How Much should a Retail Employee earn?

An interesting article by Zeynep Ton on HBR today raises a very important point about what should be adequate compensation for service employees and retail associates in particular. The link to what we have discussed yesterday commenting the Business Roundtable new view on corporate purpose.

The call to pay people more, but also to create more “good jobs” is especially valid in retail. It’s true that by looking at the hard facts of a store P&L, labour cost is one of the most significant cost factors in retail, which leads too often to all possible efforts to cut and contain this line of the budget. But the reality is that without creating an investment mentality on store associates (i.e. pay more to get more), retailers will not succeed especially in the wake of Digital Transformation affecting the business.

Traditional approaches have led retail to pay too often just minimum wages, but also creating a lot of other negative effects with low minimum contracted hours, requests for high flexibility, no real career prospects.

These workers struggle to pay for basic necessities like rent and health care and are rarely able to save for retirement or emergencies — even a new car battery. Many have unstable schedules, affecting not only their income but also their children’s education and their family’s healthcare. Many are assumed by their employers to be, as one retail worker told me, “a dime a dozen, just human robots.”

Zeynep Ton – Service jobs should be – and can be – middle class jobs

The article reports some interesting numbers from the US. But also in. Europe we can track some very interesting data. About 17,2% of employees in the EU is defined as “low wage earner”, and most of these belong to Service jobs. For sure, total labour cost pays an important aspect in defining the weight of labour on retail performance, but overall we still see a lot of issues in this domain, especially in countries like the UK, and in the largest cities. Where Retail is more developed and relevant, paradoxically salaries don’t even reach the “living standard” level due to the costs of large cities.

The key point here is that many retailers are not putting enough focus on this. Too many spread words about the importance of consumer-facing roles, but this rarely translates into focused actions.

What should Retail Employee Compensation take into consideration?

I doubt we can identify a one size-fits-all answer to what is the correct salary. But I think whatever policy we adopt needs to answer 4 key dimensions:

1. Salary needs to allow employees to afford a living, aligned to their age and living necessities. Too often some retailers reason that part-time jobs can be underpaid simply because they’re students who don’t need to make a living out of it. But reality shows that in many countries most retail employees do need to make a living out of their retail job.
2. Salary needs to cover for additional flexibility required. Retail needs flexibility, but this needs to be fairly compensated because otherwise, it becomes a new burden for the person. Each company needs to find a way to balance flexibility and employees needs through appropriate rewards policies if needed.
3. Perks are fine but are not the final answer. The retail population is typically very variegated, geographically dispersed, differentiated. Many perks that can make sense for office jobs are either impractical in a store environment or do not make sense to all. That’s why some time is best to translate them in salary where possible.
4. Make sure incentives are consistent. Variable is an important tool to ensure that labour cost is somewhat linked to results. However, it is really important that incentive systems are aligned to the Customer Journey the brand wants to represent. Else too quickly targets become unreachable, and the motivating element disappears or becomes even detrimental.

Is all this just a dream? Quite some brands are proving the opposite, and showing that increases wages are good for the business also in Retail, as they drive better customer satisfaction.

Just treating workers better, however, will not boost a company’s competitiveness. This is an important first step, however, we need to consider also that a radically different operating system is needed. One designed to better serve customers’ needs and increase workers’ productivity, motivation, and overall contributions across multiple dimensions, including Retail Employee Compensation.