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Pro: Smart businesses know they can earn more by paying more

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Michael J. Silverstein
May 1, 2014

EDITOR’S NOTE: The writer is addressing the question, “Should Congress approve President Obama’s request to raise the minimum wage?”

CHICAGO -- Contrary to popular belief, one of the most compelling reasons for raising the minimum wage is because it could help U.S. business.

In fact, businesses that now pay the minimum wage would be wise to act ahead of Washington. Their strategy should be simple: to transform minimum wage jobs into better-paying jobs that deliver higher value.

That means the higher wage costs can be covered by productivity increases achieved through improved employee recruitment, skills development, training and supervision.

One of the reasons some companies object to a higher minimum wage, such as the $10.10 per hour President Obama has proposed, is because they view employee compensation solely as a cost, rather than an investment.

Viewed as an investment, however, higher wages can be more than justified. It all depends on whether employees can be motivated to create added value for the business.

A higher wage should not be a one-time benefit, but part of a package. Other elements of the package should include better training, opportunities for employees to upgrade existing skills—and learn new ones—and other incentives designed to increase their commitment and value to the company.

A living wage is a first step. At $7.25 an hour, many employees may not be motivated to give it their all. After all, what’s in it for them?

At $10.10 per hour or more and fresh opportunities for advancement, the equation changes. This can transform the same task—selling, for example—from something that is repetitive and robotic to something that is rewarding for employees and increases revenues for the company—such as sales associates engaging customers.

It can happen almost anywhere: Great service and perfect delivery in restaurants would allow companies to raise their prices a little. Who would complain if the service is efficient and friendly, rather than indifferent and slow? Not only would higher prices be acceptable, but companies with reputations for friendly and fast service will gain new customers. Those whose employees are disinterested drones will lose business.

Customer engagement requires training and examples. When sales associates listen carefully and react to customers one on one, sales take off. Instead of just processing transactions, the employee becomes a true salesperson.

That’s why it’s so important to see higher wages as part of a larger process of advancement, for both employees and the company.

Higher wages require a better-trained workforce with more-advanced technical skills, better people skills, improved problem-solving abilities and encouragement to innovate.

A company doesn’t have to pay excessive salaries to be known as a great place to work. It has to treat its employees fairly, provide them with a living wage and let them know they are valued members of the team, critical to the company’s future.

We all know the names of many such companies: Chipotle, the Container Store, Starbucks, Trader Joe’s, Whole Foods and Costco, among others.

Container Store employees, for example, earn up to 50 percent above minimum wage. They are problem solvers for the customer, providing solutions to home organization issues. They sell more and make more.

The bottom line is this: Companies that invest in their employees will earn more money for their shareholders.

In fact, our research, covering the years 2008-2013, shows that companies that have reputations as good citizens and good employers outperformed the market by an average of 24 percent per year in total shareholder returns. This shows that bettering society and bettering the bottom line are totally in sync.

A good place to start is with employee compensation and advancement. We can deliver a higher wage by delivering higher value on the job.

Michael J. Silverstein is a senior partner of the Boston Consulting Group and co-author of “The $10 Trillion Prize: Captivating the Newly Affluent in China and India.” Readers may write to him at BCG, 300 N. LaSalle, Chicago, Ill. 60654.



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