Pay Your Employees Better, Make More Money?

A prominent debate on the national stage this year has been the status of minimum wage. Should minimum wage be raised? Should there be a minimum wage? What effect does paying higher wages have on small, medium and large businesses? What effect does it have on the economy at large? One of the main arguments against raising the minimum wage, even though it has not followed the trends of inflation to continue to be a living wage, which was its original intent, is that doing so would have a negative effect on businesses.

It’s a logical hypothesis on the surface; if you have to spend more money on employees, that’s cutting into your profits, right?

The thing is, more often than not, the opposite is true, especially if you’re smart about it. Seattle has been steadily increasing its city-wide minimum wage and has seen a dramatic decrease in its unemployment rate and none of the economic devastation that conservatives predicted. Additionally, the restaurant business specifically has seen booming economic success since the minimum wage hike has increased.

The simplistic explanation here is that, when workers are paid more, they can afford more; they put that money back into the economy, not just for utilities and rent; they just pay for those basics when they’re making far less than a living wage. Not receiving a living wage, too, means that people are more likely to utilize credit and borrowing services, often resulting in defaults and other negative effects that result in economic downturn. When people can spend their own money, because they have it, the economy benefits.

Costco, for years now, has been on the highest end of the spectrum wage-wise. In 2006, the average wage of a Costco employee was 40 % higher than a Sam’s Club employee, while continuing to be a competitive business and turning profits.

In fact, Costco has been numerically more profitable than businesses like Sam’s Club, in part because of their higher wages. While circumstances like location (Costco tends to have more urban locations than Sam’s Club, which generally means higher wages and higher customer volume) affect profitability, the important thing to note is that Costco’s higher wages have not had a negative effect on their profitability.

Studying this reveals that much of the positive result comes from the fact that higher wages reflect a respect for the company’s employees. Employees are not a financial burden on a company, they are a necessary part of its function; further, they are a valuable part of its function, and that is reflected in their wage. Some argue, therefore, that Costco is, in fact, more profitable because it pays higher wages. It is not just happenstance, like they are profitable even though they pay higher wages; they are profitable through the act of paying higher wages.

One study showed that businesses with high employee turnover and minimum employee training were seeing negative effects; employees do not know enough about the business or its products to provide an effective service experience, which results in lost profits. One specific example is employees not knowing the location of a product the store carries; if the employee can’t find the product and the customer can’t, either, then the product is going to stay in its mystery location on the shelves, unbought and unbuyable. Experts have shown that taking more time to train employees and providing incentivising compensation increase profits and profit-potential.

This goes beyond investing financially in your employees and incorporates investing time and energy into them. They are your business. I have worked for companies that have a rotating stock that is massive, even for a tiny, niche store. I almost never knew what new products we had or what products we had from one stocking period to the next. Often, a customer would ask about a product they liked and we would either not have it anymore, I wouldn’t know when it was coming in, or I would have no idea that we actually did stock it. There was a lack of communication between the person ordering the products and we, the employees, who were expected to sell them. I didn’t feel a connection to the products and did a poorer job than I could have because of that. I was paid well, so I would work harder than I might have elsewhere to help figure out solutions in those situations; but, if the training and information isn’t provided, your employees will falter and your business will suffer.

Communication reads as care and gives your employees a sense of importance; they aren’t just cogs in a disorganized machine, they are assets to your business. Even if they aren’t passionate about your business (which is often the case in service industry/minimum wage jobs that are bill-paying endeavors for most employees), if they are knowledgeable, if they know what you expect of them because you’ve taken the time to clearly communicate it, and if they are paid well enough to make their time and energy feel worth it, they’re going to work harder to help you succeed.

While it may, again, seem illogical, another way to invest in your employees, and therefore your profits, is to invest in less product. If you have a consistent set of products, at a manageable number, your employees will have expert-level knowledge about those products. This is what sells. First, they’ll be able to definitively say “Yes we have that, let me show you where it is,” or “No, we don’t carry that, I’m sorry.” Second, they’ll be able to answer questions more readily about the product, giving the customer more security in their purchase, and they’ll be able to recommend companion or alternative products when necessary. “If you’re getting that coffee blend, you should definitely try it with our house-made cashew milk.”

As a small business, and a coffee business, you are likely going to have rotating stock as you figure out what your customers respond to, what they buy over and over again, and what they crave as soon as they run out of it. You’re also going to want to feature specialty options for the coffee elitists who want to be ahead of the trends in coffee, tasting the rarest coffee from the smallest farms that no one has tasted before them. This makes sense. Keep the stock relatively small, (Trader Joe’s has 4,000 consistent products in every store, versus some supermarkets that have 30-50,000), so that even when new products come in, there is room for your employees to learn and retain information about them. If you add new products, add them one or two at a time (relative to the amount of stock you carry, of course) so that your employees have time to really get to know the products without feeling inundated (and therefore unmotivated) by new information. And take time to train them about the products. At the specialty coffee shop I worked for, every few months we would get three or four new single-origin coffees. We would be given a list of characteristics about the coffees prior to a cupping, and then we would attend group cuppings where we would be quizzed on their characteristics in a group setting (less pressure, more memorizing based on the laymen explanations of your fellow employees) and then we would taste them, connecting the information with the tangible product. Another issue I’ve encountered with rotating stocks is the inability to try new products, which means I either have to lie to customers about the quality of the product, or I have to be honest and say I haven’t tried it, which makes them uncertain about investing in it.

Service industry jobs are especially reliant on decent wages. If someone is worried about their ability to pay bills, they are not going to be present and invested in their job like someone who feels at ease because their paycheck should be more than enough to cover their expenses. If they are able to afford luxuries, too, they’ll even be happy–which results in service that exceeds expectations instead of just meeting them.

Happy employees are evident. Even if your business is not focused on the experience economy, the experience matters. Well-informed employees, also, make an impression. You need employees who are pleased to be at work, know what they’re talking about in a way that doesn’t just sell your products but also makes your customers feel like they’re definitely getting exactly what they need based on reliable information, and who aren’t going to be distracted by worry and anxiety because their wages meet their living expenses.

An investment in your employees is an investment in your business.

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14 Comments

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  1. I agree that for any successful business satisfaction of employees is must… If employees are getting better payment then they will make sure your success! Well, amazing blog… Thanks a lot for sharing!

  2. Setting employees salaries can be a tricky thing. Employers want to pay enough to get the best possible talent. On the other hand, they don’t want to overpay. It all depends on how valuable a person will be to a company. Great blog, Keep it up 😉

  3. Well, happy employees = happy environment = happy customers. If employees are happy and feel appreciated, they will work harder, and when one feels they are given their fair share and treatment, their happiness shows. That’s why it’s much better to value your employees. Of course, there are other ways to show your employees you are happy with their work, but when a business gets bigger, you can’t be present in every store, so the best way to let them know they are valued is through their salary.

  4. I can’t agree more that an investment in your employees is an investment in your business. In fact, giving your employees the salary they deserve helps them to work more productively because they don’t have to worry about their ability to pay bills, which leads to better service. only happy employees can help your bussiness to be more successful.

  5. Great article, thank you for sharing. I remember working as a waiter in fast food for under minimum wage and how frustrating it was. Paying the bills relied almost solely on tips, and customers didn’t always know that it was expected. Fast food and tips aren’t usually associated together and it wasn’t advertised in any way. During times where tips were good, employee morale would skyrocket, this would result in higher customer satisfaction which would in turn increase tips and so forth. Working below minimum wage (which is already really low) when tips are almost non existent can take a big toll on the employees and the business as a whole. The other really important thing is training. I remember being thrown into a new work environment with no training at all, they just expected all of us to learn from each others mistakes. This resulted in us always needing to be overstaffed to get anything done right and so our pay would never be raised because it would have cost the company “too much”.

    • I had a very similar situation at my old job last year. I was working in a fast food setting and was getting paid less than minimum wage. Tips would usually cover the difference, but just barely. I was the highest paid in the position due to raises, but it didn’t make working for so little much easier. Had I been paid minimum wage plus tips, I would’ve been far less stressed and more able to deliver exceptional customer service.

  6. I believe in the saying “a well paid worker is a hard worker”. Pay and work really can go hand in hand. It’s really hard to motivate yourself to work when you are not getting what you feel is the equivalent wage of the work you do. This leads to a poor work attitude, and it will eventually spill into a negative view on the shop itself. Workers are the lifeblood of businesses, so if you take care if your own body, so must you take care of your staff. The article is correct in relating that businesses need open communication, and proper wages to ensure a proper working environment.

  7. Interesting! I think it’s finally time that businesses realized that employees should be treated as humans and not as money-making machines. It’s great that large companies like Costco are a shining example to this kind of business strategy. I hope all other large businesses follow suit. It’s tough to be overworked and underpaid, and it’s about time we change that!

  8. When I worked in fast food last year, I was paid less than minimum wage, with tips expected to cover the difference. Even with tips, I was making maybe a few cents over minimum wage. It was barely enough to live on, and I was only able to live on it as a single individual. Now that I have a child, there’s no way that I could live on just that. If the wage were increased, mood among the employees would definitely improve. It’s horrible not knowing if you’ll be able to pay your bills, especially if you dedicate 100% of your time to that job.

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