To balance the books and grow your business year over year, you need to make savvy investments and cut costs wherever you can. Some unnecessary expenses are easy to identify and eliminate: replacing your landline with VoIP technology, for instance, will save you money.

What about wages, though? Will your business expenses decrease if you pay employees less? On the face of it, the answer seems obvious. Dig a little deeper, however, and you’ll find that paradoxically, paying your people less might actually cost you more in the long run.

When companies pay workers more than market rate, everybody wins. Read on to learn five ways higher wages could boost your bottom line.

Ready to learn more about how higher salaries impact employee retention and improve profits? Read why paying higher than minimum wage is good for your business.

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5 reasons to pay your employees more than market rates

Paying your employees more than market rates could help your organization succeed. When workers stay long term, hiring costs diminish; meanwhile, better working relationships promote greater innovation.

increase retention and loyalty

Low wages cause high staff turnover. People who can’t afford gas or who don’t have enough money to pay for public transport skip work more often, driving absenteeism up across the board. Workers who feel unappreciated and underpaid look elsewhere for more lucrative employment opportunities.

Workers who leave in search of better wages leave vacancies behind. Their original employers have to hire, onboard and train new employees. According to Manulife Financial senior strategist Stacey Grant-Thompson, workers cost as much as 40% of their yearly salaries to replace. Using the average Canadian salary as a benchmark, that adds up to about $18,000 per person.

When companies raise wages, they improve morale and make it easier for workers to get by. Employees who feel taken care of aren’t as likely to leave. Lower turnover means less money spent on recruitment and related expenses.

increase profitability 

Companies tend to pay workers less in the face of an economic crisis. During the coronavirus pandemic, many businesses froze — or even cut — salaries to make ends meet. Some companies, like Greek yoghurt manufacturer Chobani, chose to raise wages instead. More than 70% of Chobani’s hourly employees saw the benefits of a $15 minimum wage in Q1 2021, and Chobani’s profits went up.

Before you raise wages, perform a thorough financial inventory of your company. If you plan to make a $20,000 profit but you also want to raise wages, you might have to increase the retail cost of your end product or service, for instance. Take into account your existing staff turnover and related recruitment costs, both of which could diminish if you boost pay.

promote a sense of shared success 

Employees respond favourably to financial incentives. Better wages, profit sharing and other money-related perks make people feel more optimistic — and they promote a sense of shared success, which ties into meaning. People who find their jobs meaningful engage deeply at work, and when employees feel engaged and satisfied, they perform better.

When workers feel good about the work they do — and when they’re well compensated for it — they stay loyal to their employers. The more people care about your organization, the more likely you are to achieve your long-term goals.

Discover which positions demand higher salaries to attract and retain top talent. Check out our article on finding and landing highly skilled employees with better pay.

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enhance your branding as an employer

Let’s revisit Chobani for a moment. Chobani’s company-wide minimum wage increase made a positive impact both on and off the factory floor. Already a revered industry leader, Chobani cemented its “good guy” reputation when it made the decision to pay more.

In 2014, Chobani implemented a refugee-friendly employment policy. Now, 30% of the workforce at Chobani are immigrants or displaced people, including asylum seekers and refugees. Many Canadian companies are similarly reliant on immigrant labour; when they invest in the people they employ, consumers notice.

increase productivity and innovation 

When workers feel appreciated, they work harder and take pride in their jobs. English economist Alfred Marshall first described this phenomenon at the beginning of the 20th century when he coined the term “efficiency wage theory”. Efficiency wage theory advocates that when people are paid more, they’re more productive.

In the efficiency wage theory model, people work hard because they don’t want to lose their well-paid jobs. The more they get paid, the more determined they become to impress their employers. Wage-based rewards kindle goodwill; workers need less supervision and achieve higher quality results. Innovation increases — and overall costs decrease.

real-world success

Real-world examples of wage-based success abound — take the legendary rivalry between Sam’s Club and Costco, for example. Both companies operate a membership-only warehouse model. Costco pays its employees at least $17 an hour. In contrast, Sam’s Club employees reportedly earn just over $10 an hour.

Better wages and more generous benefits packages at Costco translate into much lower turnover — 6% after a year, versus Sam’s Club’s 44% — and less shrink. The result? In spite of Walmart’s industry dominance, Sam’s Club comes in second place behind Costco from a profit perspective every single year.

talk to an expert about salary trends

Intrigued by how you can raise employee salaries and still grow your business? Schedule a meeting with a Randstad consultant to learn more.

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