Compensation is a key factor in workforce management. Businesses have to pay enough to comply with various laws and regulations while also attracting top talent. Of course, companies are always trying to keep overhead costs as low as possible at the same time. Because payroll is one of the biggest expenses, that means that most enterprises try to keep wages reasonably low.
However, the federal government wants organizations to start paying more. According to the American Express OPEN Forum, President Barack Obama called for increased wages during his recent State of the Union address. The commander-in-chief revealed that he was lobbying Congress to boost the federal minimum wage, which currently sits at $7.25 per hour, and is working on an executive order that will require federal contractors to pay staff members at least $10.10 per hour.
However, Obama also called for business owners to start increasing compensation without government intervention. He pointed to small businesses like Punch Pizza, which recently raised wages for its 300 employees to $10 per hour, and national chains for examples of how heightened payment can be positive.
"Tonight, I ask more of America's business leaders to follow John's lead and do what you can to raise your employees' wages. Profitable corporations like Costco see higher wages as the smart way to boost productivity and reduce turnover," Obama said.
Peter Dreier, a politics professor at Occidental College and chair of the urban and environmental department, told USA Today that Costco's turnover rate is about 6 percent. What's more, he noted that the retailer's pay structure has positive economic benefits.
"People making Walmart wages can't afford Walmart products. On the other hand, what Costco uses is the multiplier effect or the ripple effect — if you raise wages by some percentage, that ripples in the whole economy," Drier said. "Costco's business model obviously works, and their employees are loyal."
What would that mean for business?
For businesses, increased wages mean a great many things. The most obvious is heightened expenses, which is why so many enterprises would cut jobs in order to deal with the new pay scale. A recent study from the Congressional Budget Office shows that 500,000 jobs would be lost if minimum wage was $10.10.
This is mostly because of the current economic climate. Many companies have struggled to fully recover from the recent recession, so all new expenses are met with heavy criticism and cost-cutting maneuvers.
Of course, this is a knee-jerk reaction and ignores the long-term benefits of increased wages. Though you may prefer to keep payroll at its current levels, giving raises can benefit your business in more ways than one.
The New York Times reports that numerous studies reveal that higher compensation has a positive impact on companies. The most obvious effect was in turnover because employees were less likely to resign if they were making high wages. However, it wasn't just about the staff. Research also indicated that managers were less likely to terminate someone who earned heightened compensation because they didn't want to deal with the costs associated with recruiting and training new employees.
This is certainly something that almost every organization could use these days. There's currently a war for talent as there are more jobs than there are qualified workers. As a result, businesses have to do everything possible to attract and retain great employees.
If you're not willing to pay great staff members, you'll probably lose them. Increasing wages is the key to boosting retention, workplace satisfaction and overall engagement.
