Why do you pay minimum wage?

This question is NOT a political statement and NOT even an economic one. By “minimum wage,” I refer to the compensation (e.g., hourly rate, salary, benefits, etc.) you pay to new employees. Minimum wage is a business strategy defined by your company, not just a reaction to regulation or competition.

Suppose your “minimum wage” strategy is to simply keep costs as low as possible by paying as little as possible for new and unproven employees because they are easily replaceable. In that case, you are treating your new hires as commodities. Economically, commodities are interchangeable goods with a fixed value, so you want to buy them from the lowest-priced supplier. Loyalty is not part of the relationship with either the buyer or the seller. Each party does what is best for themselves.

Instead, treat your new hires as assets. Assets are things of current value expected to provide a higher return in the future. The value of a new employee is not fixed for long. A good hire’s skills, experience, and knowledge of your business grow rapidly, increasing their contribution to your business. Employee assets require investment and provide you with great returns.

“Minimum wage” strategies are not only about beginning pay; it concerns whether there is a clear strategy to give employees increased responsibility and commensurate compensation or if they are simply hired and left to figure it out on their own. Have a plan to ensure your employees are moving from transactional compensation to providing sufficient value to earn and receive a livable wage.

Here is an example of what I mean. I was leading a company that needed to add a few people in a specific role but couldn’t afford the going rate of experienced professionals. We elected to develop our own and set up a program to do so. We found candidates that did not currently have the job skills or experience but had demonstrable ambition for the position, character, and a strong work ethic. We offered them a minimal but livable salary to start with, full benefits, and advised them of our high expectations and standards for quick improvement. We let them know they would be evaluated quarterly, and if they did not keep up, they would be separated from the company. In return, we adapted the job requirements to accommodate their beginning lack of skills but assigned standards for rapid improvement. We provided training and mentorship and a 30% annual salary increase for the first three years. Our expectation was for the program to produce employees with market comparable skills and compensation in 3 years. We hoped that half of the candidates would make it through the program.

The result? All of them made it through the program and were not only good in their jobs but great team members of our company. In a couple of cases the employees did so well they earned more than the 30% increases we promised. An unexpected plus was a more robust culture and increased loyalty, not only from the employees coming through the program but our other employees. As you well know, many of the investments you make in employees are difficult to see and easy to overlook. This program was tangible and helped them appreciate and buy into our culture and values.

Ask yourself, what are you doing to communicate to your employees that they are assets, not commodities?

If you’d like to hear more about the thinking and decisions that went into the program I described in this email, click here to schedule a few minutes to speak.

Merry Christmas and Happy New Year!


“So, the three qualities of a workplace that would develop people would be information sharing, investing in the training of the workforce, and giving employees the ability to use their training and information to make decisions.”

– Jeffrey Pfeffer

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