A Tale of Two Jobs: How Low Wages Are Bad for Business

Companies that pay employees more have higher profits.

(Editor’s Note: When MIT Sloan School of Management Professor Zeynep Ton faces her students, she tells the future executives that they don’t have to treat employees and customers poorly to make money–especially in service jobs.

Ton knows they have heard all the stereotypes; that cutting costs is the key to profits. But she has found that’s not true, especially in the service sector. Better treatment of workers translates into more sales. Higher pay means less turnover. Better service creates loyalty among consumers. Ton profiles a handful of good and bad employers in a new book, The Good Jobs Strategy: How The Smartest Companies Invest In Employees to Lower Costs and Improve Profits.

In this excerpt, we see contrasting profiles where management has chosen bad and good job strategies. Ton’s insights underscore that America’s business owners do not have to pay workers poorly, treat them and consumers with contempt, to make money. It is a powerful analysis that, if heeded, could transform the workplace.)

Excerpted from The Good Jobs Strategyby Zeynep Ton,with permission from Amazon Publishing/New Harvest.

The Bad Job: Janet’s Big Box Store

Janet had her own small video rental business, but it wasn’t making enough money. In 2005, she had to close it down. Luckily – or so it seemed – she became a sales associate in the electronics section of a large retail chain. Even better, it was a full-time job. Her job included making sure everything in her section was properly shelved and priced correctly. Her starting wage was only $8.20 per hour. While Janet’s managers recognized her hard work and promoted her several times, her raises were miniscule.

By 2012, Janet was a customer service manager in charge of dozens of employees at the front end of the store, including cart pushers, cashiers, greeters, and employees working in the money centers, in which customers could cash checks, make wire transfers, and buy pre-paid debit cards. She was also responsible for solving customer service problems at the checkout, such as pricing errors or credit cards that didn’t go through. On top of all that, she frequently had to solve equipment problems – or at least try to. “Like the other day,” she said, “the money order machine went down at the money center. I had to crawl around on the floor and get on tech support from National Cash Register and sit there and tinker with the money order machine. Unplugging the cable and plugging it back in as he was directing me from the phone until I got the money order machine back up and working.”

Janet is a problem solver who manages dozens of employees and lots of different equipment, yet after all her merit-based raises she still earns only $11.60 per hour. Supposedly she works full-time, but in fact she’s often scheduled for fewer than forty hours a week, so she never really knows how much money she will make.

Nor does she know whenshe’ll be working. Every week, her hours are scheduled on different days and at different times. One day she could be scheduled from 2:00 p.m. to 11:00 p.m. and the next from 10:30 a.m. to 7:00 p.m. Some days her work ends around 9:00 p.m., yet she’s scheduled to arrive at 5:00 a.m. the next morning, leaving her only eight hours to drive home, eat dinner, try to sleep, get ready for work the next morning, and then drive in. “My life is always in turmoil because you can’t sleep,” she said. “You can’t just go to sleep on cue.” Sometimes she reports to work without having slept at all.

Janet is in her fifties, and both her work–with all its lifting and crawling–and her schedule can be tough on her health. She has health insurance that covers her and her son, but she can’t afford to get sick. Even though her insurance premium is only $70 per month, her deductible is a whopping $3,500. That’s a fortune for someone whose yearly income is around $22,000. The last time she had an infection in a lymph gland, the bill came to $998, which had to be paid out of pocket. She’s now paying it off at $20 a month. Her doctor recommended a simple surgery, but she can’t afford it; that would have to be out of pocket, too. Plus, missing work for the surgery would get her written up. Sick days at this retail chain–even hospitalized sick days – do not count as excused absences.

And so, after seven years and several promotions, Janet can still barely make ends meet. “I need a second job, but the way they schedule me, every time I get a second job, I can’t hold on to it.”

Despite all this, Janet maintains her strong work ethic. She tries to do a good job and serve her customers well. But even there, she often fails and feels helpless. Complaining about the long lines at the cash registers at her store, she said, “Customers are angry at the under-poverty-level workers standing there in front of them ringing them up, at the under-poverty-level customer service manager… They stay in line so long that their ice is melting. Many of them walk off and leave full baskets.” It’s Janet’s job to manage those checkout lines, but she can’t make them any shorter because she doesn’t have enough cashiers. Other workers in the store are trained to run a cash register, and Janet can page them if the lines get too long. But that doesn’t mean they’ll come. Sometimes they ignore the page, and Janet knows why. They’re under pressure to finish their own shelving tasks. If they help her – that is, if they come and help the customers – they’ll fall behind in their own work and end up in trouble.

The Good Job: Patty and QuikTrip

Patty began working at QuikTrip, a large retail chain, when she was nineteen years old, right out of high school. Her starting wage was low, like Janet’s. She had planned to work there while attending a technical college, but after two years, she realized that QuikTrip was “more than just a job.” It was a great career. So she stayed. And like Janet, Patty got several promotions. But unlike Janet, Patty has a good job.

Remember that, after seven years and several promotions, Janet was still making only about $22,000 a year. After seven years with QuikTrip, Patty was making almost triple that. And when I interviewed her in October 2010, she was making more than $70,000 a year. Patty also has affordable healthcare, enjoys a stable schedule, and finds dignity and satisfaction in her work. “I’ve always loved people,” she said, “and that’s what this company is in business for. Helping people and giving them great service.”

Patty’s job allows her to have a fulfilling life. “You were asking what makes me excited about going to work every day,” she said. “It’s knowing that you’re going to be able to attend your kids’ activities at school. You’re going to be able to take care of your kids, and knowing that the company that you work for is growing each day. And you don’t have to worry about, Am I going to get laid off tomorrow? Or, Where’s the next meal coming from? There is no other company that will pay you your regular wage, a customer service bonus, a profit bonus, and even an attendance bonus. You go to work, you do your job, you’re excited, and you know everything’s pretty much taken care of. QuikTrip has never let me down.”

From Patty’s description of her job, you would think she is a saleswoman at a high-end department store helping customers find designer clothes while a pianist plays in the background. Or perhaps she is a manager at a medical supply store helping people find the right wheelchair or a coffee cup they can hold with a hand weakened by a stroke. You would think that QuikTrip must compete on personalized customer service, not on low prices and a fast checkout line. How else could they pay Patty so well? How else could they give her so much leeway for her family life?

But QuikTrip is a large chain of convenience stores with gas stations. Yes, one of those places we often associate with dark interiors and strange smells. Patty’s work involves managing about fourteen employees as well as working the cash register, changing the coffee filters, putting product on the shelves, and cleaning the bathrooms. But that’s not how Patty and the dozens of other QuikTrip employees I met see their jobs. They see themselves doing something worthwhile, doing it well, and getting paid and treated well for it.

QuikTrip has appeared on Fortunemagazine’s list of the top one hundred companies to work for eleven straight years. Think about that–a convenience store chain that sells gasoline and merchandise at lower prices than other convenience stores is consistently voted one of the best places to work.

It’s not just the employees who love QuikTrip. Customers love it, too. Ask anyone who lives in Tulsa or Atlanta or any city that has QuikTrip stores and they will tell you that QuikTrip has low prices andexcellent customer service.

What does customer service look like in this setting? Patty is friendly and knows all the regular customers, but she doesn’t spend much time chatting and helping them choose the right donut. Instead, she focuses on putting the right product onto the right shelf at the right time with the right price tag. She and her crew are vigilant about keeping the store clean, including the bathrooms–especially the bathrooms. They make sure everyone has a quick trip through the checkout line. Those are the elements of customer service that distinguish QuikTrip. And the customers keep coming back. That’s why the company’s sales per square foot are 50 percent higher than the industry average and its gas sales are twice the industry average.

But if QuikTrip is providing lower prices and paying higher wages than its competitors, is it making as much money as it should? Absolutely. QuikTrip’s profit per store is more than double the industry average for convenience stores and 89 percent higher than the top quartile in the industry. Its labor productivity is 50 percent higher than the top quartile in the industry and the company turns its inventory three times before it has to pay its suppliers. Needless to say, QuikTrip’s investors are very happy.

The Choice: Create Good or Bad Jobs, Profits or Losses

QuikTrip’s model works for everyone involved–employees, customers, and investors–and that is not coincidence or luck. Patty’s success is not a byproduct of QuikTrip’s success; QuikTrip’s success is a byproduct of Patty’s. QuikTrip’s employees don’t get treated well because its profits happen to be up.

QuikTrip’s profits are up because it puts its employees at the center of its business. They are the creators of that success – not its lucky or occasional beneficiaries – and they are treated accordingly. That’s what the company says, that’s what its policies and procedures convey, and that’s how its employees feel. Rather than seeing its labor force as an expense to be controlled, QuikTrip sees its people as an engine of sales, service, profit, and growth. The better that engine is humming and the more it can be fueled, the better the company will do.

©2014 by Zeynep Ton. On-sale January 14, 2014. All Rights Reserved.

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Source: Alternet