What’s Swedish for higher pay?
Ikea, the Sweden-based global retailer of flat-pack furniture, plans to announce Thursday that it will raise the average minimum wage for its U.S. retail employees by 17 percent, to $10.76 per hour, beginning next year. The company said it’s overhauling how it determines wages for workers in each of its 38 U.S. stores and will now base its minimum pay on what’s considered to be a “living wage” in each local area, rather than on what competitors are paying.
“We stepped away from focusing on the competition and really started to focus on the co-worker,” said Rob Olson, the chief financial officer and acting president of Ikea’s U.S. headquarters. The move comes the same week that clothing retailer Gap rolled out its own increase, originally announced in February. The new minimum wage at Gap is $9, although it will rise to $10 next year.
The growing national debate over the minimum wage has prompted protests against corporations such as Wal-Mart and McDonald’s, as well as some increases and proposed changes at the local, state and federal levels. Seattle announced a deal in May to raise its minimum wage to $15, the highest in the country. Meanwhile, President Obama is raising it to $10.10 for federal contractors, a level he says should be the new federal minimum wage.
Ikea is basing its new wage structure on MIT’s Living Wage Calculator, a Web site that shows how much workers need to make in any given county or municipality to afford basic goods. According to the calculator, the living wage in Woodbridge, Va., for a single adult with no children (the criteria Ikea says it is using to help calculate the minimum in each area) was $13.22 as of 2012. In Charlotte, N.C., the site of another Ikea, the living wage was $10.02.
Amy Glasmeier, a professor in the urban studies and planning department at MIT who created the calculator, said the data will be updated in July, and she estimates that the numbers — which take into consideration such expenses as food, housing and transportation — will increase relative to inflation. An Ikea spokeswoman would not say whether wages will automatically increase when the calculator’s data is updated, but she said the company “will revisit wages at least once annually and will monitor new developments” in local and federal law.
While Glasmeier said she gets many inquiries about the data from public officials or smaller employers, it appears that Ikea is the first global corporation to base its wages on it. With just 38 stores in the United States, the company’s footprint is much smaller than that of Gap, which has a store in thousands of malls. But Glasmeier said such a move could have an impact. “Business people are herders,” she said. “They follow each other around.”
According to Olson, Ikea’s wage increase was not inspired by Gap’s change or by the heightened debate and increased legislative action on the minimum wage. But he does say the change should help Ikea compete for and retain the best talent, especially in combination with other moves the company has made in the past year designed to boost worker loyalty, such as increasing employees’ 401(k) match.
The change means wages will go up for 50 percent of Ikea’s retail employees. The other 50 percent, Olson said, are already paid a living wage or higher. No one’s pay would decrease as a result of these changes.
Peter Cappelli, a professor of human resources at the University of Pennsylvania’s Wharton School, said the minimum wage has become such a hot-button topic that raising pay could yield greater productivity among employees — and greater loyalty from consumers who want to shop where workers are treated well. It could also have a positive side effect on senior managers, he said. “If they’ve got to explain at a cocktail party that they work for an employer that’s some kind of pariah, it makes it a lot harder to recruit.”
Excerpted from On Leadership, at washingtonpost.com/on-leadership.