Improving Profits While Paying Higher Minimum Wages (Conclusion)

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(Photo: ©iStockphoto/ChrisGorgio)

Woodruff Imberman, Ph.D. |

Dry cleaners faced with three choices

EVANSTON, Ill. — Dry cleaners across the nation will soon face the same problems now confronting those in Chicago: how to maintain profit margins when paying higher wages due to new local ordinances raising minimum wages.

The Windy City’s $8.25 minimum wage jumped to $10 an hour on July 1 and will increase incrementally to $13 an hour by 2019. These higher minimums make higher productivity a must for dry cleaners.

The industry has never been known for paying high wages in labor-intensive central plants, where labor is about 45% of operating costs. These new rules will not only affect dry cleaners in areas covered by the new rules but also those in next-door communities, because some workers are ambitious enough to make extra efforts of job-hopping to cleaners offering extra pay.

They will be forced to raise their entire wage scale for two reasons: first, because their higher-skilled central plant employees—spotters and dry cleaners—will want higher pay than their lower-wage counterparts; and second, because of the egotism and self-respect of higher-skilled workers who view themselves as “better” than minimum-wage workers, and will demand more. Their sense of entitlement is powerful. Boosting employee productivity is the best way to maintain profit margins.

THREE CHOICES FOR SMALLER BUSINESSES

To maintain their already thin margins, dry cleaners have three options: 1) they can raise prices, 2) substitute costly new equipment for labor, or 3) find ways to improve the productivity of current staffers.

Each has its cost. Raising prices irritates customers. Paying for new equipment is expensive, and few banks are interested in financing such purchases for smaller businesses. But the third way—finding ways to motivate current employees to improve their productivity and performance in order to offset the new, higher pay rates—costs only thought and ingenuity.

Faced with higher minimum wages, thoughtful dry cleaners are now trying to find ways to motivate central plant employees to improve their productivity and boost quality, thus creating fewer internal re-dos or customer returns.

EFFECTIVE MOTIVATORS

A few years ago, I published the findings of three nationwide surveys we conducted before, during, and after the Great Recession. Their purpose was to discern how employers were trying to motivate their workers to improve their performance, and their perceptions as to which methods were effective.

The results clearly showed that the Great Recession made a severe impact on employees at all levels. Faced with job loss, reduced pay levels, and the general insecurity of the time, most wage earners said job security and paycheck size were the most important motivators. Second, short-term economic motivators like Gainsharing plans seemed to match employees’ short-term horizons and had the greatest impact on worker performance.

Gainsharing is a group pay-for-performance program under which employee performance is quantified and given a dollar value. When it improves over a threshold pre-set by management, the value of the improvement is split with the workers. So, for every dollar paid out to workers in Gainsharing bonuses earned by specific measures of short-term performance, dry cleaners save a like amount in higher productivity (less overtime, fewer staffers) and better quality (fewer internal re-dos and customer complaints).

Since Gainshare earnings are paid on a short-term basis (often monthly), they have to be earned and re-earned each short Gainshare period. This negates any notion that Gainsharing is an entitlement.

Gainsharing dovetails nicely with employee expectations: Central plant workers expect to receive “extra” rewards for any “extra” efforts expected of them. Fulfilling these expectations is critical for the long-term success of any initiative attempting to boost employee performance. If the “extra” is absent, employee cooperation in any new venture will be short-lived.

In most central plants, the most effective way to motivate employees to improve their performance is to design and implement a group Gainsharing plan, tying better performance to increased pay with short-term payoffs.

Much ink has been wasted in newspapers and magazines, and much time spent on Sunday talk shows as talking heads debate the wisdom of raising minimum-wage rates.

Rather than wrangling with the issue, astute dry cleaners can make better use of their time by finding ways to motivate employees to improve their performance.

When are you going to start?

Miss Part 1? You can read it HERE

About the author

Woodruff Imberman, Ph.D.

Imberman & DeForest, Inc.

President

Woodruff Imberman, Ph.D., is president and CEO of Imberman & DeForest Inc., a management consultancy based in Evanston, Ill. He has written several articles for American Drycleaner over the years on employee productivity, employee motivation and supervisory training. For more information, e-mail Imberman at info@imbdef.com or call him at 847-733-0071.

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