High Wages AND Low Prices AND Healthy Profits: Fruits of High Productivity

Almost 100 years after Henry Ford’s landmark decision to double the wages of his workers, the Ford Motor Company is in the midst of an “AND not OR” advertising campaign that promotes the idea that customers who buy Ford vehicles don’t have to choose between getting great gas mileage and getting other attractive features like high horsepower, a smooth ride, or good looks.  Using comical skits, the ads suggest that having to choose between features would be as ridiculous as eating sweet OR sour chicken, playing hide OR seek, or using nuts OR bolts.  The clear message is that AND is better than OR and I couldn’t agree more.

Exploding the myth that companies have to choose between low prices OR good jobs if they want healthy profits, Zeynep Ton, in her article titled “Why Good Jobs are Good for Retailers” (http://hbr.org/2012/01/why-good-jobs-are-good-for-retailers), highlights four very successful retailers (QuikTrip, Mercadona, Trader Joe’s, and Costco) that invest heavily in their employees AND have the lowest prices in their industries, solid financial performance, and better customer service than their competitors.  Instead of viewing labor as a cost to be minimized, these retailers view labor as a driver of sales and profits and they operate in a “virtuous cycle” – investment in employees allows for excellent operational execution (productivity), which boosts sales and profits, which allows for a larger labor budget, which results in even more investment in store employees.

According to Ton, employees of these retailers have been able create good jobs with higher pay, fuller training, better benefits, and more convenient schedules than their competitors offer.  Employees earn about 40% more at Costco than its largest competitor.  At Trader Joe’s, the starting wage for a full-time employee is $40,000 to $60,000 per year, more than twice what some competitors offer.  The wages and benefits at QuikTrip are so good that the chain has been named on of Fortune’s “100 Best Companies to Work For” every year since 2003.  All of Mercadona’s employees are permanent, and more than 85% are salaried.

So what do you think?  Do you view labor as a cost to be reduced or as a driver of sales and profit?  How does your company view labor?  Do you know of any other companies that offer low prices and high wages?  I look forward to your comments!