Off the Cuff: Evaluating and Compensating Production Employees, Part VI

Wage differentials should be based on criteria that clearly and fairly define the employee's value to the company.
March 17, 2008

By Mark L. Venit, MBA

What makes some employees more worthy of higher wages than others? It’s not gender, religion, race or other unlawful forms of discriminations. It’s the employee's economic value to the company, most of which derives directly from skills the employee offers his employer.

A classic system of understanding an employee’s value to his employer is seen in the gaming industry. An employee who is licensed (by the state) only for dealing blackjack is considerably less important in stature and wages than a dealer licensed and experienced in dealing baccarat, roulette, craps, poker, pow gai and more games. With more employees able to deal two or more games, floor managers and pit bosses gain tremendous flexibility in maximizing efficiencies by being able to quickly adjust the number of tables in use for various games, depending on traffic and demand. An employee who can deal more games gets higher pay, better shift hours (in terms of getting better tips), higher status and significantly better employment security.

The same principals operate in your business. Length-of-service counts, too, but only if the employee has in fact developed better skills and assumes greater responsibilities from year to year.

The economic justification for awarding length-of-service increases isn’t as an entitlement from the boss, but rather the firm’s recognition that seasoned employees possess improved skills, perform more efficiently and have a better understanding of the company and its operations over time on a more holistic basis. (Or so we’d all like to think, as there are always going to be exceptions to these expectations).

Determining Compensation
So, how much should you pay employees in different classes? While the precise answers vary, of course, by region, locale, seasonal demand and other factors unique to your company or your area, we can, however, look at some basic examples to illustrate the principles.
 
Say, entry level pay for a new hire who knows nothing about embroidery is $7.50/hour. No raises are awarded to this individual until he attains Level I status. How much will depend on your situation, but $0.25/hour to $0.50/hour translates to a before tax raise of $10-20 per week or $500-$1,000 per year, ample incentive for motivated employees to continue to learn more and do more.

Level II technicians may be awarded more substantial amounts, perhaps up to a full extra dollar per hour. And so forth for Level IV, V, and above.

Length-of-service increases should be no more than $.25/hour in general, and up to $.50/hour in special cases where an employee’s performance progress warrants greater consideration.

On average each $.25/hour-pay increase translates to about seven-to-eight extra dollars a weeks in take-home pay and a total of $.30-.35 cost increase (per hour) to the company, including employer-paid taxes and whatever benefits your company offers.

Equitable Standards
Are we setting up a caste system here? Yes, we are, and that’s exactly what this wage system is designed to do. Wage differentials based on defined skills, testing and performance tell your staff that raises are the function of skills, dedication, loyalty, commitment and good judgment. Not begging or lobbying the boss.

Equalizing and standardizing the mechanisms by which someone earns a raise improves morale, fosters (in those who really care) an environment where additional training is sought out by employees and makes it clear that only those whose professional skills are constantly being improved will be rewarded.

As you phase in your classification and wage system, your company should begin to see measurable improvements in output and quality, generating economies in labor that provide not just additional pay for your production technicians, but enhanced profits for your enterprise.

Mark L. Venit, MBA, is president of Apparel Graphics Institute Ltd., Ocean Pines, Md., which provides management and marketing consulting and proprietary research to apparel graphics companies throughout the Americas and Europe. He is also the chairman of ShopWorks Software LLC, a provider of industry-specific business software. Venit teaches pricing, strategic marketing, salesmanship and other business management topics at the Imprinted Sportswear Shows. He will be teaching a new all-day workshop, "Getting to the Next Level: Surviving and Thriving in Good Times and Bad," at the upcoming shows. You can reach him at markvenit@cs.com.

Click here to read "Evaluating and Compensating Production Employees, Part I."

Click here to read "Evaluating and Compensating Production Employees, Part II."

Click here to read "Evaluating and Compensating Production Employees, Part III."

Click here to read "Evaluating and Compensating Production Employees, Part IV."

Click here to read "Evaluating and Compensating Production Employees, Part V."

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