Humor me, please. Accept a role in my drama.
In this scene, you take the part of entrepreneur. You, in your marketing wisdom, are about to open a fast-food restaurant in the Decatur area. You’re going to compete head-tohead with the big nationals, the Mickey Dees and the Wendy's, and against the locals and regionals, the Krekel's and the UDogs. It's a tough business, but you want in and you’re anxious to carve yourself a profitable niche.
Your restaurant is almost ready. You’ve acquired the space and remodeled it to fit your needs. Construction dust hides the gleaming counters as your dream takes form. The pesky inspectors drop by to check out the joint for compliance with building codes, fire codes, health codes, and a zillion other codes you never knew existed.
A few weeks to go until the soft opening, so you put up the sign in the window: “HELP WANTED.” You place in ad in the Herald & Review, and you list your jobs with the State Employment Service.
The applications trickle in at first, then they turn into a deluge. And now, as you begin to schedule interviews, you’ve got a decision to make.
How much are you going to pay? You gather the facts, and here they are: In Illinois, the minimum wage is $8.25 an hour. And in your industry, the fast-food business, the median wage for all workers is $8.83 an hour.
Armed with this information, what do you decide?
Most likely, you plug the numbers into your spreadsheet and decide to go with the lowest number you can legally get away with, or $8.25 an hour. The vast majority of owners would do the same. You set the cost of labor as low as possible in order to yield some profit and enhance the chances that your restaurant will survive.
Let me tell you about three owners who took a different route. John Pepper, co-founder of Boloco Burritos, starts his workers at $9, which is $1.50 above the minimum wage in most of his region of New England. Randy Garutti, CEO of Shake Shack, offers a base pay of $9.50. And over in Michigan, Henry Moorhouse of the Moo Cluck Moo hamburger joints starts every employee at $15.
What’s wrong with these guys, you ask. Are they complete and total idiots? Why would anybody pay a dime more than they need to for anything? And why pay more for your biggest item – labor? It’s insane, and it violates the basic principles of the free market.
Before we condemn them, let’s listen to their side, OK?
Quoted in the New York Times, burrito baron John Pepper, said this: “If we really wanted our people to care about our culture and care about our customers, we had to show that we cared about them. If we’re talking about building a business that’s successful, but our employees can’t go home and pay their bills, to me that success is a farce.”
The same article quoted Randy Garutti, the shake guy. “The number one reason we pay our team well above the minimum wage is because we believe that if we take care of the team, they will take care of our customers.”
They develop loyalty by demonstrating loyalty. What a concept.
Sounds like they heard all the common complaints about the quality of the work force … you know, how the applicant pool is lazy and unmotivated and unprepared and un-everything. However, these owners wanted to get the best of that pool.
They’ll pay more up front, for sure. But they figure that in the long run, they’ll avoid costs of turnover, and prevent infestations of the customer dissatisfaction that kills retailers.
So rather than paying the same as everyone else, they pay more in order to attract the best workers. It’s possible that they are applying another basic principle of the market: You get what you pay for.