Years ago, I worked at a company where wages were low and turnover was high. Workers were replaceable ― or so it seemed ― and executives must have felt it was silly to pay more than the bare minimum. After all, couldn’t you just substitute one person with another?
This approach always struck me as nuts. When talented people walk out the door, they take a wealth of knowledge with them. And hiring is an energy-sapping, time-consuming pain.
But the workers-are-expendable approach is now “very common,” according to Zeynep Ton, a professor at MIT Sloan School of Management. Leaders, she says, “underestimate the cost of low pay and turnover... And part of it is that you’re so disconnected from people’s lives at that level that you don’t even know what low pay does to people.”
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In the 1960s, chief executives at America’s largest public companies earned about 20 times what an average worker made. By 2021, top CEOs were raking in nearly 400 times an average worker’s salary. That’s a chasm so wide that it’s hard to understand what life is like on the other side.
In some industries ― like retail ― management’s disconnect can be particularly startling. More than 3 million Americans work as salespeople, and their median wage hovers around $30,000.
Imagine trying to live in the Boston area on $30,000 a year. How would you get childcare? Housing? Transportation? Ton says it’s virtually impossible. “So people can’t live in the place that they work. It takes them forever to get there.” And, she points out, “If somebody doesn’t get paid enough to be able to make a living wage, so many other people suffer as a result of it.”
Schools can’t get enough teachers. Police and fire departments can’t be fully staffed. Hospitals can’t get enough janitors or chefs. Senior living communities can’t get enough aides.
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It’s a problem we’ve experienced in spades in the Boston area, and it has massive impacts on our lives, our towns, and our competitiveness.
So Ton is on a mission to change how company leaders think and how they treat their employees. And she’s not doing it from a picket line. She’s doing it from inside an institution that mints MBAs: folks who are used to collecting those rapidly rising CEO salaries, rather than manning a cash register.
Why did Ton start trying to change the system? A series of unusual events.
In 1992, she left Turkey and landed at Penn State on a volleyball scholarship. (I felt particularly diminutive standing next to her.) She ultimately became captain of the team, which repeatedly landed in the final four of the NCAA. And then she moved to Boston to study supply chains at Harvard Business School.
Her focus was on numbers, algorithms, and making sure the right products were in the right place at the right time. The answer to making retail more efficient, she thought, was to crunch more data to optimize profits. But when she visited retailers, she realized that there were serious problems with that data.
“On the selling floor, at the stores, oftentimes the product would be there,” Ton recalls. “But it was in the wrong place ― in the back room, because nobody had time to shelve it... And this is where I found that stores that had more turnover had more problems. Stores that had understaffing had more problems.”
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She started to interview workers ― often at the now-defunct bookstore Borders, which she was focused on. “When I heard about their jobs, their pay, their schedules, I was like: Wow! The America that I experience is so different from the America that they’re experiencing.”
And that was in the early 2000s, before a surge in income inequality.
At another store, Ton talked to a woman named Janet, who had been promoted multiple times and was then a manager. Her pay was $11.60 an hour, and she said she couldn’t live on that.
Janet needed another job to make ends meet, but her hours were so variable she couldn’t get one. She was a single mom, and her job sometimes demanded that she both stay late at night and come in at 5 the next morning. She needed surgery at one point but simply couldn’t afford it. Her life was an impossible juggling act.
Ton could feel her focus shifting ― away from supply chains and toward people. She noticed that on days when she shadowed retail workers, she often came home with a backache. “The first thing that’s striking is how physical it is,” one employee told her. “We are throwaways who are a dime a dozen. Just human robots.”
But Ton came to believe that workers aren’t a dime a dozen. Their knowledge of how stores work is extremely valuable and not easily replaced. She became convinced that low pay was simply a bad money-making strategy. It led to poor performance, high turnover, illness, and disengagement.
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“She came to this because she’s a nerd,” says Roger Martin, a former dean of the Rotman School of Management at the University of Toronto. “She loves crunching supply chain numbers... It’s sort of cool to me that she came to it in an extremely non-ideological way.”
In 2014, Ton criticized Walmart, the largest corporate employer in the United States. And, amazingly, Walmart listened. Ton has become “[o]ne of the company’s guiding lights,” according to “Still Broke,” Rick Wartzman’s 2022 book on Walmart.
Indeed, her goal is nothing less than a wholesale shift in how America treats workers ― and in her new book, “The Case for Good Jobs,” Ton eagerly points to a slew of companies that treat their employees better: Costco, Trader Joe’s, QuikTrip (a chain of convenience stores).
Jim Sinegal, the cofounder and former chief executive of Costco, became famous (and a billionaire) by treating his workers very differently than many other retailers, sometimes offering hourly wages nearly double the median retail wage. He also offered the vast majority of employees health insurance and tried to create jobs that were both engaging and predictable.
As Ton notes in her book, Sinegal once told her: “It is a people business. If you don’t do that well, you are going to screw up your company pretty badly.”
Dewey Hasbrouck ― the owner of two franchises of Moe’s Original BBQ in Maine ― says he always admired the Costco approach. But when Hasbrouck found his business battered by the financial disaster of the pandemic, he didn’t know how to move forward. And then he stumbled on Ton’s first book and sought out help from the Good Jobs Institute, a nonprofit that she cofounded with Martin.
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Hasbrouck said he followed Ton’s strategy, raising pay and cross-training employees so they understood the different roles in the restaurant. He focused on core menu items, instead of having employees scramble to assemble daily specials. And he offered health insurance.
“It was so scary,” Hasbrouck said, largely because he had to make upfront investments that might not have worked out. “It looked like last year was going to be a disaster. And it ended up being a really profitable year for us... We really made up for the increased wages with revenues.”
Hasbrouck is clear: He made changes with the intention of making money. He says if you have a great staff, you can take on a lot more business and still not feel overwhelmed. And the food is better and more consistent.
But he also points out that the impact on people’s lives has been striking. One employee told him that this was the first year she didn’t have to shop at Goodwill for her kids’ back-to-school clothes.
Still, Ton is not Pollyanna. And she’s not sure how quickly her ideas will change the marketplace, despite recent shifts at companies like Walmart and Sam’s Club.
“We have generations of leaders who have been taught ― either in business school or in their work experience ― that market pay is the right pay. Lean and mean is what drives efficiency. And they can’t really imagine any other way,” she says.
But leaders may have to imagine another way. We now face shrinking numbers of young workers, swelling ranks of retirees, and ― potentially ― years of labor shortages.
To Ton, the solution is clear: Treat people better, give them more control over their lives, close the income divide. It’s just good business.
Follow Kara Miller @karaemiller.