One particularly special session for us was “The Ripple Effect of a Pay Strategy Change,” in which PayScale CPO Dave Smith presented with Justin Gagnon, CEO of our customer, Choicelunch. Gagnon shared Choicelunch’s story of a challenging time in the business: As a California organization with several hourly employees, the company was facing pressure from competition that hiked wages months ahead of market expectations related to the state’s new minimum wage of $15. This made retaining and attracting good talent a big challenge, which ultimately impacted product quality and employee morale — the company was short-staffed, the employees that were there were making frequent mistakes and customers were unhappy. It was time for a bold move.
Smith and Gagnon went on to explain the “ripple effect” that a change in pay strategy can have on business as a whole: a positive change in pay helps retain and attract the best talent, which leads to improvements in product/service quality and personal accountability, which leads to an increase in employee morale. They covered the famous Henry Ford example of bumping wages from $2.25 a day to $5.00 to curb turnover, which ultimately increased production, as well as profits.A positive change in pay helps retain and attract the best talent, which leads to quality improvements.Click To Tweet
They also outlined the three steps to effectively and positively changing your pay strategy:
- Step 1: Look at the Market & Formulate Your Strategy/Structure: gather market data regularly, develop a clear compensation strategy and create guidelines for pay
- Step 2: Communicate Effectively: give employees info to get ahead of negative assumptions, provide total compensation statements and train managers how to talk pay with employees
- Step 3: Reinforce Culture with Compensation: mirror your culture in your comp strategy, reward behaviors that map to company values, be more transparent if open communication is a company priority
Happily, Choicelunch saw significant success in implementing a pay strategy change: A $1.50 an hour increase in wages, coupled with managers enforcing a new (higher) standard for work, incentivized better performance. Underperforming staff members were let go, and having fewer employees allowed for the possibility of a net-neutral outcome. After two months, Choicelunch did even better than net-neutral — the company saw a 2 percent savings in monthly costs.
Choicelunch was also able to start attracting great talent again, due to the higher wages. This strategy has since been rolled out to other locations.
Is it time for a change in pay strategy at your organization? Here are some helpful resources:
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Have you changed your pay strategy? If so, what was the result? We want to hear from you. Tell us about your experience in the comments.