Pizza Express was recently in the news for cutting the share of tips for waiting staff from 70% to 50% on card transactions. The rationale behind the decision was to increase kitchen workers’ pay by giving them a share of tips. The reduction is estimated to be a loss of about £2,000 per year per waiter. If you are on a minimum wage and with no other benefits such as bonus, paid breaks and on unpredictable hours, £2,000 makes a big difference.
Workers concerned about their finances experience a mental burden of worry and stress. It impacts their ability to work effectively, reducing productivity. Moreover,
if someone is constantly thinking about how to make ends meet, even their IQ can drop, by as much as 13 points.
Imagine you are eating out (even expensive restaurants may not pay their staff generously). The person cooking your food may be tired because the only place he can afford to live is a 2 hour commute away and the waiter has to choose between paying their rent and a dentist bill. Such things will not impair their ability to do a good job preparing and serving your food. But if we remove the money worry, won’t they be better able to provide exceptional quality and service?
Many businesses view people simply as costs.
We are reminded of this with every cost reduction initiative and its focus on cutting the number of employees. Let’s take an alternative perspective: what if paying people more makes you more profitable?
Let’s look at cost first and take staff turnover as an example; it’s a figure most companies have readily available. The premise is that engaged and well paid staff are less likely to leave, especially in sectors such as retail, restaurants and call centres, with typically high turnover. In one example, a provider of medical diagnostic services, the direct turnover cost of 60% of call centre reps leaving within one year was up to $10.5 million.
Now for the good news.
There are examples of companies going against the tide and increasing employee take home pay. They notice the benefits.
In one example, a tree logging company,
a surprise bonus increased productivity among top and middle performers by about 10% while the bottom performers were 35% more productive.
This variance triggers a new insight. We tend to reward high performers more because we have seen their results already. But what about employees that are low performers because they spend a lot of their time and brain capacity worrying about money? We can free them from financial worries, so that they can truly perform at their best.
An insight in human behaviours can explain the effect of generous pay on performance. As human beings we are grateful for having enough money to live on and naturally want to reciprocate if someone treats us well.
An entrepreneur that caused a stir in the debate about pay is Dan Price of Gravity Payments. In the spring of 2012 he committed to a $70,000 minimum wage for everybody in his company. The increase was planned over the following three years and funded with an immediate cut of his own salary from $1.1 million to $70,000.
The unexpected outcome of the first rise of salaries by 20% was a productivity increase by 30–40%, with an ensuing increase in profits.
This wasn’t a one-off; the following year productivity and profits rose again by a similar amount.
We want leaders to think differently and try things out.
Innovation is not just about products, but how we manage companies. Increasing the cost of doing business may not be the best option for every company right now, but there are other ways to improve the employee experience. Employees perform better if they have job security, know in advance how many hours shift they have with no last minute changes, and a working environment that doesn’t penalise them by docking their pay.
As we recover from the pandemic and find a way back to normality, we can use ‘the new normal’ as an opportunity to make fundamental changes to how we operate. We can take the time to consider the significance of pay for employees’ wellbeing and performance. By removing the worry of making ends meet, people will be more focused on their job. This not only reduces the potential for mistakes, it enables people to contribute substantially to the success of the company. It also leads to better customer experience. The outcome is an increase in productivity and hence profitability. That’s enough of an incentive to try something new.
References:
Pizza Express https://www.theguardian.com/business/2021/may/30/pizza-express-waiting-staff-outraged-as-share-of-tips-is-cut
Do Financial Concerns Make Workers Less Productive? https://www.nber.org/system/files/working_papers/w28338/w28338.pdf
Adam Grant https://www.ted.com/podcasts/worklife/why-it-pays-more-to-pay-more-transcript (ref IQ drop and two examples of increased productivity
The case for good jobs https://hbr.org/2017/11/the-case-for-good-jobs (Quest Diagnostics example)
Gravity Payments https://www.inc.com/magazine/201511/paul-keegan/does-more-pay-mean-more-growth.html
