Would $70,000 a Year Make Employees Happier or Lazier?

After reading a 2010 Princeton study, which attempted to answer the eternal question Can money buy happiness?, Gravity Payments CEO Dan Price concluded that the answer is might be yes. The study, which is based on massive survey data from Gallup, concludes that people with higher incomes reported happier moods and less stress. However, once someone hits the $75,000 earnings mark, more money did not improve their mood or disposition.

Based on this study, Price decided that all of the 120 employees at Gravity Payments, a Seattle-based credit card processing company, would earn at least $70,000 a year; quite an increase considering the current average wage at the company is $48,000 in annual pay. Some 70 employees will be affected by the company's new "minimum wage," and 30 of those will have their salary doubled. The changes will be phased in over the next three years.

The wage increases have been both lauded as a smart business move that will increase the company's competitiveness and success, and also criticized as an unsustainable business model that would make employees lose the incentive to work for promotions and salary raises. Price has made it clear however, that he believes the gap between his own pay and that of his workers is untenable. Price, who currently makes an annual salary of $1 million, will slash his personal annual pay down to $70,000 in order to help pay for the pay increases. The 29-year-old CEO claims that the disparity between CEO and worker pay is "ridiculous" and "absurd," and he openly criticizes the practice of determining executive pay by bringing in consultants who recommend compensation after focusing only on the highest paid segments of chief executives.

Most Americans are not even truly aware of the immense inequality between executive and worker pay. When surveyed, people approximated that the difference between CEO and employee pay is about 30:1. But they have drastically underestimated the figures; in actuality, CEOs make more than 350 times the average worker (The Washington Post, 9/25/14). And while worker pay has shown only minimal growth since the recession, pay for chief executives has continued in an upward trend. From 1978 to 2013, CEO compensation (when adjusted for inflation) increased 937%, while typical worker compensation grew only 10.2% during the same period (Economic Policy Institute, 6/12/14).

The vast inequality between executives and workers has emerged as a major policy issue, and there is a growing movement to curb the runaway train that seems to have become CEO salaries. In 2010, the Dodd-Frank law ordered public companies to reveal chief executive-to-worker pay ratios, but the numbers for these organizations has still not been disclosed. Three states have proposed legislation that would seek to limit CEO compensation; in California, for example, a state senator proposed a bill that would tie a firm's corporate tax rate to its executive-worker pay gap – in other words, the wider the gap, the higher the rate. Massachusetts introduced a bill that would prevent companies from claiming tax deductions for CEO bonuses over $1 million if employees are not given raises that keep up with cost of living. Although neither proposal has gained enough momentum to be turned into law, CEO compensation has increasingly come under heavy scrutiny and criticism. Hillary Clinton, who announced her bid for the Democratic nomination last week, has already attacked exorbitant CEO pay.

Economists assert that an enormous CEO-worker pay gap does not do those companies or the economy any good. Huge imbalances between executives and lower-level workers weaken loyalty and reduce productivity. Enormous wealth that is concentrated with a small percentage of the population curtails spending of the lower- and middle- classes, the consumers who ultimately drive the U.S. economy and make up the majority of GDP. Despite growth in the job market, consumption has fallen due in large part to the fact that many workers are not making enough to have disposable income to spend on consumer goods.

Although other CEOs have taken pay cuts in order to boost earnings for employees, Price and these types of chief executives are the exception, not the norm, and it may take intervention to minimize the widening income gap.

Readers, do you think that the gap between CEO and worker pay has become too vast? Will Gravity Payment's decision help or hurt the company? Comment and let us know!

March Jobs Report

The first quarter of 2015 ended with a stumble, as indicated in the March Bureau of Labor Statistics' (Employment Situation Summary). The U.S. economy added 126,000 jobs, the lowest monthly gain since December 2013, and the unemployment rate stayed steady at 5.5%. Economists cited several reasons, including the harsh winter in the Northeast, as the cause for the slowdown.

There was some good news, albeit only slight improvements. The number of long-term unemployed persons ticked down slightly to 2.6 million, accounting for 29.8% of the total unemployed. Also, average hourly earnings rose 7 cents an hour to $24.86.

Still, several sectors did see upward trends, including professional and business services (+40,000), retail (+26,000), and health care (+22,000). Temporary help services rose by over 11,000 jobs, a 0.4% increase over last month.

February Jobs Report

February continued the trend of strong job growth. The U.S. economy added 295,000 jobs, and the unemployment rate edged down to 5.5% (Bureau of Labor Statistics, Employment Situation Summary). The number of long-term unemployed persons was essentially unchanged at 2.7 million, accounting for 31.1% of the total unemployed. Despite impressive job growth, wages continue to remain sluggish as average hourly earnings gained only 0.1% month-on-month.

In February, job growth saw the most expansion in food services ( 59,000), professional and business services ( 51,000), construction ( 29,000), and health care ( 24,000). Temporary help services saw little change from last month but was 5.2% higher than in February 2014.

The High Cost of Low Wages, Part 2

This is part 2 of our series dispelling the myth that a company's profitability depends on rock bottom pay. To read Part 1, click here.

Since the Great Recession, low pay and stagnant wage growth have been the new normal, but Walmart's announcement that it will be giving a raise to 40% of its workforce hopefully signals that earnings are set to increase. Higher wages are obviously an advantage to employees, but they also benefit the companies that employ them. Organizations that offer paltry pay could be forced to increase wages in order to stay competitive. This trend is already playing out as TJX, which owns a variety of retailers, including TJMaxx, Marshalls, and Home Goods, announced immediately after Walmart that it will raise workers' base pay to $10 by 2016.

Any company offering higher wages is not doing so out of altruism; they have competitive pay because it is profitable for their organization. Livable wages attract more talent, increase worker productivity, reduce turnover, and at the end of the day add to a company's bottom line.

When a company offers higher wages, and especially when they are early adopters of higher pay in their industry, they will attract a higher quantity and quality of applicants. Last year when Gap announced that it would raise its minimum wage to $10 an hour, the amount of applications rose 10% (Bloomberg Business, 6/24/2014). Organizations that offer higher pay are rewarded with an applicant pool that has a higher IQ and with personality scores and motivation that make them a better fit for advertised jobs (Peterson Institute for International Economics, 1/13/2015). Walmart's choice to increase wages before other major companies such as Target and McDonald's positions it to attract and retain more qualified employees from a talent pool that is becomingly increasingly competitive and desirable. The low-wage model may reduce the cost of labor but does not do any good for a company's costs overall. Currently, about 44% of Walmart's 2.2 million hourly staff turns over each year (Bloomberg Business, 2/23/2015). Finding, hiring, and training replacements even for low-wage workers costs about 16% of an employee's annual earnings, and when nearly half of your hourly workforce is jumping ship, those costs quickly add up. With falling same-store sales and two straight years of stagnant earnings, Walmart is being forced to change its business model that is no longer sustainable in a tightening job market.

Many other retailers have already mastered the lesson that Walmart and other companies are just learning. At Trader Joe's, starting pay is $40,000; employees at Costco make on average $21 per hour; and staff at The Container Store make an average of $50,000 per year (USA Today, 10/17/2014). Costco's turnover rate is 17% overall and that number plummets to 6% after one year of employment (Bloomberg Business, 2/23/2015). All of these organizations operate in a competitive marketplace and refute the idea that retailers must pay measly money in order to make profit. Their happier, more productive employees also provide better customer service and more satisfied, loyal clientele. QuikTrip, a Fortune 100 convenience store and gas station chain, pays an entry-level salary of around $40,000; it's turnover rate is 13% (compared to 59% for the top quartile of the convenience store industry), and its per square foot sales are 50% higher than the industry average (The New York Times, 3/21/2014).

It is a myth that companies, especially organizations in low-margin industries, must constrict wage growth in order to remain profitable. Especially as the economy strengthens and competition for talent increases, companies must consider offering better pay if they want a more talented workforce, more loyal customers, and a stronger bottom-line.

Readers, do you think more companies will raise wages as the economy improves? Comment and let us know!

3/23/15 Update: On March 18, Target followed Walmart's and TJX's lead and announced that the company would be raising the starting pay of its workers to $9 an hour in April and $10 an hour by 2016. The decision will affect the pay of 500,000 employees.

4/2/15 Update: Fast food giant McDonald's announced on Wednesday that it will raise wages for employees that work at locations that it owns and operates. The company will raise wages at least $1 over local legal minimum wage for workers, to an average of $9.90 an hour by July 1. The increase in pay will only apply to those workers at the locations under corporate control, affecting about 90,000 employees. The decision does not apply to the 750,000 employees who work for the McDonald's franchisees. The pay increases come even as the company faces sagging sales.

Walmart Raises Wages and So Should You, Part 1

Last week, Walmart announced that it would be giving a raise to 40% of its workforce. About half a million employees will see their hourly wages rise to $9.00 in the next six months and $10.00 by 2016, well above the Federal minimum wage of $7.25 an hour. The company will be spending about $1 billion dollars in increased pay and revised training and promotion programs. Recently, many companies such as Gap, Ikea, and health insurance provider Aetna Inc. have raised wages for their workers, but as the world's largest private employer, Walmart's decision to increase pay will be more closely watched and could have a larger impact.

Over the years, a job at Walmart has become synonymous with rock bottom pay. An unstable labor market and stagnant job creation made it possible for companies, including the retail giant, to consistently fill positions that had low pay and unsteady hours. In 2013, Walmart had 23,000 job applications for 600 jobs, with an acceptance rate of 2.6%; that's twice as selective as Harvard University (The Washington Post, 3/28/2014). In the years following 2008, low wages were an effective method to maximize profits. However, as an increasingly optimistic labor market continues to favor employees and job seekers, companies may no longer be able to sustain low wages.

In December, the percentage of people looking for work hit the lowest level since 2007. The economy has created more than 3 million jobs in three months; the number of available jobs posted by U.S. employers rose to the highest levels in 14 years; and job quits increased to 2.7 million, their highest level in six years, a sign of workers' confidence in the job market. Although the future of job creation looks sunny, wage growth has remained stagnant. Since 2012, pay has shrunk for people at almost all income levels with the exception of the bottom 10%, which have seen higher wage growth due to state-sponsored minimum wage increases (Economic Policy Institute, 2/19/2015). However, any increase in wages does not do much good for workers since inflation is rising faster than the price of labor. The income for a typical worker today buys fewer goods and services than in 2006 (Pay Scale, 1/12/2015).

The trend of frustratingly stagnant wage growth could start to reverse as the economy continues to improve and the labor market continues to tighten. Walmart's move to increase hourly earnings has already turned the spotlight on other retailers who offer similarly low wages, such as Target and Staples. The wage hikes have also put a spotlight on food service companies like McDonald's, which has consistently been singled out as an organization that doles out rock bottom pay. Companies that could once offer low wages may be forced to increase pay in order to stay competitive, attract talent, and reduce turnover.

Raising wages is not just an advantage to the workers it benefits; it is also a boon for the organizations that employ them. Join us next week for Part 2 of our series and learn why all companies, not just Walmart, should raise their wages.the Benefits of Raising Wages.

Readers, do you think that companies should increase worker pay? Why or why not? Comment and let us know!

January Jobs Report

The U.S. economy continued to show strength in the first month of 2015; 257,000 jobs were added, and although the unemployment rate ticked up slightly to 5.7%, analysts estimate that the increase was due to more people looking for work in an optimistic job market (Bureau of Labor Statistics, Employment Situation Summary). The number of long-term unemployed persons was essentially unchanged at 2.8 million, accounting for 31.5% of the total unemployed. Hourly earnings also grew by 0.5%, the highest monthly wage growth since late 2008.

In January, job growth saw the most expansion in retail trade (+46,000), construction (+39,000), health care (+38,000), and finance (+26,000). Temporary help services saw little change from last month but was 6.7% higher than in January of 2014.

7 Hiring Trends to Watch in 2015

The job market has been bleak since 2008. Although the economy was in recovery, hiring increased slowly and wages were stagnant. However, the new year offers an optimistic hiring outlook. At 5.6%, the unemployment rate is back to pre-recession levels. More than 1/3 of employers are predicting to hire full-time, permanent staff this year (Career Builder, 1/1/2015), and employees are more confident that if they leave their current role, they will find a new one. Companies need to prepare for a positive job market this year where hiring tips back in favor of the job seeker.

1. Employers will add talent to their organizations.
Some 36% of businesses plan to increase full-time, permanent staff, a 12-point increase from last year. Jobs in sales, customer service, information technology, production, and administration will dominate the new opportunities (Career Builder, 1/1/2015). Many of these jobs will originate from small businesses; 30% of companies with fewer than 250 employees plan to add full-time staff. Temporary hiring will also pick up, with 46% of employers planning to hire temporary or contract workers; 56% of these companies plan to transition temporary workers into permanent roles (Business News Daily, 1/4/2015).

2. Workers will continue to fight the wage war.
With wage growth mostly sluggish since the recession, raising the minimum wage became a national debate in 2014. Some 21 states had increases that began on January 1, and by early this year, 29 states will have a minimum wage higher than the Federal wage (NCSL, 12/28/2014). As competition for highly skilled candidates increases, 82% of businesses plan to increase compensation in the coming year and 64% plan to offer higher starting salaries to new employees (Career Builder, 1/1/2015).

3. Companies will compete for highly skilled candidates.
Employers are adjusting education requirements to attract workers with advanced degrees; 28% of companies will be hiring more employees with master degrees, and 37% will be hiring more employees with four-year degrees (Career Builder, 1/1/2015). As job roles are becoming increasingly complex and data-driven, businesses will be competing for these highly educated and skilled candidates.

4. Unsatisfied employees will leave their roles.
In September, 2.8 million people quit their jobs, the highest level since 2008, signifying more confidence in the job market. Nearly ½ of all employees are optimistic about their ability to find a new job, and more than 1/3 report that they will look for a new position if they do not receive a pay raise in the next 12 months (Glassdoor, 1/9/2015).

5. Millennials will become the majority of the workforce.
In 2015, those born between 1981 and 1996 will become the majority of the workforce for the first time; 27% of this generation already inhabit management roles, and 47% want to transition into leadership opportunities (Elance-ODesk, 10/29/2014). Hiring and retaining Millennials poses a unique challenge, as 58% predict to leave their jobs in three years or less.

6. Mobile recruiting will expand.
As everything becomes more mobile, job searching is no different. Employment site Beyond.com found that 83% of those looking for work use their phone or tablet (Beyond.com, 6/17/2014), while Glassdoor found that nine in 10 job seekers are using mobile devices in their job search (Glassdoor, 5/13/2014). Utilizing mobile is one way that businesses can compete for top talent as 25% of seekers are deterred from applying if job listings are not mobile-optimized.

7. More people will leave the traditional career path.
Both out of choice and out of necessity, more workers will become freelancers and contract workers. The Internet's accessibility has allowed nontraditional career paths to become more legitimate and sustainable. Employers can now find and hire contract workers more easily, while freelancers can find those in need of their services and sell their labor. This year, 53 million U.S. workers were freelancing, and that number is only expected to grow (Elance-ODesk, 10/2/2014).

Readers, what are your hiring plans for 2015? Comment and let us know!

December Jobs Report

The U.S. economy continued to improve in December; 252,000 jobs were added and the unemployment rate dropped another 0.2% to 5.6%, the lowest since June 2008, according to the Bureau of Labor Statistics' Employment Situation Summary. The number of long-term unemployed persons was little changed at 2.8 million, accounting for 31.9% of the total unemployed.

In December, job growth saw the most expansion in professional and business services (+52,000), construction (+48,000), food services (+44,000), and health care (+34,000). Temporary help services added 14,700 new jobs last month, up 7.8% from December 2013. Year-over-year staffing growth averaged 8.7% in 2014, compared with 6.4% in 2013.

November Jobs Report

The U.S. economy saw strong growth in November and added 321,000 jobs, the most in nearly three years, according to the Bureau of Labor Statistics' Employment Situation Summary. The unemployment rate remained at 5.8%. In contrast to recent months, average hourly earnings rose in November, and over the year hourly earnings have risen by 2.1%. The number of long-term unemployed persons was little changed at 2.8 million, accounting for 30.7% of the total unemployed.

In November, job growth saw the most expansion in professional and business services (+86,000), retail trade (+50,000), health care (+29,000), and manufacturing (+28,000). Temporary help services added nearly 23,000 new jobs last month, up 8.5% year-over-year.

Holiday Hiring: Highest Since 1999?

It's the most wonderful time of the year for retailers and consumers as the holiday shopping and hiring season has started to pick up. The last few months of the year, starting with back-to-school shopping in September, are important for retailers, and the winter holiday shopping sprees are particularly crucial for the businesses and the economy. Increased consumer optimism and escalated spending are predicted to make this holiday season especially jolly.

Consumer confidence is at its highest levels since 2007 (The Conference Board, 10/28/14), and increased optimism is prompting Americans to spend an estimated 4% more this year during the winter holidays; U.S. retail sales are projected to total over $900 billion in 2014 (Deloitte, 9/24/14). Households are also allocating larger budgets for presents, while holiday gift spending is predicted to increase 8% (Prosper Spending Score, 9/4/14). In 2013, nearly half of American consumers stated that they would be budgeting less for gifts, but that number dropped 11% for the 2014 shopping season.

Cyber Monday has continued to grow as one of the largest shopping days of the year and is expected to outpace Black Friday sales. Online purchases are forecasted to be especially strong for retailers, with over half of consumers expecting to make Black Friday purchases online rather than in-store and online sales for the five-day period between Thanksgiving and Cyber Monday are predicted to rise 15% (IBM, 11/9/14).

Consumer optimism and predictions of increased spending have prompted employers across all industries to escalate hiring for the holiday season. Retailers alone are expected to add more than 800,000 seasonal workers, the highest number since 1999 (Challenger, Gray, and Christmas, 09/17/14). Many notable companies have already started ramping up hiring. UPS stated it would hire 95,000 seasonal workers, nearly doubling last year's holiday workforce, while FedEx plans to add 50,000. Both companies struggled in 2013 to handle escalated shipping volume and are adding workers in order to meet the demand of this holiday season. Online retail giant Amazon plans to add 80,000 positions, approximately 10,000 of which will roll over to full-time jobs. Walmart and Target both plan to add around 60,000 workers. Macy's leads hiring among retail stores, adding 86,000 seasonal jobs.

Manufacturers and retailers couldn't have asked for a better gift this holiday season.

Readers, has your company added seasonal workers? Or are you planning on taking seasonal work?
Send us your comments at: http://tradepost.selectfamily.com/index.cfm/2014/11/13/holiday-hiring

More Entries