How to give a pay raise you can take back

Being a man with a business mind and, at the same time being fascinated with the way that other industries operate and all the while being a huge Red Sox fan, I at times found it puzzling why baseball players command such high salaries.  Studying this over the years, I have learned that it is a good investment for ball club owners to pay huge salaries.  Frankly, no one would ever pay a player if there wasn’t a tangible ROI (return on investment).  True, in some markets, ROI is impossible because there are not enough customers.  Still, whatever the salary, an ROI is expected.  It would frustrate me greatly when a player having a banner year asks for a raise, gets it and then performs poorly.  Don’t you think that pay should be performance based?  It will not likely ever be such in professional baseball, but can we make it that way in our shirt laundry?  I think so.  I came up with a strategy that I call “How to give a pay raise that you can take back.”

Certain states, like California, can only dream about things like this, sadly.  And union shops rarely have flexibility to pay based on merit, but many plants can benefit from these ideas.

I remember a very hard working young man in my employee many years ago.  I’ll call him Willie.  Back then, my company was somewhere in between 1 shift and two.  That means that I did not have the volume to have 2 eight hour shifts, or even and 8 and a 4.  And my staff wasn’t interested in splitting 10 hour days 50/50 with another group.  Therefore the only solution was to work the staff that I had.  That’s a euphemism for long hours and overtime wages.  All the while, we had to build sales to the point that we could run two shifts, or at least a shift and a half.  Anyhow, Willie was a workhorse.  For months, he was at his press station every single minute that my plant was operating.  This meant he worked two 14-hour days, a 10-hour day, and a pair of short 8-hour days.  He never complained.  He never missed a day.  He played well with others.  Truly a model employee.  One day, during a moment of unprecedented generosity, I called him to my office and after basically giving him a very positive performance review, I gave him a one dollar per hour raise.  This was a very large increase.  I don’t think I had ever given such a raise before or since. 

So what did I get for it?  He started calling in sick on Thursdays.  “Who’s dumber than me?”, I thought.  To say that I was disappointed is the quintessential understatement.  I guess that Willie was satisfied with his pay prior to his raise and now saw that he could work 4 days and make the same pay as when he worked 5 days.  I never saw this coming.  I was floored.  His absenteeism led to his termination, but I felt like I had ruined a perfectly good employee.  I wanted to undo it all, but that wasn’t going to happen.  What I needed to do was to come up with a way to give a raise that I can take back.

We try to come up with ways that protect us from experiences like the one that I had.  Often, piece work seems to be the obvious path to follow.  This is not always the right way to go.  This is because shirt pressing is not manufacturing.  If my job is to make shirts and I can go twice as fast, I’ll make twice the money in the same amount of time because the number of shirts that I can make is (virtually) limitless.  When my job is to press shirts, if I go twice as fast, I’ll either make half as much money (in the case of hourly wages) or simply be finished earlier for the same pay if “piece pay” is the rule.  The wonderment may set in: “Why should I break my back to work so fast?”  When pressing shirts, the number of shirts is finite.  You don’t know exactly what that number is, but pressing faster isn’t going to make more shirts in need of pressing appear.  Piece work however, does work better when there are two equal shirt units.  In that case, two pressers may vie for the lion’s share of the available shirts. 

I wanted to dangle a carrot that was attractive enough to be a sufficient motivator.  If it was, indeed, a raise that I could undo, not giving it would be just as bad as getting the increase was good.  The penalty would fit the crime, so to speak.  If doing something is worth, say, 50 cents per hour, then not doing the same thing should be worth negative 50 cents per hour.  I eventually came up with something that worked almost perfectly.

Paul was a shirt presser that had worked for me for at least a couple of years.  He was great.  When he was running the body press, I had no need to worry about productivity or quality.  He was always on the mark.  Well, almost.  When he wasn’t in due to “illness” I suffered.  There were times during my growth that he had to be replaced by me at the press station.  While it was always good to keep in practice, pressing shirts that day caused other administrative tasks to take a back seat.  This was rarely convenient.  The thing about Paul was that when he was in, I would rate him a 10 on a scale of 1 to 10, when he was out, he was a zero.  Although his absence wasn’t usual, it also wasn’t an annual occurrence.   I’d guess that it was something that happened 1-3 times per month.  Interestingly, he is the one that urged me to implement an attendance policy.  He shared with me the policy of a major local employer for whom he once worked.   During a 12 month period –  three missed days, an oral warning; three more, a written one, three more lead to an automatic 1 week suspension and three more were the last three.

Well, the attendance policy was good to have, but it wasn’t going to fix Paul’s alcoholism.  You see, that’s why every few Mondays, Paul would call me with remorse already in his voice, minutes before his shift was to start.  The key was that when Paul was in, he was really great, not just average.

Then came my brainstorm.  At the time, Paul made $6.10 per hour. (this was in the 1990’s but is still very relevant) He was one of my top wage earners.  He was worth more, in spite of that except for that key flaw.  I called him into my office one day and said “Paul, how would you like to make $7 per hour?”  His eyes lit up and his ears perked up. 

“Paul, here’s the deal.  I will keep your base pay at $6.10 per hour, but if you arrive on time, work your full shift 7:00am until 3:30pm and work every day that you are scheduled, you will receive a bonus of 90 cents times the number of hours that you work.”  That is, 40 hours times 90 cents – $36.00.  This makes his effective hourly rate $7.00.  The deal was that if he missed a day, came in late or left early (the last two were never an issue), there was no bonus.  The cost for that missed day became very dear.  Take a look:

40 hours times $6.10 per hour = $244

Less 25% for tax withholding =  $61

Net pay before bonus plan was put into effect = $183

With the bonus plan in place:

40 hours times $6.10 per hour = $244

90 cent per hour bonus = $280

Less 25% for tax withholding =  $70

Net pay with bonus plan = $210

So his take-home was $27 more.  That doesn’t sound like a whole lot (for one thing, this was 30 years ago), but this may have doubled his discretionary income. I assure you, it meant a lot to him.

But how much would it cost him to take a day off?  It cost me plenty in the way of productivity and quality and who knows what else.  He got me in the wallet, I want to get him right back.

With the bonus plan in place:

32 hours times $6.10 per hour = $195.20

90 cent per hour bonus = no bonus

Less 25% for tax withholding =  $48.80

Net pay with bonus plan = $146.40

The day off cost him $63.60.  Ouch!  No bonus and a lost day’s pay.  Whatever his absence actually cost me is perhaps intangible, but that $63.60 meant more to him than whatever loss I incurred. 

He worked for me many more years.  He only missed two more days. 

You know what I always say: “If you do what you’ve always done, you’ll get what you always got.”