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Leveraging a Low-wage Work Force

January 1, 1995
Bill Chickering has heard all the complaints about how difficult it is to manage a low-skill, low-wage work force. He has heard human resources professionals grumble about the lack of motivation and dependability—and what an enormous toll it takes on productivity. But the director of employee relations for Benton Harbor, Michigan-based Whirlpool Corp. doesn't buy the sob stories. He admits that building a solid and dependable low-wage labor force takes work, but guarantees that "once an organization is able to develop its human resources, it's possible to unleash workers' brainpower and enthusiasm in ways that might not ever be imagined."

Chickering speaks from experience. Whirlpool, a $7.5 billion company that sells appliances in 120 markets worldwide, employs hourly workers in dozens of locations throughout the United States. During the last six years, the company has grown 85%, while reducing turnover and increasing productivity. How? Partly by giving its low-wage workers—everyone from assemblers to janitors—a major stake in running the company.

Whirlpool does this through a stock purchase plan and gain-sharing. The latter encourages workers to view the plant they work in as their own and find ways to cut costs because the dividend goes straight to their pocketbooks at the end of the year. There's also GED programs, college tuition reimbursement programs and ongoing training. And, perhaps most important of all, there's an overall recognition that line employees have valuable insights and knowledge that can help the company operate more efficiently. Hourly employees serve on hiring teams; they even work alongside top executives as part of strategic groups to help decide where factories should be located and how work should be processed and distributed.

"If you expect a lot out of a work force, if you create realistic ways to get people involved and not just repeat hackneyed cliches, there are tremendous opportunities," says Chickering. "The notion that the company would like to tap into the opinions and knowledge of its hourly work force is often met with skepticism. But once you can demonstrate over time the commitment to such a philosophy, the transformation is remarkable."

Whirlpool is among a growing number of companies discovering the changing dynamics of the U.S. labor pool, and the need to adjust their HR practices accordingly. These companies see the need for HR to structure pay and policies to build a powerful low-wage work force. They must attract, retain and promote good workers. And, perhaps most importantly, they need to work with top management to fashion an organization that's both solid and nimble. Says Donna Klein, director of work/life programs at Washington, D.C.-based Marriott International: "It's a far more complex issue today than it has been at any point in the past. However, the companies that can manage their low-wage work force well are in a position to reap tremendous rewards."

The low-wage labor pool swells as society changes.
Today, as the world economy grows more complex and intertwined, many jobs are being exported overseas—leaving vast numbers of the unskilled and uneducated clamoring for whatever work they can find. Meanwhile, wave after wave of immigrants—both legal and illegal—are flowing into the United States, many of whom are willing to work for rock-bottom wages.

In addition, society is changing from an industrial-based economy to a service economy, fundamentally changing the very nature of work. As better paying manufacturing jobs vanish with each round of layoffs and corporate downsizings, lower-wage jobs in restaurants, hotels and retailing flourish. According to the San Francisco Federal Reserve Bank, the service sector is expanding at a robust 18% annual clip. And the Bureau of Labor Statistics reports that since 1980, the service sector has expanded by 18.8 million jobs.

In many cases, these service jobs pay far lower wages than comparable unskilled jobs in the manufacturing sector. For example, the most recent figures available from the Federal Reserve Bank of Cleveland show that the lowest 10th percentile of the service sector earned only $212 a week in 1992, compared to $231 in the manufacturing sector. That translates into $1,000 a year less for service workers. "There's a tremendous drive to increase productivity and lower costs—and in many instances the only variable is labor costs," says Fred K. Foulkes, director of the Human Resources Policy Institute and a professor of management policy at Boston University.

Glance at statistics and you begin to understand the impact. According to the U.S. Census Bureau, almost one-fifth of America's full-time workers receive what the government considers low pay—less than $13,091 a year. Among 35 to 54 year-olds, the percentage of low-wage workers grew from 9.9% in 1979 to 13.3% in 1983. Among the younger labor pool, the trend is even more pronounced. Those in the 18 to 24-year old age group, for example, have watched the numbers grow from 22.9% to 47.1% during the last 14 years.

However, many economists insist that government numbers don't tell the entire story. Examine the minimum wage work force—those who earn roughly $8,500 a year full-time—and it's obvious that the labor picture is even worse. Traditionally, Congress has set the federal minimum wage at roughly 50% of the average manufacturing wage. Today, however, the figure hovers at 40%, and is in danger of falling into the high 30s. "It's a trend that can't be ignored," says Foulkes.

That has many deeply concerned. Edward N. Luttwak, director of Geo-Economics at the Washington, D.C.-based Center for Strategic and International Studies, believes that America could become a Third World country by 2020. He points out that in 1970, the nation's GNP was $4,950 per person, while Japan was only $1,950. Two decades later, the U.S. GNP was $21,000 per person, while Japan had soared to $23,810. And by the year 2000, Japan is projected to double the GNP per person of the United States. Of course, many find the notion that the United States could suffer such a fate unbelievable. But Luttwak says that one only needs to look at Argentina for proof it can happen. A wealthy nation in the 1950s, this country has suffered a 40-year slide into poverty.

Adds Allen Scott, director of the Lewis Center for Regional Policy Studies at the University of California at Los Angeles: "Many areas—particularly America's cities—have become vast pools for unskilled workers. It's creating Third World conditions, and changing the responsibilities and challenges for companies and society."

The issues stretch far beyond dollar figures on the corporate balance sheet. Not only do many of these low-wage workers require ongoing training to compensate for a lack of education and language skills, they embrace cultural and social practices that are fundamentally different than those professed by the vast majority of America's work force. Getting them to believe in the corporate culture can be difficult, but failure to do so often results in unacceptable levels of turnover (as high as 80% to 100% a year in industries such as fast food), low worker morale and a general deterioration of the very service that's the cornerstone of many firms that employ low-wage workers.

High turnover prompts scrutiny of selection processes.
To address the issues faced when depending on a low-wage work force, many companies are re-examining how they hire, train and reward employees. "Companies are far more selective in hiring because they're recognizing the high cost of recruiting, retraining and turnover," says Janet Fuersich, director of compensation consulting for New York City-based Coopers & Lybrand.

But finding educated, literate and dependable workers—especially in urban areas—is becoming a formidable challenge. "There's a need to find people who have enough education and ability to function well on the job—so they're often having to pay higher than minimum wage."

At many fast food firms in urban areas, for example, it's now necessary to pay entry-level workers $6 to $6.50 an hour—nearly $2 above minimum wage. Manufacturing jobs—union and non-union—often translate into an $8 to $12-an-hour wage. "The Federal minimum wage is a floor. But many organizations find that to attract and keep their labor category's best and brightest, they must pay a higher wage," says Fuersich. "And there's often a shortage. That's one reason why you see more senior citizens taking work in fast food restaurants, retail stores and banks."

Adjusting salary alone isn't enough, however. That's why Chicago-based Sears Roebuck & Co. has scrutinized its HR practices. Sears, with more than 800 stores and 360,000 associates located throughout the nation, has worked during the last few years to construct standardized systems for hiring, retaining and promoting its employees. Although it's built a stable work force in some areas, it suffers from chronic turnover in others.

The hiring process serves as the foundation for the company's strategy. Sears now requires department managers—the people responsible for hiring virtually all associates—to adhere to a standardized interviewing process, which requires ongoing training and thorough documentation.

In addition, the stores also use paper and pencil testing for determining dependability. "We're moving toward more testing, especially in the area of customer-service orientation," says Sally Hartmann, manager of measurement and assessment systems in the firm's national HR office. "We're trying to do a better job of selecting applicants. We realize it's crucial to think about the job requirements, ask the right questions and listen closely to the answers."

Making sure that prospective employees understand what the job is all about has also become a priority. "It's important to hire the right people in the first place," Hartmann says, "but it's also vital to give them, before they accept a job, a realistic job preview about what they can expect. That means talking to them about the job, the hours, the scheduling, the unpredictability and the need to be flexible. They must understand that they're going to have to pitch in and straighten up, even if they've been hired to sell. Reducing turnover begins with recruiting and hiring."

Sears expects that some turnover is inevitable. A certain amount actually is desirable. The very nature of the corporate pyramid is to weed out those who are less than committed to the company or don't fit in on a long-term basis. Some observers argue that certain industries—particularly fast food—thrive in a high-turnover environment because new employees can be trained in a matter of minutes or hours and paid lower wages than long-term employees. Nevertheless, experts say that one of the most distressing problems for a company is to lose solid, dependable workers for the wrong reasons.

Says Sears' Hartmann: "Ultimately, if we have a college student work for us for four years and then leave to become an engineer, then we view it as a wonderful partnership. However, if an associate graduates with a degree in fashion merchandising and then goes to work somewhere else, then we have really missed the boat. It's important to identify those who have management potential and get them on the right track." But Hartmann also admits that associates sometimes "fire" Sears. "If they're a good employee and they leave to make 25 cents-an-hour more down the street, then we've failed."

Sears now looks closely at why workers stay and why they leave, and has created a turnover management kit, which helps store managers access data from their own computers that gives them ideas on how to reduce turnover. Exit surveys that provide analysis and insight into why employees are leaving also have become part of the picture. "Overall, we know how costly turnover is in dollars from an HR and companywide perspective. But it also has tremendous costs in terms of customer perceptions and morale in the stores. So, there's no way to attach a specific dollar amount," says Hartmann.

Profit sharing and employee involvement foster loyalty.
Part of the reason low-wage workers leave a company is that they lack motivation to view their job as a career opportunity. They see little or no reason to buy into the corporate philosophy that management faithfully and doggedly espouses. In many instances—particularly in large cities—hourly employees feel little loyalty to their employer. They often jump at the opportunity to change jobs and earn 25 cents-an-hour more someplace else.

In response, companies must find ways to make their low-wage workers feel part of a cohesive corporate culture from day one. Sears assigns each new sales associate a buddy, who can answer questions and help the newcomer learn the ropes. Departments and entire stores also plan picnics, softball teams and other events to help build stronger bonds and encourage new workers to get to know their peers.

Sears also makes a commitment to ensuring that low-wage workers have opportunities for advancement and growth. New sales associates receive 12 hours of training that the company tries to make fun and entertaining with the use of such techniques as videos and interactive exercises.

Whenever possible, Sears prefers to promote from within. Not only do associates understand the nuances and realities of what goes on inside the stores, they often display great loyalty. "They know Sears from the bottom up. They know the customers; they're aware of what they like and dislike in a manager, and they understand what it takes to motivate people who work on the floor," says Hartmann. In fact, Sears recently has been focusing on making sure its most qualified associates get channeled into regional training programs, where they receive classroom instruction and mentoring. Then, they're slotted into management positions as they become available.

"America's cities have become vast pools of unskilled workers, creating Third World conditions, and changing companies' responsibilities and challenges."

Irvine, California-based Taco Bell Corp., an independent division of Purchase, New York-based PepsiCo Inc., embraces a similar approach. Says Dave Pace, vice president of human resources: "We try very hard to develop people through the system. We have people who started in entry-level positions and now are store managers, even assistant general managers running as many as 30 units. In many cases, the talent and initiative are there. It's simply a matter of giving people an opportunity to grow within the organization."

According to Pace, the greatest undertaking for this fast-food chain, which operates 3,500 company-owned Mexican restaurants in the United States, is distinguishing itself from the rest of the burger and burrito pack. "The challenge," explains Pace, "is to become the employer of choice. Essentially, everyone in the industry is competing for the same labor pool." Because Taco Bell's "Value Menu" features ultra low-price items, which translates into razor-thin profit margins and an increased need to control labor costs, keeping low-wage workers is particularly important.

However, Taco Bell has cultivated a strong hourly work force by giving employees greater responsibility and allowing them to make decisions on their own. In most cases, crews are trained to open and close restaurants without a manager present, are allowed to handle cash and make bank deposits, and have responsibility to accept deliveries, manage inventory and even order food and supplies. "They're able to handle a lot of duties that would traditionally be considered the responsibility of a manager," Pace explains.

Besides making the work environment challenging, the company tries to make it exciting—and profitable. It offers an automatic stock option program for workers who have been at the company at least a year, and it has introduced monetary incentives to stores that meet key business benchmarks. That can add as much as 25 cents an hour to an employee's pay during a specific month. More importantly, says Pace, it's a way for store employees to identify with "what we're trying to achieve from a business standpoint and receive a reward when they're able to hit the goals."

Whirlpool shares this philosophy of involving and rewarding hourly workers. In the mid- 1980s, the firm realized it had to redesign its workflow and HR policies to compete in an increasingly global environment. So it began systematically revamping work processes and its basic mindset. Whirlpool began inviting line employees to serve on hiring teams, and to travel with top executives to new plants so that the company could gain a broader perspective on production and labor issues.

The program has worked smoothly—with human resources providing training in interviewing and other personnel issues. "Not only do line employees know what it takes to do the job well, they're suddenly accountable for the quality of the workers they hire," says Chickering. And at Whirlpool, that's an issue everyone takes seriously. The company's gain-sharing program transforms each manufacturing plant into its own business. By reaching specific benchmarks and finding ways to operate more efficiently, the company and employees share in the profits. That can often translate into a $2,000 to $3,000 annual bonus [see "Whirlpool Strives To Build a Performance-based Strategy"].

But Whirlpool's program doesn't stop there. The company also places line employees on strategic teams that help make key business decisions for facilities nationally and abroad. The workers—some earning $12 an hour—serve alongside top managers and executives, and even travel overseas. "We want them to feel and act like equal partners in determining the company's future," Chickering says. "They may simply be assembling a part, but they know a lot more about how it can be done quickly and efficiently—and at a lower cost—than managers who sit in an office and crunch numbers."

Winning over the trust of low-wage workers has been no easy task. Many employees simply don't believe that the company means what it says. They often view the introduction of such programs and policies as nothing more than a ploy to keep them placated. But what Whirlpool has learned is that "skepticism doesn't necessarily mean resistance, it may simply mean that they don't know what's involved, what's expected of them and how they can contribute," explains T.R. Reid, the firm's manager of financial communications. "Everyone has to understand that there's a learning curve and you aren't going to remake the company overnight."

Ultimately, adds Chickering, the company runs far more efficiently. "The more you cut down the barriers between exempt and non-exempt workers, the better the communication and the more everyone sees the big picture. No longer do workers check their brains at the door and figure that problems are someone else's to deal with. Suddenly, they're enthusiastic and involved. They're truly a human resource."

Personal support increases productivity potential.
Certainly, reducing turnover and eliminating low productivity isn't easy. Comprehensive approaches like those at Taco Bell and Whirlpool are a start, but often aren't enough by themselves. As a result, many companies now are taking a far more holistic approach. They're getting involved in their employees' lives and helping resolve personal problems that can spill over into work.

Marriott is a prime example of how a company can overcome tough challenges that extend beyond low income. Marriott's product is largely its high standard of service, and all of the brainpower and management savvy in the world isn't going to spell success at individual hotels without additional people support. "We have a high regard for our associates," Klein says. "We understand that these are the people who deliver the product—it isn't the manager or the executive at headquarters." With personnel speaking 26 different languages and many employees less than familiar with U.S. customs and practices, there's plenty of room for glitches. A clerk unfamiliar with U.S. social practices, for example, may inadvertently brush a customer off, or a housekeeper might not come to work because of a personal problem.

As a result, Marriott has created a series of programs for both managers and associates. Today, managers at the hotels receive extensive instruction on hiring techniques. In addition, many locations include customer and associate sensitivity training and teach about specific cultural practices. "It's more than timesheets and payroll. It's as much about the art of managing as the skill," says Klein. Meanwhile, associates are placed in a detailed orientation program and then offered ongoing training and instruction in a wide array of areas—from interfacing with customers to balancing work and personal issues.

The centerpiece of Marriott's approach is its work-life program. It's something that, according to Klein, "focuses on the breadth of an employee's life rather than just basic family issues." Indeed, the company now provides ongoing educational programs on relationships, child care, elder care and legal issues. It offers a pilot hotline in Florida with trained representatives who can answer questions on a wide range of topics—including immigration, child care, education and housing—in Spanish, French and Creole.

It's a program that has made a major impact on Marriott's low-income work force. Employees who otherwise would miss work—or leave the company—because they don't understand the bureaucracy or complexity of the U.S. system, are able to resolve their problems. Not surprisingly, that has led to a boost in productivity—particularly for managers who find themselves with 25% to 50% more time on their hands now that they're free from counseling associates. Ultimately, says Klein, "the better employees are able to manage their lives, the better they're able to serve our customers."

Other companies have evolved toward a work-life approach as well. Seattle-based SeaFirst Bank, which operates 271 branches in the Pacific Northwest, provides a plethora of services: free or reduced cost banking; tuition reimbursement; English classes; career counseling; a discovery center where employees can improve skills needed to move up in the organization; child care, including provisions for sick children; a fitness center; and a wide array of social events.

SeaFirst also has established a variety of employee-recognition programs. It has staff excellence awards—cash bonuses of $475 to $7,500 for exceptional employees; a ThinkFirst program that rewards innovative ideas with cash incentives of $25 to $25,000; a "Teller Hall of Fame," and an "Employee of the Quarter" award.

The philosophy has been successful. SeaFirst's 1993 turnover rate was 19%, compared to the 22% average for businesses in the entire state of Washington. More importantly, the company has consistently ranked among the top 20 employers in the state, according to Washington CEO Magazine. Says Vicki Rohr, work, home and health coordinator for SeaFirst: "Today, as a company, you have to ask, 'How do we motivate people? How do we make them feel that they're an important part of the team? How do we maintain an hourly work force so that we're better positioned for high performance?' The cost of operating the programs is an investment—and one that generally pays huge dividends."

Understanding the dynamics of the work force is key.
There's no doubt that a low-wage work force presents unique challenges for human resources. Fred Foulkes believes that HR has a particularly tough role in balancing company and worker interests. "On the one hand, HR is striving to become a business partner that plays an important role in corporate decisions—and that can often mean keeping wages and costs down. However, HR also thinks of itself—and has been traditionally viewed—as a representative or advocate of employees. And that can present a huge conflict."

He and other experts say that it's essential for top management and HR to work side by side to re-examine company policies and practices, implement new programs that accomplish their intended goals, and learn to balance issues to create a stable work environment—one in which low-wage workers can feel valuable and important, and where the company can thrive while facing low-profit margins and growing competition.

But it's also necessary to thoroughly understand the subtlety and diversity of today's workplace. And that means more than just creating specific programs and communicating with hourly workers. It's about understanding who the firm's work force is and what kind of environment it needs to thrive. For example, Coopers & Lybrand's Fuersich notes that in regions of the nation that have large concentrations of Hispanics—including Florida, New York, and Los Angeles—the social aspects of work are vital. As a result, it's necessary to create an environment where employees feel they're working together and can share common goals. Says Fuersich: "No matter what collar a work force wears, it's crucial to understand them so that they can perform work to their potential."

Foulkes echoes the sentiments. He also believes that a lower-wage work force is only as good as the managers and supervisors who oversee them. The habits and attitudes of management go a long way toward determining the success or failure of an organization. These individuals must know how to deal with the problems and idiosyncrasies of low-wage workers—many of whom have entirely different value systems—and they must understand what it takes to motivate and retain them. Moreover, "Many companies don't understand that high turnover and poor training among entry-level managers can be devastating. They're often the thread that holds low-wage work forces together."

In the end, by giving workers the respect and credibility they deserve, and by listening to them and taking what they have to say seriously, a company can eliminate many of its most difficult problems. "Fundamental values ultimately get transferred from a company to its work force," Foulkes remarks. "There's no shortage of firms that depend largely—if not entirely—on lower-wage workers and manage to thrive."

Personnel Journal, January 1995, Vol. 74, No. 1, pp. 90-102.