They’ve experienced poor performers and refuse to believe you can get average people to be more productive.
They’re also unwilling to set higher standards for fear they won’t get anyone to work for them.
Contrary to this belief, setting high standards is exactly what’s required to attract and retain A-players.
Netflix, culture includes: “One outstanding employee gets more done and costs less than two adequate employees. We endeavor to have only outstanding employees.”
Wouldn’t you want to work for a company where you are considered an outstanding employee?
This attitude reflects leadership’s understanding of the growth mindset. Setting higher standards requires more work. It means preparing training schedules, mentoring, and learning opportunities. It establishes a path for greater opportunity, pay increases, and discovery for personal fulfillment.
Few companies willing invest to develop their people. They fail to see how this differentiates them to achieve consistent growth.
MIT professor Zeynep Ton calls this virtuous circle the Good Jobs Strategy. Four retail companies (Costco, Mercadona, QuickTrip, and Trader Joe’s) she shares use compensation as a strategic lever to achieve this.
These companies pay significantly higher salaries than their competitors. Despite this practice, they enjoy lower labor costs and higher profits because these investments in people create a culture and behaviors customers appreciate.
This differentiates their firms in the market.
As Verne explains, “Mercadona’s success story began in the 80s when co-founder and CEO Juan Roig implemented a counter-strategy to prevent the entry of large French competitors into the Spanish market.”
People Are Not a Cost; They Are an Investment
Roig’s strategy lowered prices and increased salaries to attract more customers and better talent. It took some years to get the flywheel going. The higher salaries (double the Spanish minimum salary and 50 percent above the fashion retailer Zara) and a rigorous selection process put the very best talent at the company’s disposition.
Employees receive intensive tutoring from experienced specialists. Employees are kept happy with regular salary increases (11 percent in each of the first four years), generous bonus payments of up to two monthly salaries, 30 vacation days, stable and family-friendly schedules.
As a result of these investments, highly talented, motivated, well-trained, and loyal people (the company only has 3-4 percent turnover!)
They deliver far higher productivity (46 percent higher sales per employee than the average US supermarket) and are empowered to suggest and implement improvements continually.
Mercadona set this flywheel in motion more than 40 years ago, and it is spinning ever faster. The company generated $25 billion in revenue and $623 million in profit in 2019. It is Spain’s largest and most profitable chain and beats Walmart by a factor of 3x. (See recent chart of success)
Labor Productivity
“Worry about what people do, not what they cost,” writes Jeffrey Pfeffer in his classic HBR article Six Dangerous Myths about Pay.
Mercadona isn’t alone in using this approach. Costco’s salaries are 30-40 percent higher than Sam’s Club, yet, Costco is more profitable and grows faster.
Henry Ford did the same thing (see Change: Was Henry Ford Veiled Topgrader?) Goldman Sachs applies the same approach, paying its employees an average compensation package almost twice as big as the competition.
To create an environment where everyone is inspired to give their best, contact Positioning Systems today to schedule a free exploratory meeting.
Growth demands Strategic Discipline.
Discipline sustains momentum, over a long period of time, laying the foundations for lasting endurance.
Meeting Rhythms achieve a disciplined focus on performance metrics to drive growth.
Let Positioning Systems help your business achieve these outcomes on the Four most Important Decisions your business faces:
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PEOPLE |
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STRATEGY |
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EXECUTION |
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CASH |
Positioning Systems helps mid-sized ($5M - $250M) business Scale-UP. We align your business to focus on Your One Thing! Contact dwick@positioningsystems.com to Scale Up your business! Take our Four Decisions Needs Assessment to discover how your business measures against other Scaled Up companies. We’ll contact you.
NEXT BLOG – Tackling the Current Employee Acquisition Problem
Even before COVID, finding employees was challenging. The pandemic only exacerbated and sped up the tightness of finding employees. Next blog will explore how one company attracts and retains employees, and why culture, compensation, and a long-term approach are the best solution.