The 'high-road' approach to worker compensation

On the night of Wednesday, Aug. 27, 2014, a weeks-long customer boycott and worker walkout  protesting the removal of Market Basket CEO Arthur T. Demoulas finally ended.

Three months earlier, after decades of family infighting and legal disputes came to a head, Arthur T. was fired as head of the New England grocery chain by his cousin, Arthur S. Demoulas. News of Arthur T.’s firing enraged many of the company’s 25,000 employees.

 

Despite having more than 70 locations throughout New England, and revenue in the billions, Arthur T. had built a culture more like a mom and pop store. The CEO memorized the names and birthdays of employees. He visited workers when they were sick. 

His approach fostered a sense of community at each store, which in turn encouraged worker retention. It wasn’t rare to meet a veteran employee who’d started as a teenager — or a department supervisor who’d worked their way up to become a buyer. Employees also enjoyed work schedules that complemented their personal lives, regular bonuses, and contributions to a profit-sharing fund. For shoppers, they got low prices, and a selection of items that reflected the community around the respective stores.

After Arthur T.’s firing, customers boycotted and vendors severed ties, leaving store shelves and aisles empty. According to reports, the company lost around $400 million that summer.

So when the news broke that the board and Demoulas family had reached an agreement, everyone cheered. For employees the deal meant they could return to well-paying jobs that they’d held for years. For customers it meant they got their neighborhood grocer back.

For Thomas A. Kochan, a professor of work and organization studies at MIT Sloan, the deal concluded what would be a case study in “a high-road company being pulled back by shareholders.

”What is a high-road company? It’s a company that doesn’t just pay a living wage, it offers training and development opportunities for its workers," Kochan explained. A high-road company provides a supportive environment where employees can successfully balance work, family, and personal responsibilities.

“You can be competitive and you can have good jobs at good wages if you can really make sure that your full workforce is productive and well-trained, innovative, and has the discretion to add value in organizations,” Kochan said. “But that’s a managerial challenge to move in that direction and diffuse that kind of strategy.”

Even after the Market Basket boycott, shifting some corporate responsibility from shareholders back to stakeholders is still a challenge today. Kochan, along with his colleagues at the MIT Institute for Work and Employment Research, is trying to find a solution through the Good Companies, Good Jobs Initiative at MIT Sloan.

Three changes to the American economy

How did the workforce economy get here? After World War II, America was the dominant market domestically and abroad. Unions had firm footing, so companies were incentivized to provide good wages. 

But in the 1980s, three things happened: a deep recession hit the manufacturing sector, triggering the rise of imports; the Reagan administration and many employers took actions that weakened unions; and the tech industry entered an era of booming growth.

“The other thing that was happening during that time period was a shift from a sense that corporations had responsibility to multiple stakeholders, to this notion that shareholder value is what corporations should focus on as their sole responsibility,” Kochan said.

It’s easy for a company to say it wants to invest in its people, said Zeynep Ton, MIT Sloan associate adjunct professor of operations management, who co-founded the nonprofit Good Jobs Institute. But for that investment to work, you have to create a whole new operating system that leverages and requires that investment.

“It’s not just investing in people, it’s not just operations, it’s not just values,” Ton said. “It’s a combination of a lot of different things working together, and a lot of organizations don’t think and act in systems terms. They look at ‘Oh, I’m going to implement this best practice in hiring or implement that best practice in training,’ and fail to see that good jobs — especially in low-margin businesses — require a system that works together.”

Three reasons for a high-road approach

Ton argues there are moral, financial, and competitive cases for this high-road strategy.

The moral case is straightforward. “I haven’t yet met business leaders who would rather offer bad jobs than good jobs,” Ton said. “Nobody gets out of bed saying ‘Oh my God, how can I do terrible things to my people.'" The financial case centers around higher productivity and sales.

“It’s largely about creating an operating system that enables a motivated and capable workforce to create an excellent customer experience, have high productivity, and be empowered to drive sales and lower costs,” Ton said.

The competitive case rests on two advantages. One is differentiation. Good jobs strategy leads to high productivity, continuous improvement, and an engaged workforce. As a result, companies can offer their customers low prices and a better experience.   

The other advantage is that your company is able to adapt better to change than your competitors — like implementing a new technology, shifting customer tastes, or changes in regulations — because you have a capable, motivated workforce and you have a continuous improvement culture.

Three case studies of high-road businesses

One company that’s using a high-road strategy is wholesale giant Costco. Costco has roughly 225,000 employees in more than 700 stores around the world.

The wholesaler currently has a 4 out of 5-star ranking on Glassdoor (a website for anonymously ranking and reviewing employers), and in 2017 was named as Forbes’ Best Employer.

Costco promotes from within and in 2017 had an employee turnover rate of 7%. Employees report that it’s not only the steady hours and benefits that make Costco a good place to work (though that does help), but also the camaraderie.

In March of 2019, Costco announced it was raising its hourly minimum wage to $15. 

Lundberg Family Farms, an organic rice grower in Richvale, California, started in 1937, and today employs 180 people. In the past three years the average turnover rate has been 6%, and the average tenure for employees is eight years.

Lundberg holds weekly safety meetings, offers free flu shots and blood pressure screenings for employees, gives employees free fruit, and encourages breaks to take walks.

The company also hires from within, according to a case study: “Of its current 18 supervisors, 16 have advanced from production or warehouse positions.” 

The Roll Forming Corporation, a manufacturing company in Shelbyville, Kentucky, has a Pay for Skills Rolling Operator Training Program. The program isn’t required, but if an employee joins, they begin as a trainee and can work their way up to a certified master operator level with a 15-20% pay raise.

Employees are encouraged to share ideas through the company’s “continuous improvement” program. The company has a variety of continuous improvement teams, and each employee is a member of at least one team.

“An overwhelming percentage of CI team projects emanate from the workers out on the shop floor, creating a bottom-up management philosophy markedly different than the top-down management style once in place at the company,” the case study stated. “Of note is the operators’ diligent use of hour-by-hour charts to track their work flow, note any hiccups and cite any hurdles preventing them from meeting production goals.”

The three C’s of a high-road implementation

When it comes to implementation of a high-road approach, leaders need to practice the Three C’s: courage, commitment, and competence.

Courage: “Courage is important because when you start this journey, it’s going to take a long time, and things are going to get worse before they get better,” Ton said.

Commitment: “People can show you data, they can make the financial case, but you as a leader have to believe that good jobs and a great customer experience are not nice to have, they are essential to win. You have to believe that this is the best way to run a business and make a long-term commitment to it,” Ton said.

Competence: “Leaders have to have the competence to see the system’s perspective and say these are the things that we need to work on, we don’t know the exact order but this is what we want to get to, and we’re going to take our time doing that,” she said.

Successfully implementing a new high-road strategy isn’t just about raising minimum wage, or a company allowing workers to unionize, Kochan said — though that’s a step in the right direction.

“That’s the challenge for the country, for society, and for individual firms,” Kochan said. “They’ve got to figure out how can we get on a high-road strategy where we’re really making the investments in our workforce, in training, in education, in new technologies that engage the workforce in continuous improvement to be successful.”

Despite pundits’ concerns Market Basket wouldn’t be able to bounce back from the shakeup, by the following year the grocer was looking to hit its highest ever revenue, the Boston Globe reported. It also opened a handful of new stores in the past five years, and with them, welcomed hundreds of new hires to the same ranks of employees that demonstrated what happens when a company that’s invested in its workforce attempts to shift its focus to the bottom line.

“The employees said 'this is our company, this is our Market Basket,’ and the community and the customer support — that was what really did it — the customers boycotted,” Kochan said. “The only way you’re going to get customers back is if you bring the employees. The only way you’re going to get the employees back is if you bring Arthur (T.) back. And that's the way it ended.”