A 48% PAY RAISE
Steven Cesare, Ph.D.
A hustling business owner from Massachusetts called me the other day to talk about a job offer his Mechanic received from a competitor. Not surprising. Landscapers experience this event often, especially in this economy. Paradoxically, it is a compliment that your company has employee talent desired by peers, though it impacts the annual budget and related salary scales, leads to revised production rates relative to increased pay, with tacit effects on the company culture related to altering internal pay equity levels.
The owner told me the Mechanic was a C+ performer, possessing a basic skill set, though lacking a positive attitude, sense of urgency, and pride in workmanship. The Mechanic was making $29.00 per hour; a wage rate well within the standard nation-wide Mechanic pay range of $27.00 – $33.00 per hour.
The job offer letter presented the Mechanic with a starting pay of $43.00 per hour.
Do the math.
What number did you get?
Me too. 48%.
In general, the minimum pay increase for an employee to leave a company is 15%. As a capitalist, I’m glad the Mechanic will receive more pay, though I doubt the long-term ROI to his new employer. That’s a lot of money to absorb as an Indirect Expense on any P&L Statement (e.g., burden, overtime, future pay raises)!
First, the business owner and I agreed that a wage rate of $43.00 per hour is well beyond the “normal” local labor rate, especially for an indirect budget expense. Following from that cost containment premise, I recommended to not provide a counter offer. Next, the business owner and I then engaged in an extensive, deep discussion addressing myriad factors to be considered, under the pretense of knowing this issue will inevitably present itself again for other employees very soon. We had to prepare; we have to be ready.
That hypothetical new benchmark wage would have sent a permanent, seismic ripple effect throughout the field departments prompting every Laborer, Foreman, and Irrigator to demand a comparable pay raise, or seek employment elsewhere, or even worse, feel disenfranchised to the point where they would diminish their current work ethic resulting in a decrement to the company’s invaluable Revenue per Employee metric.
Similarly, the business owner and I identified the derivative impact on how potential field employees’ pay adjustments would affect production rates necessary to offset the increased pay scales, which in turn force adaptive changes to work crew billable hourly rates, proposed gross margin expectations, sales proposal capture rates, change order and enhancement goals, and ultimately net profit.
Looking forward, the business owner and I decided to rank order all field employees based on their current job performance and anticipated job potential levels, in so doing creating a practical decision-making matrix to target higher pay rates when requested by exemplary employees, rather than distributing unnecessary, disproportionate pay increases to lower-quality employees who inevitably attempt to hold the company hostage by threatening to resign their position unless their fulsome pay demands are satisfied.
We also agreed to raise the pay of the successor Mechanic to between $30-$34 per hour, in conjunction with noticeably elevated and accelerated daily and weekly performance expectations (e.g., preventive maintenance, repairs, quality, additional duties) to preserve commensurate productivity value (i.e., ROI).
Be ready. A similar situation will soon happen to you and your company. You know it will.
While I believe the Mechanic made a good decision for himself on a short-term basis, I know the business owner made the optimal decision for his company across multiple levels and a longer-term timeframe.
We have to be ready.
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