A Great Idea Whose Time Has Come…AGAIN!

Business practices and concepts come and go. But many new business ideas that are introduced through the business press, consulting firms, etc. really aren’t new at all. They’re just new to the latest generation of business managers. An article in the New York Times caught my eye the other day. It was déjà vu all over again.

It was a report about a seismic change taking place at Walmart. The short story is this: Faced with declining same store sales, declining customer satisfaction scores, and increasing employee disenfranchisement, management decided to embark on a bold experiment in early 2015 –- pay their employees more. In fact, pay them at market rate. Early results are promising, as Walmart is now seeing gains in productivity, same store sales and customer satisfaction.

This mirrors my own experience working with a national convenience store retailer. This retailer wanted to reduce the multiple layers of oversight they’d built into their organization. The only way to carry this off was to turn the prevailing conventional thinking on its head.

Rather than assume their hourly, front line employees were incapable of independent thought, that they required continual direction and had to be watched for potential theft, this retailer decided to make their own bold experiment: Trust and empower their hourly employees with authority to influence what was carried on shelves, to reimburse customers on the spot if there was a problem, and to make decisions about scheduling that worked for the store team. A bonus pool was created to compensate the team based on whole-store performance, which would bring hourly rates to above-market levels. It worked, and was incredibly powerful. And it was good business: Overhead costs came down and store sales and profits went up.
What my client did was not only create a system that paid its employees more than the prevailing market rate, but also made everyone on the front line feel valued, trusted and engaged. This was 25 years ago.

The idea of paying employees above market rate, what economists call an “efficiency wage,” goes at least as far back as Henry Ford. In 1915, faced with crippling employee turnover, Ford decided to break with the norms of the day, and offered his factory workers the unheard-of sum of $5/day. His competitors were appalled. The result for Ford? He got the cream of the crop of the available labor pool and dramatically improved employee retention. He didn’t have to continually pay the cost of recruiting and training or suffer the inevitable productivity drops that new hires engender until they get up to speed. Paying more was good for business.

I love the work being done in this area. It’s been well researched and documented that paying employees above market is smart business. Check out the work of Zaynep Ton and particularly her TEDx talk on Good Jobs Strategy.

Fast forward to today: Kudos to Walmart’s management team. It’s a big shift from their previously held belief that store labor is simply a cost to be managed and driven down to ensure low prices. It shows leadership to go against the cultural grain and this decision certainly does, even if the burning platform of poor performance forced them to this point.

Given today’s reality of rising income inequality, paying more is not only smart business, it’s the right thing to do. In an economy that’s increasingly a service economy (though it applies to manufacturing environments, too), why is this idea of paying a motivating level of compensation linked to employee empowerment and engagement still so novel? In fact, let me rephrase this: The idea’s not novel…it just isn’t being applied across the board by business leaders positioned to make the call. Why not is the real question.

If you’re reading this post, either you’re likely influencing – or deciding – how your company operates. So here’s the ask: Help make stories like the one I experienced, like the companies Zaynep Ton researched and, yes, even like Walmart, the norm rather than the exception.

What is your view of this approach?

If you’d like to chat about the challenges of growth strategy and strategy execution, drop me a line at agreen@jacksonholegroup.com. To see all of my posts about strategy, click this link.

Image thanks to 123rfphoto/Visions Of America LLC