Target to raise their minimum wage – should your company follow suit?
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Target committed to raising its minimum wage to $11 per hour in October and to $15 per hour by the end of 2020. This raise will be the third increase in three years as it aims to attract a motivated and quality workforce. Walmart also increased its minimum wage to $10 per hour in 2016 and the latest move by Target is seen as an effort to tempt the best employees to choose them. Over 100,000 temporary workers will benefit from Target’s minimum wage increase.

Target and Walmart aren’t the only retailers that have increased the minimum wage. Costco has also raised its minimum starting wage to $13 per hour. States like Massachusetts and Washington have also established minimum wages above the federal threshold. The federal minimum wage has increased 22 times since its introduction in 1938. The last raise came in 2009 and is currently at $7.25 an hour.

There has been a political debate about whether the government should raise the federal minimum wage. It appears that states, cities and now companies like Target are taking on the issue directly. Should your company also increase your employees’ minimum wage? There are a host of variables to consider and questions to be answered before you decide to raise your company’s minimum wage. Below are some positives and downsides of following in Target’s footsteps and offering your employees a minimum wage increase.

The benefits of following Target’s lead:

Help recruit and retain quality talent
Brian Cornell, CEO of Target, referred to the relationship between a higher minimum wage and the company’s commitment to its employees. He stated:“Target has always offered market-competitive wages to our team members” and, “With this latest commitment, we’ll be providing even more meaningful pay, as well as the tools, training, and support … that set Target apart.” Target’s CEO appears to have the right idea as 25% of job seekers have a second income source outside of their regular job because they need the money. The amount offered in wages is a big consideration for employees considering whether to work with your company. Where other companies in your industry are increasing their minimum wage, it could be more difficult for you to justify not offering a raise. From an employee’s point of view, why would they work for a company with a similar job description for less pay? Unfortunately, the decision to follow Target’s lead by raising your minimum wage may no longer be optional if you want your company to remain competitive. The issue of minimum wage doesn’t only affect new hires. You may find some of your trusted and great employees leaving your company to work somewhere that provides them with a better salary. If more companies follow Target’s lead, you may need to entice talented new hires and keep the quality employees you already have by increasing your minimum wage. Money isn’t the be-all and end-all in relation to employment, but it plays a significant part in hiring and retaining a motivated and quality workforce. As the debate for increasing the federal minimum wage to $15 per hour continues, you might want to get ahead of the curve and raise your pay now. This way, like Target, you can stand out in your industry and attract the best employees.

Better job satisfaction

Employees perform better when they’re less stressed. Employees with high levels of stress take more time off work and are less productive. It pays to help your employees manage their stress. Given that 72% of Americans are stressed out about money at some point, raising the minimum wage for your company is a guaranteed way to combat some of your employees’ stress.

Employees who are satisfied with their pay will be happier and work harder for your company. With some of the financial stress lightened by better pay, your employees will be able to focus on providing a good service to your customers. Raising the minimum wage helps your employees make ends meet and removes some of the distractions that come with financial problems.

A study into why companies who pay above minimum wage perform better found that if, everything isn’t done to improve employee morale, the company will experience lower sales and profits. This will lead to a cycle of having an inadequate budget to pay employees fairly. The same study found that, even when companies in low-paying sectors, like retail, pay better wages and invest in employees’ development, they outperform their competitors. The higher pay approach is adopted by companies who value their employees as a strategic asset as opposed to a cost that needs to be reduced. A higher minimum wage is seen as an investment where the return will be increased productivity, better customer service and employee loyalty during tough times. If you believe that happier employees are an asset to your company, then making a decision to follow Target’s lead to raise your minimum wage is one way to build a more productive team and profitable company.

Enhances your reputation

Why did Target announce its minimum wage increase? One reason is to get free press to attract more people to apply for jobs. Another reason is that showing that you’re willing to invest in your employees is a good public relations (PR) strategy. Your brand is one of your most important business assets and, in this age of social media, it doesn’t take much for a company’s image to be tarnished. Showing that you’re willing to make a significant level of investment in your employees will enhance your reputation. Your company will be known as one that treats people fairly. This perception won’t only attract top talent, but will also bring in consumers who want to spend their money with a company that values their staff. If you organize a tasteful PR campaign around your minimum wage increase, you might find that customers won’t mind paying that bit extra for your goods and services because they know that your company put its people first.

Every employee is a representation of your company. Raising the minimum wage for all employees, especially customer-facing staff, may pay off for your company. If employees who interact with customers are satisfied with their wages and are happy in their employment overall, they’ll do a good job in providing great customer service, which will give your company’s reputation a boost.

Disadvantages of following Target’s lead:

Your company may end up in financial difficulty.
Target is a multi-billion dollar company and has the infrastructure and the expertise to make operational changes to absorb the extra cost of wages. Depending on the size of your company, it may not be possible to increase your minimum wage. One of your primary responsibilities as a company owner is to decrease overheads to make a profit. Increasing your minimum wage like Target may make sense when business is booming, but you’ll also need to take account of times when factors outside of your control have a negative impact on your business. It’s hard to predict when the economy will take a downturn or when a new competitor will ‘steal’ your customers. These considerations are even more important if your company operates within a seasonal industry like retail. Can you afford to pay your employees above minimum wage even when business is slow? In this situation, you could consider giving your employees bonuses in peak periods so that your company doesn’t suffer a deficit in quiet times.

It should be noted that Target offered to raise the minimum wage for more than 100,000 temporary holiday hires. You can follow Target’s lead and offer just your seasonal workers a higher minimum wage to attract the best temporary workers. You’d need to handle this situation very delicately with your permanent employees. Your normal workers may feel disgruntled about being paid less for doing the same work as your new seasonal workers. Should you decide to raise your minimum wage, you’ll need a plan to make up the shortfall and consider different options, including:

  • Raising your prices
  • Applying for a business loan
  • Reducing the number of employees

Your employees could become disgruntled.
Focusing solely on raising the minimum wage as a way to motivate your employees could have adverse effects. Not everyone is motivated by money. For example, millennials want purposeful jobs with work-life balance. You can attract great employees by drawing attention to non-financial aspects of working with your company, like fair scheduling and a strong team spirit. Resentment may build where a minimum wage increase is offered to all employees. Top performers may experience a dip in morale when they realize that their efforts are being rewarded in the same way as those that don’t go the extra mile. ‘Star’ employees may lose the motivation to try harder because there’s nothing extra in it for them. As mentioned previously, your permanent staff can also feel less valued if, like Target, you pay temporary staff at a higher rate. Your usual staff could view your company as one that doesn’t value loyalty. As a result, it may become easier for permanent staff to become disloyal to your company by looking for a new job with higher pay.

Another way that raising the minimum wage could lead to disgruntled employees is if you’re unable to grow your team because you can’t afford to continue paying your rate. If your company is relatively new, then offering above minimum wage may be a good idea. As you won’t have a proven track record, offering more money could help to attract the best employees. Where you’ve dedicated too much of your budget to your existing team while your business is growing, this could lead to a disaster. You’ll expect more from your team because you can’t afford extra help. These additional demands could result in your team leaving your company or risk getting burnt-out.

Alienate customers and business partners.
You may need to raise prices to pay for your minimum wage increase. While some customers may welcome your social conscience, others may not be willing to pay for it. If your strategy is to increase the price of your goods or services to give your employees more pay, you’ll need to work out whether it’s best to advertise this fact or keep the plan within your company. Gravity is an example of a company that suffered an unexpected backlash from providing a pay increase. The Seattle-based credit card processing company decided to set their minimum wage for all employees at $70,000. Rather than receiving praise, the announcement was met with skepticism. A few employees left the company because they felt they didn’t deserve the pay rise.

Some of Gravity’s existing customers left because they couldn’t understand how their payment plans wouldn’t increase despite the CEO making several promises that prices would remain the same. Some commentators accused Gravity of a socialist agenda, which was also responsible for some customers leaving. Lastly, other local businesses that used Gravity’s services complained that this minimum wage gesture made them look bad because staff questioned why they couldn’t receive a higher minimum wage.

Gravity is an extreme case of what can go wrong when a company raises its minimum wage. Perhaps the backlash was because of the high amount on offer. However, there are still lessons to be learned. On the flip side, Gravity was inundated with new business because of the increased minimum wage announcement. Other companies have also followed Gravity’s lead and continue to be profitable. Before following Target’s lead in raising your minimum wage, you need to have a solid plan to identify how you’ll recoup the cost and what will happen when your company grows. Increasing your minimum wage could have unintended negative consequences for your company. However, it could also produce more dedicated and productive employees that will help to facilitate your company’s growth.

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