You Don’t Have To Pay Workers Poorly to Make A Profit

Good news for businesses and employees alike — if they’ll believe it

The New York Times Magazine’s “Work” issue was fascinating from start to finish but the story that stood out to me most, the one that made me pump my fist in the air like Judd Nelson at the end of “The Breakfast Club,” is titled “Cleaning Up.” It’s about how one young but successful company is experimenting with paying its workers better. And not merely its white-collar, college-educated workers, either.

Here’s a description of one of their hirees:

Guillermo Garcia was perplexed by a job opening he heard about. He had been unemployed for six months — unable to find even minimum-wage work — when his counselor at Madison Strategies Group, a job-training-and-placement firm for low-income people in New York City, told him about the office-cleaning jobs that a brand-new company had listed. The company was called Managed by Q, and it was paying $12.50 an hour, or more than 40 percent above the city’s minimum wage. Even more unbelievable, the job offered full health care benefits and a 401(k) plan. …

A few weeks after hearing about the improbable job at Managed by Q, Garcia had it. And today, just over a year later, Garcia’s pay is up to $14.50 an hour, and a remarkable $21.75 when he works overtime, which he does as often as he can. His supervisor is talking to him about a promotion that would come with a higher salary. There are even rumors of stock options. His life has been transformed, almost as if he won the lottery.

The chief executive of Managed by Q, Dan Teran, wants to be clear: His company is not a charity. Its plan is to become enormous and highly profitable.

Say what?

The company pays its staff, like Garcia, considerably more than prevailing market rates not solely because its founders want to be kind to them, but because Teran sees it as crucial to his business model. Teran believes that most American businesses, and especially fast-growing start-ups like Uber, have mistaken short-term gains for long-term value, undercutting the share of revenue that flows to workers in a way that will perversely hurt their bottom line. He believes, even more radically, that decades of rising inequality and stagnant wages in America are not an inevitable byproduct of capitalism; instead, they come from a simple misunderstanding about how best to deploy workers and recognize the value they bring to a company.

When he was starting out, Teran consulted with a woman who was then a VP for global strategy at Starbucks. She encouraged him and gave him a book by an MIT prof called The Good Jobs Strategy full of successful case studies detailing how this counterintuitive way of running a business — in which “workers can become a source of profit instead of just a cost” — can be a boon for everyone.

Managed by Q has awesome employee retention numbers; that probably doesn’t come as a huge surprise. Not having to hire new people all the time saves it money. It also has great client retention numbers, though, because it makes an effort to hire the right people, and those right people serve their clients well. That saves it even more money.

How does Q find the right people? Its strategy harkens back to that of the good CEO we discussed recently on the site who takes potential hires to breakfast to see how they cope when a server screws up their order.

Teran and his team learned that traditional markers of success — education, experience in the industry, recommendations from employers — were not tightly correlated with success at Q. Instead, Teran said, the two crucial personal characteristics are optimism and empathy.

One of Q’s most successful workers, Nancy Gonzalez, is a mom of seven who used to clean in a bakery. At Q, she’s risen through the ranks to become a supervisor. Clients love her; indeed, she’s been so competent and effective that “Gonzalez was central to bringing in an additional $79,000 in revenue per year.”

Q believes that its model — hiring optimistic, empathetic employees, wherever it finds them, and then paying them well — is both scalable and replicable. Whether it is or isn’t over the long-term remains to be seen. Still, it’s an exciting development on the job front, one many people will be watching.

Other pieces worth reading from the same issue: Rethinking the Work-Life Equation,” which points out we should stop striving for “balance” and instead focus on giving all employees flexibility, and “The New Dream Jobs,” which includes FBI and Build-A-Bear on its list of the top 50 employers Millennials reportedly wish they could work for.

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