will almost pay for the wages, your "It's the Right Thing to Do" argument might make up the difference.

Another consideration: does this increase in pay have to take the form of wages? Could you give employees something that would be appreciated without costing, to use TheManChild2000's example, $624k?
posted by quixotic at 7:30 PM on March 13, 2008

'These companies that pay twice as much as we do... they still have high turn-over, they still have morale problems, they still have trouble finding quality workers. So why do it?'

Do these other companies have as high turn-over? Do they have the same morale problems? And if they're having trouble finding quality workers... how great are the left-overs going to be?
posted by amtho at 7:36 PM on March 13, 2008

Thanks to everyone who is helping to illuminate the business principle at work here... I deal with employees all day, not balance sheets, and I don't tend to think that way.

Good point, ManChild... I've done the math too and it sure does add up to a big chunk of change. And in the current business climate, they're understandably cautious with that amount of money. I get that, I do.

Where I falter is when they challenge me to justify the expenditure.

I know that higher pay would help us attract good people and keep them. But how to prove it?

I see the good employees leaving (a long-time employee actually cried in my office this week when he gave notice that he was quitting. He did NOT want to leave us. But they shut off his electricity because he couldn't pay the bill, and he was offered a job that pays a lot more... so what could he do?)

When I told the execs about this, they said they wished there was something we could do- and asked me to stop 'pressuring' them about the wage issue. They weren't being a-holes... they were sad to see the man go. But they maintained that a wage adjustment wouldn't fix our problems, so there is no point.

thanks again, all!
posted by GuffProof at 7:36 PM on March 13, 2008

Thanks, quixotic- yes, there is a big push from management towards "employee appreciation" events and non-financial incentives... improving the quality of our work environment. I am hoping that this will help improve conditions even if wages remain frozen in 1999!
posted by GuffProof at 7:44 PM on March 13, 2008

Hit them with clear numbers and dollar figures for everything. Here are some questions to ask to help put a price tag on the impact of low entry wages:

- How much higher is your annual turnover rate vs industry average? How much does it cost you to recruit and train each extra new hire?
- How much longer is your time-to-hire vs industry average? How much does that extra recruiting time cost your company?
- How much productivity is lost between the time a competent worker leaves and you are able to recruit and train a new hire up to the same level of competence? How much is that lost productivity in monetary terms?
- How much higher is your absenteeism rate vs industry average? How much money does this extra lost productivity cost?
- In what other ways are low wages hurting your company's productivity, performance, and pocketbook?
- How do all of these costs compare to the cost of raising the wages? (Be specific about which workers, how much of a raise, etc.)

The Bureau of Labor Statistics is a goldmine for much of the industry data you're looking for. You can find absenteeism data at CCH.com. I didn't find time-to-hire averages in my quick googling, but the Society for Human Resource Management might be a good place to start.
posted by platinum at 8:07 PM on March 13, 2008

Also, isn't this kind of situation exactly why unions exist? Perhaps some research into the AFL-CIO might be in order?
posted by platinum at 8:13 PM on March 13, 2008

Can you compile any info on how many of your employees are leaving specifically to go work somewhere with better pay, like the poor guy who was crying in your office? Does your company do exit interviews and compile info about why folks leave? (If not, could you type up a one-pager asking exiting employees for basic info?)

If you're training x number of people a year who then go work for your competitor, you're basically paying your competitor's training costs. Your company should retain that investment - even if it is unskilled labor, I expect there's still a considerable cost to hiring an employee and then losing him or her to another firm.
posted by kristi at 11:09 PM on March 13, 2008

I'd hit them with how much recruitment and training actually costs a company. They're soft costs, but suggest it might be worthwhile for someone in their accounts department to tease out:

1) how much of a fee the company pays to an agency for a recruited worker

2) how much of that fee, if any, can be clawed back if the employee leaves immediately

3) how much ads in the newspaper cost to recruit in new workers

4) how much temp staff is used to make up the difference when someone leaves - and what the actual cost of each temp is vs each employee at the current rate.

5) what the error rate is when employees leave and staff fill in the blanks - and how much that costs the company in returns & lost goodwill with customers

6) spoilage rates due to new/overworked/undermotivated employees. Sorry, but the cliche is true - oftentimes, when you pay peanuts, you get monkeys. You get people who can't work elsewhere. These people either have personal problems that won't let them work elsewhere, or they have worked elsewhere, have been fired or otherwise banished, and can't go back.

7) how mobile the workforce is in the town you're based in. If I can easily move from Town A to Town B because I can get much better pay, I am not part of a captive local market. I don't have accept your pay because someone else is offering more elsewhere. It removes possible replacements for employees who leave.

All of these things aren't hard to figure out. Your accts dept has some of this info to hand already, and if they do any sort of costing, probably more. (particularly spoilage, returns, and discounts offered to sweeten relationships with customers annoyed they got damaged or incorrect goods) If they can't or won't do this analysis, and it's important enough an issue for you, ask them for the info and do it yourself.

If you did this analysis and they still insisted on keeping things as they are, you really are up against something else. Personal experience tells me that business owners & managers of companies with large numbers of manual workers have as many strange ideas about the morals, habits, inferiority, etc of their workers today as they did in the 19th century. I actually had someone tell me once that if they gave the guys in their warehouse a raise, they'd just spend it on booze. Not in a judgmental way, but in a paternalistic way. Big brush to paint a warehouse full of guys with all sorts of personal situations with, methinks. If you're up against that kind of thinking, no numbers will change it.

But at least you'll have tried, and that counts for something :)
posted by Grrlscout at 11:43 PM on March 13, 2008 [1 favorite]

I have a specific question regarding productivity that may help. How long does it take for a new employee to get up to speed? If a long-term employee is just as productive as a 3 month old employee, you're going to have a tough time getting anyone to agree to it. If productivity increases over time, then you could try suggesting raises to the longer term employees.
Pay should represent the value you bring. Just being in a job a longer time does not equal more pay.
posted by rholly at 6:43 AM on March 14, 2008

Good question, rholly (and thanks to all for their advice. You've given me some good leads and resources!)

This type of general labor does not require a great deal of experience or training. A handful of positions (machine operator, etc.) do take some time & training... but for the most part the line workers are seen as more or less interchangeable / replaceable.

I agree with you, Grrlscout- sometimes these opinions and perceptions can be a problem. The execs are decent people and I don't think they are keeping the wages low due to their lack of regard for the employees... but I have heard comments like, "If we give them a $1 raise, they'll complain that it wasn't $2. And they'll still be disgruntled / unproductive / quit."
posted by GuffProof at 7:20 AM on March 14, 2008