My employee wants a raise

[solidwoods]

I sawmill/kd/molder/mfr. furniture for in and outdoor, since 82.
This is a simplified description of a sawmill operation.
This is not a situation at my operation, just a hypothetical situation.


#1 employee got a raise and the other 3 want a raise.

job          job           pay
position           

#1   stack lumber    min wage.
#2   edge, forklift    #1pay +10%
#3   grade       #2pay +10%
#4   sawmiller    #3pay +10%


in 08 labor went up- .70hr per employee (about 10.6%)
in 09 it will go up- .70hr per employee (about 10.6%)

Note.   
Employer Social Security payment goes up with the employees pay.

july 08 labor cost went up about 10.6%
july 08 labor cost will go up another 10.6%
2 yr labor cost increase of over 20%.

The sawmill buis.
raw material
production costs, over head
labor
tax, insurance, business lic.


raw material- will go up (fuel, labor)
production costs, over head- will go up (fuel/energy)
labor- will go up by law
tax, insurance, business lic. - for cast says insurance will go up,  tax

statistical goes up not down,  buis lic.- ?

Whether or not your mills pay scale starts at min. wage, or how many

total number of employees your business is, your employees may ask

for a 10% raise to keep up with the min wage.

jim

[stumpy]

They may ask for a 10% raise, but that doesn't mean it's warranted. There's 2 reasons for giving a raise.  #1 Employer feels cost of living raise is an automatic increase regardless of business conditions, profits or performance.  #2 Employer rewards an employee with a raise because the employee has proven that he has added increased value to the business.  Generally this is measured in things like output, production, sales, etc.  It could also be related to things like leadership, responsibility, teamwork, etc.  Giving a person a raise simply because someone else got one, is a dangerous practice.  Especially a raise as high as 10%

[Ron Wenrich]

So, who's the manager?  Management is supposed to figure out ways to keep good help, and that includes giving a pretty good salary for the type of job.  If managment fails, should it fall back on the employees to make it work?

The manager's job should be to optimize the system.  That means he should be putting together a program of raw materials, labor and capital (equipment) to maximize profits.  I've seen lots of ineffective management systems that can't get good production to be competitive so they try to get it back from either labor (through lower wages) or raw materials (known as driving it back to the stump).  Management should also be trying to find the best markets for their products, which was left out of your scenario. 

I think some of the responsibility lies with the employees.  But, I've heard too often "why should I work any harder and not see any additional return"?  As living costs increase and wages stay the same, the employee even has less incentive to work harder.  You have to treat your employees like assets and not equipment.  You have a lot invested in them, no matter what the wage.

I have always favored some sort of a bonus system.  In the mill business, it works pretty well with production.  The higher the hourly production, the lower the costs, in most instances.  As long as quality is sacrificed, there's no problem.  So, you give your employees a bonus for production over a certain amount per week.  Down time due to vacation, market conditions, or equipment problems aren't as expensive.  Employees enjoy better pay for harder work.  A win-win situation for both employer and employee.

[fencerowphil (Phil L.)]

I agree that incentive systems and bonus arrangements are the way to go.

That being said, there is a strong warning to be mentioned, or two or three.

The means for keeping track of employee performance can be demanding.
The level of fairness and attention to detail must also be extreme and be
transparent.  Ron mentioned "where is management" in all of this?  Well,
when you go to incentives, you enter a new level of management.  It demands
more creativity, attention to detail, and time.   In other words, you add a
new tier of activity and consciousness to your management duties, and woes.

It is still the best answer, but it has its demands and costs.  Flipping the coin to
the other side again, you can not afford to give across-the-board raises in this
financial climate.  Very seldom can small business EVER afford to do it.

My only qualification: Self-employed since I was 14 years old to some degree.
That is 39 years.  Fully self-employed for 31 years.  Worked hard.  Success? mixed bag.

[Handy Andy]

  While I was fixin fence the other day, had the radio on in the truck, and Dave Ramsey was talking about employees vs a team approach.  The team has meetings and they figure out ways of decreasing costs, and of increasing profits.  He says employees mean someone who doesn't work while they are on your time and steal from you, and a team works together to make money.  Profit sharing was a word he used. 

[Kansas]

Its amazing the differences in pay in different parts of the country. The least we pay anyone is a high school kid that works part time on a work program from the school, and thats 8.00 dollars an hour. We dont think about even trying to find the most basic entry level worker for less than 9.00, and in all reality, if they arent good enough to earn 10, we dont want them. To a large extent, you have to pay what the labor market in your area is. If you cant pay that, then you have to improvise. Most of our customers that get pallet lumber from us use work release workers, halfway house workers, house arrest, etc.
I do think the bonus or profit sharing is a good idea. I have been trying to figure out an equitable way to set one up. Our problem is that we cut quite a variety of stuff, with widely varying margins. Trying to put a bonus on production alone simply wont work, because production varies widely between custom cut trailer decking, pallet lumber, and grade lumber. I would like to come up with a good profit sharing program that uses the bottom line to determine the amount. I really wonder how anyone who earns down around the minimum wage can possibly survive. Granted, living costs might be cheaper than around here concerning rent, etc, but gas is still 3.50 a gallon no matter where you are at.

[fencerowphil (Phil L.)]

Ramsey has great ideas.

That team approach will build many good things.  On the other hand
you still do deal with differing people with differently valued skills.  In
other words, you won't be paying them all the same base pay.  You
might have to choose different rewards or different levels of reward
to motivate different people.  For example,  one employee may
value flex time more than they value more dollars.  Another may
value a sense of accomplishment and respect as much as they respect
a dollar.  "Different strokes for different folks," as the song said.

[GHRoberts]

I agree with Kansas about pay. In most places you pay more than minimum wage. A lot more.

What does it cost to live in your area? I don't mean in mom's house. I mean in a place where you can have a wife and a kid or two. I don't mean eat out everyday, but at least eat reasonable food. How about health insurance and something to save.

$10/hr is only $20K/year before SS tax. Might not have any income tax. Not enough to have a reasonable standard of living for 2.

If you want to pay less hire kids in school for the low wage job. Give them a good raise when they get out of school and work full time.

[Cedarman]

As callous as it may seem, pay is generally based on the number of available people that can do the job.  Basic work usually doesn't pay much because anyone can do it and there are a lot of south of the border people in the US looking for that kind of work.  So pay is low. 
How easy is it for a person to quit one job and find another with higher pay?  You got to pay at least what others pay for similar work.  Employees think that pay should be base on productivity, employers think that pay should be based on how hard it is to replace the person.  Employees always want to share the profits, but never the losses.

It is hard to decide how much to pay some one.  Also it is much better to give small raises periodically than to give a big raise less often.

[fencerowphil (Phil L.)]

It seems like the many small raises would remind the worker
that you do really appreciate that individual worker.  If you make a
point of tying that micro-raise to recent good performance, etc., all
the better.

[tcsmpsi]

Several years ago, I phased out of the employee business.  Like anyone else, I've had dependable, productive employees, and employees that came to lollygag around and draw pay.  Those never lasted long.

When I hired, and the story got around to pay, I made it clear that pay was commensurate to the work produced.  If you work, follow directions and are dependable, you'll get a fair share.  If you don't, you'll get a fair share.  At the end of any pay period, the tale was told.

It was up to me to provide proper divisions of work, crews, incentives (generally based on individual needs/lifestyles/etc.) and effective utilization of resources.  If we did good, WE did good.  If I couldn't afford (as a business) to pay enough for an employee to live on, I wouldn't hire any to begin with.

Back in the early 90's when I completed the phase out of employees (related to significant changes in my personal life), if an employee wasn't worth at least $75 a day, he/she wasn't worth having and/or I wasn't running my business properly.

[Warren]

Sir,

I can not recall ever seeing a salary pool in any of the companies I have worked at set up for 10% raises across the board.  In the last 10 years, salary pools have typically been set up for 3% to 4% average raise.  Which means if a high performer got a 6% raise, someone else got zero...

Warren