Good Wages Are Not Enough

Employees need more respect and responsibilities.

Tobias Schwarz / Reuters

In her early 2014 book The Good Jobs Strategy, MIT business professor Zeynep Ton made what was then a counterintuitive case for paying retail workers more and giving them greater responsibility over their work—happy, productive employees often translates into higher profits, she argued. In the year and a half since the book’s publication, her ideas have gained traction. Even Walmart, once a target of Ton’s criticism, has raised wages for many of its lowest-paid workers. Companies now hire “workplace happiness gurus.” Still, Ton isn’t satisfied with what she’s seeing.

I recently spoke with her about the changing business landscape and what she sees as the successes and the shortcomings of these efforts. This interview had been edited for length and clarity.

Saki Knafo: In April, Walmart gave many of its workers a raise, and they’re already reporting a lower workforce turnover rate. This seems to be a strategy taken right from your playbook. Is that how you see it?

Zeynep Ton: Based on what they say, they are moving in the right direction. They are increasing the minimum wages of their employees and also thinking about their scheduling practices, which is something the media didn’t pay as much attention to. The scheduling of employees is a huge problem in these industries. So I think these are all steps in the right direction, but they are by no means enough. They are not enough for employees, they are not enough for investors, and they are not enough for customers.

Knafo: Why not enough?

Ton: A good job is more than just higher wages. A good job is also a productive job.

Economists talk about efficiency wages. They say if you increase wages you can get a better group of workers and you can have them work harder because they are going to want to do their jobs. And it’s true, they might work harder. But if their jobs are designed in a way that doesn’t allow them to contribute that much, even hard work isn’t going to help that much. A typical person at a retail store might be in charge of shelving merchandise and that’s all they do. But if you ask that person to also engage with customers, if you ask that person to also have a say in which merchandise you should carry, if you ask that person to go open a cash register when there’s a long line, now that person can contribute so much more. And if you design the job that way, so that people can contribute a lot more, you’ll need highly motivated, capable employees, and you can pay them a lot more.

Knafo: So if you can increase the responsibilities, you can increase the wages even more.

Ton: Yes, that’s exactly what I’m saying.

Knafo: And you don’t think Walmart is making those changes.

Ton: I don’t know. It’s a smart organization so I’m hopeful they will be making other changes. But I don’t really know what they’re doing internally, and if I did I probably wouldn’t be able to tell  you.

Knafo: Have you seen any other signs of companies acting on your advice?

Ton: Absolutely. First, I will say I’m an optimist by nature, and the only reason I do what I do is because I’m hoping for a better future for companies, their investors, and their employees. But yes, there’s one company, a retail chain that sells pet products, that’s implementing everything I talk about in my book. There are other companies that are intrigued by it and are thinking about implementing it. Last week I was at a startup—it’s like an Uber for cleaning. These young guys had the idea of creating a technology platform that allows people to go to people’s offices and do commercial cleaning. They initially thought, “We’ll create an app that allows contractors to do this.” Then they read the  book, and they thought, “We’ll hire people, we’ll invest in them, and that how we’re going to operate.” They got seed funding and now they’re raising more money. If they can show that this is a good strategy, maybe other young firms will take notice.

Knafo: What are the obstacles that are still preventing companies—especially larger companies—from implementing these lessons?

Ton: A very, very, very large company contacted me and asked me if I would travel to talk about the good-jobs strategy with them. I said, “I’m willing to come if the CEO is there. Because, unless the CEO is behind this, and unless there are a bunch of changes—not just wages, not just schedules, but a bunch of changes that put employees at the center of a company’s success—it’s not going to work.”

There needs to become a committed leader at the top of the organization, and that leader needs to be credible enough to be able to tell their board and their investors that they are implementing this strategy—and it’s a long-term strategy. I think that’s one of the biggest obstacles. A lot of people want to see a quick return on these changes. If you don’t have a patient board and patient investors, it’s not going to work.

And I think one of the other bigger obstacles is that a lot of companies are still making a lot of money through mediocrity. They offer bad service, they offer bad jobs, but they are still making money. Change is difficult, and excellence is a lot harder to achieve than mediocrity.

Knafo: When you visit these companies, what do people ask you?

Ton: I will say that, at a lot of the larger companies, they are asking, “How do I show a return on the investment?” Because that’s what their investors are asking them. Some of them have made wage increases and nothing else, and they want to know when they will see the effect of these changes. But my whole theory is that increasing wages alone is not the answer!

This is the message that I’ve been trying to give over and over, Saki—to my students, to the executives, to the companies—and it’s not an easy message to hear. This is why the CEO needs to be involved. The person in charge of increasing wages is not perhaps in charge of training, or is not in charge of designing the jobs. Large organizations work in silos, and they get nervous when they hear that lots of things need to work together to achieve this great outcome. It’s so much easier to start a new organization from scratch that has a good strategy than to change a larger organization. That’s not to say it’s impossible, but it’s harder.

Knafo: You didn’t start out as an advocate for workers. How did you become interested in this area of research?

Ton: I’m not a labor person at all. My background is in supply-chain management. I was studying retail supply chains as a doctoral student in the late 90s and I saw that a lot of retailers were doing a pretty good job to get the right products in the right stores at the right time, but then, once the product got into the stores, there were all sorts of problems. You could get a product all the way from China to the store, and then the product would get stuck in the back and never make it to the floor. For a supply-chain person like me, this was heartbreaking.

As I looked into why these problems happen, I found that stores that had more employee turnover had more problems. Stores that had less training and were understaffed had more problems. Part of the problem was labor practices, and retailers were operating in what I call a vicious cycle. They start with this mentality that labor is just a cost, so let’s try to minimize the cost. That leads to operational problems, which leads to poor sales, which means the labor budget shrinks. The vicious cycle continues.

For the first eight or nine years of my research, I kept hearing that this was the only way to operate. But I tried to find firms that were operating differently. My first stop was Mercadona, a Spanish supermarket chain. The next stop was QuickTrip, a chain of convenience stores based in Tulsa. These were two companies in different countries with different products, but they both offered good jobs to their employees, very good service to their customers, and great results to their investors. And they were making a bunch of choices that were identical. They standardized their practices but empowered their people. They had more employees than they needed. They were very focused—they didn’t try to be all things to all people.

Knafo: In a way, these practices are so intuitive.

Ton: And what’s frustrating is we’ve known them for decades. We’ve been teaching about Toyota for years, and these are the things Toyota does.

Knafo: So why has there been so much resistance?

Ton: [Costco co-founder and former CEO] James Sinegal often used to say, “Wall Street is thinking about making money between now and next Thursday. We’re thinking about making money for the next 30 years.” It takes a courageous leader to say that to investors. But those investors who are long-term investors will stick with you.