27% MINIMUM WAGE RISE BY 2021 – IT’S UPON US
Got a well-formed strategy to protect profit margins from the minimum wage rise? Many don’t, but it’s clearly on the mind of employers in NZ. And it should be, especially with the double whammy of restricted immigration in the mix too. Will it be effective in raising the quality of life for low-income earners? For some yes, but for many, probably not. One only has to look at the evidence from the UK. They too are on a minimum wage escalator (they call it the “living wage”), with an objective of £9 per hour by 2020. We are already seeing the following approach by employers:
- Reducing Overtime rates
- Reducing staff hours
- Erosion of profit margins and business viability (Take Toys ‘R’ Us as an example)
Interestingly, we in NZ are aiming even higher than the Brits. At today’s exchange rate, NZ’s commitment to $20/hour is almost 17% higher and, unlike Britain, ours will apply to under 25-year olds. Take $20/hour as an increase from our previous rate and it’s a whopping 26.9% rise. Of course, there’s also going to be a ripple effect from those employees currently above minimum wage also expecting more (take Event Cinemas as one example). Some organisations will go under, some will see their profits drop, but, some will prepare and fair well.
There is an opportunity that can arise from our very low labour efficiency rates in NZ (not to be confused with effort). Many organisations have in-effective processes and management systems. They are, in effect, firing on 3 cylinders, working hard but getting nowhere fast. In terms of labour efficiency in NZ, think of around 30% to 40% as a normal range. So, there is a solution – people on higher wages being a lot more productive. In many cases, this will not only off-set rising wage costs but will result in lower wage costs and increased profitability.
Where to Start
- Wage Rise Strategy: Firstly, every employer will need one. There are lots of things that need to form part of your operational strategy for the impending wage rises. Develop your strategy now. Plan carefully, follow exactly.
- Human Performance: Before thinking about automation, it’s important to begin with understanding your organisation’s true human productivity level. Humans are increasingly expensive, so it’s fair to expect more productivity in return. I would like to agree with the cliché of “work smarter, not harder”, but I don’t. After experiencing the work rate at Toyota Motor Manufacturing, I know everything else I have witnessed is relatively easy. Think about this, it takes around 2 weeks to get a Toyota line worker up to a fitness level that can sustain the process demand, and yet, they have a very low staff turn-over rate. How does that work? In my experience, most people don’t mind working hard if they are being productive. Conversely, people hate working hard on processes that are “broken”. Frustration is very draining. In summary, fix your broken processes.
- The Role of Leadership: Extracting increased performance is difficult. It relies heavily upon strong and effective leadership, especially at the front line. Having too few leaders is often a problem we see as well as in-sufficient leader coaching and mentoring. A few good leaders will extract the performance increase you desire.
Pay More – Expect Much More