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Why You Should DOUBLE Your Employees' Salaries

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In a world with a poor economy and uncertain economic outlook, the knee-jerk reaction of most entrepreneurs and business managers is to layoff employees and thus reduce labor costs.

While I agree that reducing labor costs is key, you can oftentimes do this by increasing the amount you pay your employees.

Take the case of The Container Store. This Texas-based company has a unique HR strategy. That is, they have just one employee for every three that their competitors have. But, they pay their employees double the industry average and spend 160 hours training them.

The result is that their employees are better trained and happier, and thus provide superior service at a 33% overall lower cost than competitors.

Interestingly, when The Container Store opened in New York City, it had 100 times more applications than available positions. With numbers like that, they are able to hire the best of the best each time.

Similarly, Harry Seifert, CEO of Winter Garden Salads gives employees bonuses just before Memorial Day, when demand for its products peak. The bonuses boost morale and cause the company's productivity to jump 50% during the busy period.

Paying employees more to improve performance and boost company-wide profits is a historically proven tactic. In fact, back in 1913, Henry Ford doubled employee wages from $2.50 to $5.00 per day. The move boosted employee morale and productivity and caused thousands of potential new workers to move to Detroit.

A final key point to note is that laying off employees is often a bad strategy. While it will save you money in the short-term, in the long-term, hiring new employees and training them is much more expensive than the cost of keeping the employees that you laid off.

Rather, a strategy that you should consider is to ask (or require) employees to take pay cuts and/or offer employees company stock in lieu of a portion of their cash compensation.

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ross says

I agree in part with your idea. It does make sense in some cases to pay a premium for increase quality and improved retention. However, that premium needs to be balanced with the expected return -- as in the container store that pays 2x for 3x productivity -- a good return. Ford was a bit more complex. In part his strategy was to pay them enough that they could afford to buy his cars -- and he shifted the wage curve up as other employers had to raise their pay -- creating more people who could buy his vehicles. I do agree that with employees, as with customers, it is more profitable to keep the ones you have than to get new ones and get them up to speed -- so finding ways to keep them engaged and happy is critical. That said, I don't agree with the headline. Doubling wages is a bad idea unless you are prepared to clean house -- if you someone worth $20 an hour and pay them $40 they won't suddenly become a $40 an hour worker -- you need to change people out. While wage increases can have a positive short-term impact, it quickly loses its impact as it becomes a new baseline / just an expectation.
Posted at 5:55 pm
arnab guha says

Its a good thought......can be implemented...
Posted at 10:24 am

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