More on Implementing a Living Wage

We left yesterday's discussion of implementing a living wage at the step where your organization makes a decision on setting a living wage figure.

Once a living wage figure has been set, your next step is to ascertain where, and in what manner, it impacts your pay program and practices.  Opinions differ here, but my recommendation is that the identified living wage figure becomes, for all practical purposes, your new wage/salary floor.  No wage/salary steps, schedules or ranges should drop below this level, and no employees should be paid below this rate (with possible exceptions for situations like interns, student workers, etc.).

Most organizations who implement a living wage program will experience an increase in labor costs.  Some will be able to immediately absorb any costs involved; others may not.  As with any new pay initiative, I strongly recommend that you assess costs and affordability before any public announcement is made - internally or externally.  As with any new pay initiative, be sure that you are ready and able to put your money where your mouth is - or you risk ultimately creating more bad will than good. 

To be clear on a critical point, I do not see an incompatibility between a cost of labor based pay program and a living wage floor.  Any organization that I have worked with on a living wage initiative is very purposeful about paying for cost of labor, not cost of living, once the living wage floor has been exceeded.  We endeavor to be very clear on this when communicating to employees.

As I stated in my initial post, I do not claim to be an expert of any kind in the area of living wage.  The purpose of this post series on that topic is to set out the lessons I have learned, and then provide my readers who have knowledge and information on the topic the opportunity to chime in for the benefit of all.

And so, readers, I turn the mike to you.

Comments

[Susan Kennedy]

Unemployment stats are depressing but contrary to those stats there are still many extremely high paying jobs posted on employment sites i.e.

http://www.realmatch.com
http://www.monster.com
http://www.simplyhired.com

You'd think these high paying jobs would yeild a living wage.

[Chris Young]

I am uneasy with the thought of a "living wage". What does that mean? Is that where it becomes my responsibility to cover the short-comings of someone else's poor performance and/or career planning?

Some people make more because of their skills. Some make more because they contribute more to the performance of the organization. It is the economic force of supply and demand that should determine how much one makes.

For the record, I grew up dirt poor. We lived in government housing and often did not have food to eat. (Do not feel sorry for me - it is the worst thing you can do)

When I graduated from high school, I had a 2.14 gpa. I made choices that did not include getting good grades. The "reward" was I did not receive scholarships. Ultimately, I finished college with a graduate degree in economics. At every step of my career, I have been paid based on my contribution to the organization. When I thought I should have been paid more, I stated my case and typically received more compensation.

I am the founder of my company and we pay our people well. Those that contribute to the bottom line are compensated accordingly based on the prevailing market wages and their contribution. Those that are not contributing receive a lower compensation level.

There have been people that did not contribute as much as others. They were paid less. Some have left for "greener pastures". There are some former employees I wish we could get back because of their contributions to our Customers and our business model. It is my concern for those that may leave in combination with my thoughts on being "fair" that incent me to pay my current performers so that they do not leave - or I work with them to create the job that works for them.

The idea of paying someone a "living wage" concerns me. Pay those that contribute based on their performance. Pay the prevailing wages. Those that cannot live on the prevailing wages need to find other work where their contributions may be increased or build their skills.

Thank you for your insights... I always love a good discussion...

[Ann Bares]

Chris:

Thanks for sharing your thoughts on this. I think you and I are in agreement on most, if not all, of these points. The market sets pay levels for different kinds of work based, at the most essential level, on supply and demand. When our need for a particular skill set outstrips the available supply (think nurses or software developers right now), pay levels tend to rise. I believe organizations that disregard the market in setting their pay levels do so at their own peril - not as much in the public sector, which is protected (mostly if not entirely) from competition, but certainly in the private sector. And so, caution is called for whenever a non-market pay initiative - such as living wage - is undertaken.

Like you, I am a strong believer in market and performance based pay; the consequences of doing otherwise do not appear positive to me. In my consulting experience, however, I work with organizations of all stripes and sizes, with very different missions and "reasons to be". I see my role (at least at current) as helping them develop and implement a reward program that fits their unique mission and philosophy, rather than imposing my particular philosophy on them and their pay efforts. At the same time, when asked my opinion or perspective, I don't hesitate to share it. A few of my clients have felt that implementing a living wage is an imperative part of their pay program, based on who they are and what they are striving to accomplish. And so my job, as I see it, is to help them get that done in the best and right way.

In my view, and based on my experience, I see the living wage concept as just lifting the floor of the base pay program, not changing its fundamentals (including the focus on "cost of labor", not "cost of living", as well as paying for skills and performance).

What do you think?