Zeynep Ton is a professor of the practice at the MIT Sloan School of Management. Previously, she was on the faculty of the Harvard Business School. Ton received numerous awards for teaching excellence at both schools. Her work has been featured in The Atlantic, The New Yorker, The Washington Post, Bloomberg TV, and MSNBC.
Below, Zeynep shares 5 key insights from her new book, The Case for Good Jobs: How Great Companies Bring Dignity, Pay, and Meaning to Everyone’s Work. Listen to the audio version—read by Zeynep herself—in the Next Big Idea App.
1. Low pay hurts workers and companies more than we think.
What happens when market pay is unlivable pay? Workers often juggle multiple jobs. They don’t get regular sleep, or even enough sleep. Low pay is associated with heart disease, stroke, diabetes, opioid use, and suicide. It even hurts cognitive functioning: constantly worrying about money problems creates a bandwidth tax that’s equivalent to a 13-point drop in IQ.
This is the reality for tens of millions of workers in retail, restaurants, call centers, nursing homes, and many more industries.
Of course, pay alone doesn’t make a job a good one, but the absence of sufficient pay guarantees high employee turnover. Once there’s high turnover, the work ends up being designed to ensure that people are treated like a pair of hands, not human beings who have brains. One executive put it concisely, “We are building systems assuming people can’t do anything right.”
Many company leaders don’t think the costs of turnover are high enough to justify higher pay. But most have never quantified those costs. The numbers are not for the faint-hearted. We’ve seen companies changing their entire roster every year. Just the direct cost of replacing those workers—recruiting, training, time to full productivity—often amounts to 10-25 percent of labor budgets. However, that’s nothing compared to lost sales from mistakes and poor service, higher costs due to waste, and low productivity. The resulting poor financial performance makes it harder to invest in people, locking the company into a vicious cycle of high turnover and poor performance.
“Burnt-out managers find it easier to tolerate low performers than to replace them.”
In this cycle, companies can still grow their sales and profits by adding more units, more products, more discounts, and more services. But all that adding increases complexity and thus creates an even weaker system.
This is a low-expectations system. Managers are constantly fighting fires and have no time to hire the right people or train them well. Burnt-out managers find it easier to tolerate low performers than to replace them.
This is a low-trust system. Leaders can’t trust the ability or motivation of their workers and workers don’t trust their leaders who make life and work so difficult for them. This is an uncompetitive system that can’t serve customers well and adapt to changes.
2. Higher pay doesn’t mean higher prices or lower profits.
Costco is one of the world’s largest retailers and offers its customers high-quality products at the lowest possible price. In 2022, the average hourly worker there made $26 an hour, almost $10 more than a typical U.S. retail worker. Did Costco’s shareholders pay a price for high worker pay? On the contrary, from 1985 to 2023, Costco’s stock price grew at a compounded annual rate of 17 percent compared to S&P’s 9 percent.
But you don’t have to be Costco to pay your employees well while offering the lowest prices and strong investor returns. QuikTrip, a convenience store chain, Mercadona, Spain’s largest supermarket chain, and Trader Joe’s all do the same. You also don’t have to be a retailer or even compete on low cost. In N Out Burger, Toyota, Four Seasons Hotels, and Shouldice Hospital are all examples of companies where no stakeholder’s success depends on someone else’s choice between seeing a doctor or buying this week’s groceries.
These companies don’t just pay more, they design an entire system. This system is referred to as the Good Jobs Strategy, which makes employees’ work worth more. This system pays for itself. Everyone in the headquarters makes decisions to respect employees’ time and abilities, improve their productivity, and set them up for success. For example, before introducing a new product or service, they consider how it will affect frontline work. A new product or service may drive sales, but if it ends up impeding service—for example, coupons that slow up the checkout line—forget it. Truck deliveries are made to smooth the workload, so frontline employees have time to stock shelves and help customers. Work is designed for high productivity, empowerment, and cross-training, with standardization where it makes sense.
Unlike the low-trust system, the good jobs system is built on trust. Low turnover lets people earn trust. With trust, empowerment finally makes sense. Knowledgeable employees are trusted to order merchandise, solve customer problems, and manage checkout flow. Unlike the low-expectations system, this system is built on high expectations. Employees can count on the time and resources to do a good job and the company can count on them to do it. This is a system of excellence that is resilient and delivers customer loyalty.
3. Mental models that produce excellence.
Leaders who chose the good jobs strategy think differently. Their mental model is so different from those who find low wages necessary to compete. To them, great companies win with their customers by constantly improving the value of their products and services. That means frontline work can’t be mediocre, it has to be great. If the work has to be great, high turnover and low employee ability are no longer bearable costs. They are unacceptable.
Take Jim Sinegal, co-founder and longtime CEO of Costco. To Sinegal, a focus on improving efficiency is key to reducing price and winning with customers. Costco can’t get there without a strong frontline team that can execute. Poor handling of fresh produce or frozen goods would cause waste. Poor stocking or slow checkout would reduce sales—high volume is key to operational efficiency. So is continuous improvement. Costco relies on ideas from frontlines to reduce cost and improve service. “Seventy cents of every dollar we spend to run our company goes to people,” Sinegal points out. “That tells you pretty significantly how important people are.”
“Frontline employees are the product and that means it’s unacceptable to operate with high turnover.”
Isadore Sharp, founder of Four Seasons, thinks the same way. He told me that their guests count on time-saving, problem-solving, fast, personal, and error-free service. A chipped plate that’s unnoticed by a dishwasher or an understaffed pressing department that makes a customer wait in his underwear for his suit could ruin the experience and damage Four Seasons’ reputation. Frontline employees are the product and that means it’s unacceptable to operate with high turnover.
If high turnover is unacceptable, then you have to pay employees well and design their work for high productivity. This is so obvious that leaders who choose good jobs can’t figure out why anyone chooses the opposite. QuikTrip’s co-founder wrote, “Paying people more than they expect has been one of QuikTrip’s secrets to success. QuikTrip attracted better people and kept them longer. Reduced turnover saved time and money. It was such a simple idea I was (and am still) shocked that our competitors never copied it.”
Trader Joe’s founder wrote, “Time and time again, I am asked why no one successfully replicated Trader Joe’s. The answer is that no one has been willing to pay the wages and benefits and thereby attract—and keep—the quality of people who work at Trader Joe’s. Grocers seem to spend more effort squeezing payroll than squeezing cost of goods sold, though there is at least five times more opportunity to save money in the latter.”
4. Spreadsheets don’t tell the truth.
During the last seven years, numerous companies, including the pet store chain Mud Bay, call centers at Quest Diagnostics, two units of Moe’s Original BBQ, and Walmart’s Sam’s Club made the transition from a low-pay, high-turnover system to the good jobs system. The results for all were big improvements in turnover, productivity, customer satisfaction, and sales. The results were huge. Quest cut turnover by more than half. Mud Bay, despite an industry trend toward online shopping, improved same-store sales growth and significantly improved productivity. At Sam’s Club, it had always been difficult to increase efficiency by even one percent. With the good jobs system, they were able to improve it by nearly 20 percent.
The system change like that required conviction and imagination. These leaders were convinced that they couldn’t win if they didn’t change. That type of imagination is not possible if you insist on careful financial analysis of each individual change. When John Furner at Sam’s Club wanted to raise pay, he was warned “Don’t do it. We’ve raised pay before. It didn’t reduce turnover.” At various companies, I heard:
“We’ve empowered people and lost millions of dollars.”
“We’ve added hours to staffing. It didn’t improve profits.”
“We’ve reduced the annoying coupons and lost sales.”
The type of analysis these companies did to reach these conclusions is exactly the type of analysis we teach our MBA students to do. We teach them how to use data to identify causes and effects in isolation. We teach them to make decisions scientifically as if business is science.
But this is not a physics experiment. There’s no law that says if you raise pay this much, turnover will drop this much. It matters how you raise pay and what else you do to reduce turnover— the good jobs strategy is a system. Sam’s Club, Mud Bay, and Quest didn’t just raise pay. They improved employees’ work. Meanwhile, historical data only tell you what happened in the past. They won’t help you imagine what can happen in a better system.
5. The risk of making system change is much lower than the risk of the status quo.
If you are stuck in a system of low pay and high turnover but system change looks too risky, ask yourself two questions. First, can your company win with customers without a strong team set up to succeed? If employees make so little that they can’t focus on the job or if managers are so busy fighting fires that they can’t hire and train well, you are guaranteed to play with a weak team.
“As one CEO said, the good jobs system is ‘blindingly obvious.'”
Second, can your company adapt to changes in competition, technology, and the labor market without a strong team set up to succeed? Change is speeding up with new technologies. Declining birth rates and retiring baby boomers mean tight labor markets. It’s unquestionably harder to attract and retain talent today. Minimum wages are increasing—so if you don’t change your system, you’ll just have to pay more for the same unsatisfactory results.
The risk of system change, on the other hand, isn’t as high as it may seem. As one CEO said, the good jobs system is “blindingly obvious.” Its elements are well-established, old-school business practices.
Second, just as there is a vicious cycle, there is also a virtuous cycle. You don’t have to make the whole good jobs investment at once. Sam’s Club initially raised pay for certain positions by five to seven dollars an hour along with some well-chosen simplification of frontline work. Once performance improved, they could make more employee investments and work design changes. Quest, Mud Bay, and others did the same.
Third, there’s tremendous energy around this change. It appeals to leaders’ desire to win and be recognized for it. It also appeals to their hearts. They get to improve the lives of tens, hundreds, or—at a company like Sam’s Club—tens of thousands of people. That’s a real legacy.
To listen to the audio version read by author Zeynep Ton, download the Next Big Idea App today: