Henry Ford's $5 a Day Wage: How Your Company May Benefit From His Work
Employee engagement is a relatively new term. Coined in 1990 by William Kahn in a paper titled, “Psychological Conditions of Personal Engagement and Disengagement at Work”, he used the phrase to describe the attitudes of employees towards their work. Noticing a lack of motivation among workers, Kahn developed the term to depict the idea of employees who are actively involved at work.
How did the employers of the past handle employee engagement? We took a look at a very famous company with a very famous leader, the Ford Motor Company and Henry Ford to find out what that company did..
Ford Motor Company, established in 1903, is today one of the largest automobile manufacturers in the world. Shortly after the automobile company began, however, it faced what seemed to be an insurmountable problem. At the time, plant workers could expect a wage of $2.25 per day for nine hours of work. The problem? The toll of the work was often more than employees could bear, and Ford’s turnover rate was high. In one year, Ford went through nearly 30,000 employees. His efficient production line kept grinding to a halt, and the process of finding, hiring, and training replacement employees was becoming cost prohibitive. Employees who did show up were lackluster in their efforts and were considered mediocre. Ford was determined to make what he considered an ‘affordable’ car, so the average consumer would be able to buy one. To accomplish this, he needed to keep production costs down and improve employee retainment. In today’s language, he needed to reduce employee turnover and improve employee engagement.
How did Ford accomplish this? The solution is what is now famously referred to as “Ford’s $5 a Day Wage”. Ford looked at what other car manufacturers were paying and determined he should pay more. Over the course of a year, he incrementally increased his worker’s pay by $0.25 and studied the results.
Were the employees more productive? Did they show up to work on time? What positive effect did the increase have on their behaviour? After several months, he created a plan to offer $5 a day pay to employees. This pay was not without conditions. The wage was a mix of both salary and bonuses, and came with the knowledge that they were being paid to be more productive. Employees were expected to behave in a particular manner, even when off the clock. This meant avoiding gambling and drinking, and had to put the time in to learn English (many of the employees were recent immigrants to the USA).
The results were astounding. The year before Ford’s pay raise plan, his plants produced 170,000 automobiles. The year after the increase? They produced 202,000. His employees were engaged like never before. What applications are there from Ford’s example that can be used today? Here are five tips we can learn from Ford’s experience:
Identify Pain Points Ford evaluated the problems his company was facing. They were falling short of his production goals, and he knew the race between car manufacturers was heating up. Ford needed to make changes to his company - and quickly. He identified the most significant hurdle they were facing: keeping skilled workers producing. He tailored a solution to solve the issue of employee turnover. Are you facing employee engagement issues? What is the fundamental problem that is demonstrating a lack of engagement? Where are your pain points?
Make an Incremental Change Rather than rush headfirst into what he assumed would fix the problem, he made slow, incremental changes and studied the effect. Often, business leaders want to throw generalized solutions at a problem and hope something works. They add foosball tables to the breakroom, hoping that the ‘fun perks’ will entice workers to stay, for example. Instead, make small changes toward a solution and evaluate the results before changing something else.
Learn From Your Competitors Ford knew that to keep skilled laborers working in his plants, he needed to pay better than his competitors. He wasn’t interested in paying the highest wages of all, he just wanted to pay substantially more to make clear that he was expecting substantially more from his workers. The lesson for you? Evaluate your company in relation to your competitors. How do you rate? Do you pay competitively? Is your benefits package comparable?
Inform Employees of Your Plan It was no secret that Ford was paying more. He informed employees - and told them why. Be upfront with employees and let them know that you are working to be the best, and want them to be along for the journey.
Pivot as Necessary Ford kept increasing pay until he found a point where it was working. When faced with a problem, he made a change, despite what others in his industry were doing. Don’t be afraid to step outside the box and try something new.
The need for employee engagement hasn’t changed much in the last 100 years. Similar to Ford’s time, businesses today are continuing to face staffing challenges, production issues, and wage wars. Rather than shrinking from the problems, Ford met them head on and was successful. How can you apply the lesson of Ford to your company?