The hourly base wage for fast-food workers in Denmark is $20USD, yet McDonald’s, Burger King, etc., are still profitable.

Try to sell a minimum wage increase to just $15 and you’ll be told that it would destroy jobs and close businesses.

But, as the song goes, it ain’t necessarily so.

Despite starting out with just a $35,000 investment in 1978, The Container Store founder and CEO Kip Tindell has grown his business to one that has 67 US locations and rings up annual sales of nearly $800 million.

Equally impressive is the fact that he’s done all that while paying his retail employees nearly twice the industry average.

So what does Tindell know that other bosses of retail businesses don’t? You get what you pay for…

• “The 1=3 rule,” i.e., one great employee is as productive as three OK employees, so he gets three times the productivity of an average worker at only two times the cost.
• Turnover is lower substantially reducing hiring and training costs.
• Annual raises up to 8% of their salaries, based on performance, but
• encourages managers to evaluate employees based on their value to the company.

The result is the average Container Store retail salesperson makes nearly $50,000; about double the national average for retail.

When it comes to wages, Kip Tindell is the Twenty-first Century’s Henry Ford.

Ford astonished the world in 1914 by offering a $5 per day wage ($110 today), which more than doubled the rate of most of his workers. (…) The move proved extremely profitable…

The minimum wage war should become a lot more interesting when Tindell takes over as chair of the National Retail Federation.

It’s a lot harder to argue with success.

Flickr image credit: Tomer Gabel

WalMart is moving to improve your shopping experience.

No, not lower prices or expanded inventory.

Certainly not more women and minorities in management roles.

But soon, all ‘associates’ will greet you wearing collared shirts and khaki bottoms.

That’s right. Walmart wants to implement a dress code—but not pay for it.

The annual cost is probably around $50, which is a lot considering the pay.

Richard Reynoso, a Wal-Mart employee in Duarte, Calif., representing a campaign called Organization United for Respect at Walmart said in a letter to the company’s management: “I’m getting paid only about $800-$900 a month. The sad truth is that I do not have $50 lying around the house to spend on new uniform clothes just because Wal-Mart suddenly decided to change its policy.”

If pushed the action is likely to generate additional class action lawsuits, not to mention fan public outrage and generate a significant backlash.

But that isn’t what troubles me.

In the 21^st Century our largest employers are the likes of Walmart and McDonald’s.

They pay $8 to $12 an hour and would pay less if they could get away with it.

Businesses on and off-line are working to improve your shopping experience, but most are unwilling to do what Henry Ford did 100 years ago.

Pay people enough that they can afford to consume.

(For more information see previous posts No Help Wanted and Workforce USA)

Flickr image credit: rychlepozicky.com

$97 million doesn’t sound like much today, but it was a lot 15 years ago when Microsoft lost a lawsuit and was forced to reclassify it’s contractors as employees.

Back then Microsoft called them “permatemps.”

These days startups of all kinds are relying on freelancers to drive their growth, so many that a new term was coined.

They’re called 1099 contractors and the over-all approach is termed the 1099 economy.

“The most famous examples of 1099 companies are on-demand car providers like Uber and Lyft, but there are dozens of others: Homejoy, Handy, Postmates, Spoonrocket, TaskRabbit, DoorDash, Washio.”

The Feds, in the person of the IRS, are very particular when it comes to classifying employees as independent contractors or freelance.

Behavioral control refers to facts that show whether there is a right to direct or control how the worker does the work. A worker is an employee when the business has the right to direct and control the worker. The business does not have to actually direct or control the way the work is done – as long as the employer has the right to direct and control the work.

The financial control factors fall into the categories of:

• Significant investment
• Unreimbursed expenses
• Opportunity for profit or loss
• Services available to the market
• Method of payment

I’m a long way from being an expert, but after reading through the IRS information at least some of these companies are going to be in trouble.

Uber sets prices, discounts, doesn’t reimburse expenses and terminates drivers who also work for any of the competition.

That’s a lot of control in the light of the IRS rules.

Obviously, any company that can eliminate payroll, taxes and benefits is going to be super profitable—at least until they have to follow the rules like everybody else.

Flickr image credit: 401kcalculator.org

Ask people what they do in private and you’ll probably hear far more detail than you want, but ask what they earn and they’ll either freak out at the question or be very insulted.

What they probably won’t do is tell you.

Sex used to be personal, but these days it is often broadcast to anyone who will listen, but not finances—although older workers are less likely to discuss either of them.

Companies are even more paranoid about keeping salaries confidential—sharing compensation information is a firing offense in many of them.

Usually, the more a company insists that the numbers are private the more likely people are to assume that something is rotten—or unfair.

After all, gossip tends to exaggerate things. Professor Lawler says studies show that when pay is confidential, workers often believe the salary distributions are more unfair than they really are.

That’s why Dane Atkinson, chief executive of SumAll, a data analytics company, does things differently.

When he helped found the company about three years ago, a decision was made to disclose all salaries and equity shares. (…) “In this way, more money goes not to those who negotiate better, but those who work the hardest,” he said. The people who resist making salaries more transparent, he said, “are usually those who think they’re making too much.”

The other people who resist are the bosses who are playing games with compensation.

You know, the ones who make the lowest offers possible and/or play favorites.

Compensation, whether salary or stock, should make sense to everyone; it should be plausible and accurately reflect the person’s contribution to the company’s success—not their charm, personality, looks or threats to leave.

Flickr image credit: Derek Keats

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

A couple of years ago serial entrepreneur Matt Weeks wrote about the Startup Social Contract founders have with their people, with a focus on stock options.

Having worked with startups since the early Eighties I’m intimately aware of how fragile this contract has become and how often it has been totally disregarded in the last decade.

The result should come as no surprise.

Any time a group of workers feel they are being taken advantage of someone will always step up, marshal resources and organize them, especially when the workers are highly educated.

That’s why founders have only themselves to blame for the uprising among the people they need the most.

Employees at startups are being taken advantage of, said Chris Zaharias, who was joined by rally partner and stock option counsel Mary Russell. Founders and venture capitalists make the negotiations around equity (or how much of the company employees own) intentionally confusing.

Equity fairness and transparency is the reason we developed Option Sanity.

While I don’t agree with all the content in the “Startup Employee Equity Bill of Rights,” it certainly reflects how badly the Startup Social Contract is being abused, if not totally disregarded.

And, as Matt says, “If the workers and/or the exec team come to disrespect, disbelieve or ignore this social contract, the company is lost.”

Image credit: HikingArtist

Many founders talk about the desire to build truly open cultures.

Then they start adding exceptions and caveats, especially when it comes to compensation—whether dollars or stock.

Sharing compensation information is usually discouraged and discussing stock options or salary may even be considered a firing offense.

While there are startups opting for openness, what happens over time?

Based on Whole Foods nearly 30-year trial salary openness can work.

Whole Foods co-CEO John Mackey introduced the policy in 1986, just six years after he co-founded the company. In the book, he explains that his initial goal was to help employees understand why some people were paid more than others. If workers understood what types of performance and achievement earned certain people more money, he figured, perhaps they would be more motivated and successful, too.

It takes solid planning and a culture with a real commitment to transparency and developing people over time to make it work.

By making it’s financials, including profitability, available to all it employees, so they could see not just what everyone was paid, but where else the money went, Whole Foods created a true feeling of ownership along with the knowledge that promotion was available and the support to make it happen.

The company’s openness even drew recognition from the Federal Government.

In fact, in the late 1990s the widespread availability of so much detailed financial data led the SEC to classify all of the company’s 6,500 employees as “insiders,”

Building openness into your culture requires support and full buy-in from your senior staff.

And that means being willing to pass on people who have the right skills, but not the right attitude.

Flickr image credit: Paul Downey

Last month we looked at the economic dichotomy of having a consumer-based economy while simultaneously reducing wages.

Henry Ford understood that paying higher wages was good business.

Ford astonished the world in 1914 by offering a $5 per day wage ($110 today), which more than doubled the rate of most of his workers. (…) The move proved extremely profitable; instead of constant turnover of employees, the best mechanics in Detroit flocked to Ford, bringing their human capital and expertise, raising productivity, and lowering training costs.

Not to mention that a good part of that disposable income was used to buy Ford cars.

Business counters that idea by pointing to all the costs that didn’t exist in 1914 as justification for relentlessly cutting wages and benefits.

But nothing justifies the current minimum wage in many states.

Speaking of a hundred years, it took that long for new research by Zeynep Ton, a business professor at M.I.T.’s Sloan School of Management and author of “The Good Jobs Strategy,” to prove Ford was correct.

For every dollar of increased wages, one retailer that was studied by Fisher brought in $10 more in revenue. For more-understaffed stores in the study, the boost was as high as $28.

Not only doe it affect employees, but apparently higher wages has a halo effect on stock.

Costco pays its workers about $21 an hour; Walmart is just about $13. Yet Costco’s stock performance has thoroughly walloped Walmart’s for a decade.

Ton’s work is of major competitive importance whether you’re a boss in a small business or head up a giant enterprise.

Flickr image credit: ping.fm

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

I probably sound cynical, but I do get tired of listening to founders talk about the openness, honesty and authenticity of their culture even as they go to great lengths to protect their salary and stock grant information, hiring criteria and customer interaction information.

Discussing salaries and/or stock grants is grounds for termination in many companies

Google is notorious for killing blogs on Blogger with no warning and no explanation except that they violated the TOS, but offering no specific information as to what the violation was or responding to the blog owner’s queries.

If you choose to talk the openness approach, then you should read up on a CEO who truly walks it.

In a post on Buffer’s Open blog, CEO Joel Gascoigne reveals his salary along with the salary of every single employee in the company, and includes the formula the company uses to get to each one.

Image credit: HikingArtist

What’s wrong with our so-called leaders?

I finally figured it out.

They live in an alternate reality.

Not all of them, but too many.

And I don’t have to go to Washington (DC) to see them in action.

I can stay home in (southwest) Washington (State)—Clark County, to be exact (nowhere near Seattle.)

We have a county commissioner named David Madore who says he doesn’t know how someone can have a “meaningful” life on $50,000 a year.

First you have to understand Clark County reality.

According to the American FactFinder, a report from the U.S. Census Bureau, data from 2007-2011 indicates the median earning for a single worker in Clark County is $32,337.

Scott Bailey, regional labor economist for the Washington state Employment Security Department, says if you take out all of the seasonal workers from that number, it jumps to about $46,000 or $47,000. The median for men being $51,502 per year, and $40,023 per year for women.

Bailey says more than half the individuals in the county make less than $51,556.

Therefore, substantially more than half of us don’t live meaningful lives.

(New York City, at a median $50,895, is slightly lower, but with a far higher number of peole whose lives aren’t meaningful and those poor folks don’t even have someone to tell them.)

Obviously, Madore lives in an alternate reality.

As do most politicians, corporate chieftains, a good deal of Silicon Valley, Wall Street and others.

Flickr image credit: Jim Champion

A few years ago I asked why companies thought they could cut pay, benefits and hours and still expect their workforce to stay engaged and give a damn about the company’s success.

The answer, of course, is they can’t and the employees don’t.

Even as they cut pay and hours, retailers that sell “value pricing” still expect people to buy.

A good example is Wal-Mart, long known as the poster child of low compensation and king of the part-time workforce.

But in earnings calls the blame is on the costs that are going up with no mention of wages going down.

“Their income is going down while food costs are not,” William S. Simon, chief executive of Wal-Mart, said of the company’s customer base. “Gas and energy prices, while they’re abating, I think they’re still eating up a big piece of the customer’s budget.”

And down it has gone.

Adjusted for inflation, the national minimum wage reached a peak in 1968 and has lost about 6 percent of buying power since it was last raised in 2009.

I sometimes think Henry Ford was the last executive who understood that you can’t run a consumer economy if the consumers aren’t paid enough to buy stuff.

Ford astonished the world in 1914 by offering a $5 per day wage ($110 today), which more than doubled the rate of most of his workers. (…) The move proved extremely profitable…

Obviously, Wal-Mart has never had an executive who understood that simple principle.

Congress doesn’t either.

Simon says income is going down, but apparently he can’t make the connection between that and his company’s actions.

Simon and his ilk know that people need disposable income to buy stuff, but for that to happen they need to stop treating their people as disposable.

Flickr image credit: Bernard Pollack