Essential Workers, Higher Wages, Value Creation and Work Design

The path to value creation, according to a number of private equity executives (like the one who wrote this Harvard Business Review article), is through return on invested capital (ROIC).  Indeed, the best way to create real value in a business -- this author says -- is by making smart capital investment decisions.  And yet, at least according to his data, few CEOs are skilled at capital allocation.

This should interest us, as HR and reward professionals, for a few reasons.  First of all, the obvious one: that the biggest category of investment for most organizations is employee compensation.  Secondly, because proactively managing that investment to maximize return -- and create real value -- ought to be top of mind for any of us who fancy ourselves true "business partners."  Thirdly, because it bears directly on a category of compensation topics that has captured a lot of attention over the last several years and renewed interests more recently as a result of the COVID pandemic. In this topical category I would include the ideas of fair and just wages, living wages, the attention to minimum wage laws and (last but by no means least) the renewed appreciation for essential workers we all gained through the past many months.  As organizations and particularly essential service providers struggled to stay open during the early months of the pandemic, the criticality and vulnerability of front-line (often hourly) workers became obvious.  This prompted many immediate measures, including hazard and premium pay implementation.  It also raised longer term/bigger picture questions about the distribution of reward dollars and greater capital investment in this vital segment of the workforce.

Some perspective.  A number of organizations made press in the past 5 years or so for the decision to voluntarily raise the minimum wages of their employees.  In addition to Starbucks, Walmart and Gap, Aetna drew attention for the distinction among this group of being a financial services firm rather than a retail enterprise.  While there are a lot of things to like about these initiatives, one of the biggest positives from my point of view is that because these decisions were self-imposed and (presumably) a product of internal analysis and consideration they are more likely be sustainable over the longer term.  That isn't to say that there will be no unintended consequences to offset the positives, as these actions like these ripple through the labor market.  Our economic system is way too complex and has too many levers being jiggled to assume otherwise.  There seems a greater likelihood, though, that they can be successfully absorbed, managed and even turned to advantage by the "host" organizations.  Because ultimately, a move to disrupt the cost structure of an organization is more likely to succeed if it is to the advantage (or at minimum, not to the disadvantage) of all stakeholders.  This includes but is not limited to all members of the workforce, owners/investors and customers.  All these are seeking their own returns, intangible as well as tangible, and their expectations cannot easily be ignored.

Many will reference the efficiency wage theory -- the notion that simply paying workers a higher wage should lead to increased productivity -- as the rationale for these wage-boosting decisions.  Perhaps this can be banked on, but I would submit that the astute among this vanguard (and I suspect they are all astute) have actively considered and are pursuing steps to maximize the positive return of these enormous investments.  One of these is likely work design.

And that's where we come in.  (I know. You were beginning to wonder...)

Work and job design has long been an orphan, a second-class citizen largely ignored by the HR and reward professions.  As a discipline and especially in the cases of essential/hourly workers, it has been pursued with seriousness primarily by industrial engineers and their like.  There may be lessons to draw from their work but few of today's jobs -- even those at the very front lines of retail, financial and manufacturing/distribution industries -- are purely mechanical in their execution.

As those with responsibility for managing our organization's compensation spend and doing so to maximize the return on that investment, and given the disruptions to work and rewards that are reverberating through the world, we should be looking at this as a prime opportunity to embrace work design. And for us to provide leadership and expertise to initiatives like these.  Who better?

A number of organizations, many prompted by the pandemic, are already involved in work and job redesign efforts, particularly at the lower wage end of their organizations.  The redesigned jobs will pay more -- significantly so in some cases.  You won't see their names splashed across the pages of the Wall Street Journal.  They aren't doing it for the PR benefit but because it makes good business sense.  And I'll bet HR and the Rewards function have a leadership role in the effort.

If proactively lifting the wage floor is going to be a thing for enlightened organizations, it would be great to see us driving the train ... or at least sitting near the engine.

Your thoughts?

Ann Bares is the Founder and Editor of Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting and survey administration services to a wide range of client organizations.  She earned her M.B.A. at Northwestern University’s Kellogg School and enjoys reading in her spare time. Follow her on Twitter at @annbares.

Image "Dollar Growth" courtesy of hywards/FreeDigitalPhotos.net

Comments

[Paul Pittman]

Ann agreed. Our clients and I massively generalize here, have embarked on projects with us since Sept that can loosely be traced to the recognition that "this thing" is not going away. Some of the processes we adopted in react mode have proved to be pretty good and we need to institutionalize them and embed into the fabric of our organization to secure productivity gains, enhance engagement, and cement goodwill (e.g. have them DD proofed for any potential sale). So yes lots of job re-engineering prompting different pay and incentives but also incentives to acquire new leadership techniques (e.g. remote management, digital effectiveness). We are also seeing IT tasked with making at home wall to machine connectivity consistent to enable more effective remote meetings and minimize distractions.

[Ann Bares]

Paul,

Thanks for your comment and for sharing your experiences here - very impressive and informative. I know many of us hope and believe that some good will come out of struggles and suffering of 2020; perhaps this is one of those opportunities/1

[E James (jim) Brennan]

Great treatment of an immensely important topic, Ann! No one responded to https://www.compensationcafe.com/2015/04/redesigning-work-to-create-more-mutual-value.html some years ago... but current times call for urgent reconsideration of literally outdated work value traditions and fossilized customs.

[Ann Bares]

Thanks Jim - and for the reminder about your work design post. Methinks we have our Friday Cafe Classic!

I know that a few of us have written about this topic through the years, and it never seemed to draw much attention or conversation. Perhaps the shockwaves of pandemic will finally push our attention in this direction. Paul's testimony certainly seems to suggest that it's happening among his client organizations - and I am aware of conversations and steps being taken in at least a few of the organizations my firm serves.

Time will tell!

[Paul Pittman]

Yes I think it is Ann and for many these current job design activities are not referred to as a COVID activity, just an idea whose time has come. "This thing" has accelerated the evolution of no end of processes and for some, we are rushing to be ready. Jim's point was and still is spot on (I wrote in the summer about good HR people being forged in a crisis https://www.linkedin.com/pulse/fred-issue-8-hateful-eight-mark-edgar/). At the heart of your blog, I took away the notion that being too constrained by HR rules, norms, and our training - if we let them - can be a barrier to good business.

[Ann Bares]

Paul,

Yes - and thanks for making one of my points better than I did! One of the things I love about the conversations that happen at the Cafe!

When I click your link, it says "Page Not Found." Anywhere else we can access your good thoughts on this topic?

[Paul Pittman]

Ann try this sorry!

https://www.linkedin.com/pulse/fred-issue-8-hateful-eight-mark-edgar/?trackingId=k4I%2BMafTx2rzRYRsn%2BSbDw%3D%3D

[Ann Bares]

Thanks, Paul - much obliged!