The path to value creation, according to a noted private equity executive in a recent Harvard Business Review article, is through return on invested capital (ROIC). Indeed, the best way to create real value in a business -- he says -- is by making smart investment decisions.
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 "business partners." Thirdly, because it bears directly on a compensation topic that is capturing a lot of attention these days: companies that are coming forward to voluntarily raise the minimum wages of their employees.
Aetna is one of a number of organizations (including the likes of Starbucks, Gap and Walmart) who've made this move -- and distinct in being a financial services firm rather than a retail enterprise. The company announced in January the increase to increase Aetna's minimum wage to $16 per hour. The move will impact 5,700 employees and result in an average pay increase of 11%.
There are a lot of things to like about this movement, and certainly the companies at its forefront are benefiting from the press and goodwill their announcements have generated. From my viewpoint, one of the positives is that these decisions -- being self-imposed and presumably a product of internal analysis and consideration -- are more likely to 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 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 must work to the advantage (or at minimum, not to the disadvantage) of all stakeholders to be sustained over the longer tem. 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 be ignored.
Many are referencing 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.
Work and job design has long been an orphan, a second-class citizen largely ignored by the HR and reward professions. As a discipline, it has only been pursued with seriousness by industrial engineers. There may be lessons to draw from their work but few of today's jobs -- even at the front lines of retail service -- 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, many of us should be looking at an opportunity to embrace work design. I'd wager that the examples of Aetna, Starbucks and Gap are being discussed in many of your boardrooms. If moves like this are being contemplated, you have an opportunity to provide leadership and expertise. Who better?
A number of my clients 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 HR is leading the effort.
If proactively lifting the wage floor is going to be a thing for enlightened organizations, I'd sure like to see us driving the train ... or at least sitting near the engine.
That's my point. Your thoughts?
Ann Bares is the Founder and Editor of the Compensation Café, Author of Compensation Force, and Managing Partner of Altura Consulting Group LLC. Ann also serves as past President of the Twin Cities Compensation Network (the most awesome local reward network on the planet) and is a member of the Advisory Board of the Compensation & Benefits Review. She earned her M.B.A. at Northwestern University’s Kellogg School, is a foodie and bookhound in her spare time. Follow her on Twitter at @annbares.
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