The Insult that is Minimum Wage

As the old joke goes “Minimum Wage means that if they could pay you less, they would”. Ba-Da-Bing!

By definition minimum wage is the lowest possible wage

By definition minimum wage is the lowest possible wage

A truer statement hasn’t been spoken about pay. I’ve worked my share of jobs for minimum wage – construction laborer, dishwasher, waiter and even temp worker. In fact as a waiter I worked for $2.01 an hour plus tips – which meant that for the hour of work you did before customers arrived and after the restaurant closed  you weren’t being paid a whole heck of a lot. Some days during the slow season I wouldn’t even make $3.00 an hour with tips – less than minimum wage for non-tipped employees

Now I understand the importance of minimizing labor costs, but what message does a minimum wage pay rate send to your staff? Let’s say you are a small business owner with 10 employees who average 30 hours a week at the Federal minimum wage, currently $6.55 an hour (increasing to $7.25 July 23rd 2009),  you’ll pay out $1,965 dollars a week. (I’m leaving out the assorted taxes and such to simplify the data). If you increased pay by 5% your payroll would only go up to $2,063.25, or $.32 per hour per employee. Now $.32 an hour probably won’t make or break you (if it does you are already doomed) but it’s another $10 in the pocket of someone who is making less than $200 a week before taxes.

Now imagine what higher pay does for recruiting and retention, two of the biggest factors affecting productivity for businesses that pay minimum wage? How about if you add a monthly or quarterly bonus pool that focusing on increasing productivity or customer satisfaction? How would having a bonus that your workers can impact directly affect your minimum wage workers’ morale. Suddenly your employees have a personally compelling reason (money in their pocket) to care if your customers aren’t happy. Maybe customer satisfaction isn’t your biggest concern, maybe it’s defect-free production or even increased productivity. It doesn’t really matter what the specifics are – by aligning your most important business goals with employee pay you are far more likely to achieve those goals because everyone – management and staff alike – will be working towards the same goals.

It’s really a simple question you have to ask yourself – all things being equal where would you rather work: at business A paying X or at business B paying X plus 5%? Of course all things aren’t equal. Some companies have a great camaraderie which can compensate for low wages, some companies offer rapid promotions, training, tuition reimbursement, etc. It’s all part of the package. And as you are putting that package together why would you choose to tell the world you paying your staff the absolute lowest wage that the law allows? Someone else will always have a lower wage structure – you can either accept this or you can figure out how to increase productivity by incenting your staff and adjusting compensation accordingly.

The purest example of incenting pay to align with performance goals is sales force compensation. If a sales person’s compensation is based so they make the most money be selling Product A and Service B – guess which products and services will sell the most? There is rarely a better aligned group of employees than your sales staff. After all they only get paid when they sell.  And what worked for your sales staff will also work for the rest of your business. If you understand your business and you create the proper incentive plans (and you have something the market wants to buy at a price they are willing to pay) your business has a darn good chance of being successful.

Understanding your business is critical. Your compensation plans should align with your business goals whether they are: increased profit, customer retention, customer loyalty, market-share, etc. As one former manager said if you want something done create an incentive around it. If you are in a low-margin commodity business – what should be your goals? Increased volume is probably high on that list for most people. But what about incenting your accounting staff to reduce accounts receivable? Imagine reducing DAYS AR by 10% or 20%? That’s a pretty nice increase in your cash flow.

Any executive worth their pay can quickly rattle off 10 areas of the business that they would like to improve. So think about those areas and try to determine how to change compensation plans so that your workforce has the incentive to make those improvements happen – thereby benefiting themselves and your business. What are your thoughts on compensation? -t

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