A year after Ikea announced it would be boosting its pay for employees, the company is doing so again. Starting in January, the average minimum hourly wage at the flat-pack furniture maker will be $11.87, a 10.3 percent increase from last year.
Ikea, which made the announcement Wednesday, is hardly the only company these days that is raising hourly workers' pay. Amid a tightening job market and increasing pressure to raise the minimum wage at both the local and federal level, companies including Gap, Wal-Mart and Aetna have set new floors for employee wages.
IKEA, however, has taken a slightly different approach than other companies have. Rather than setting a single minimum standard across all of its stores in the United States, Ikea has been tying its workers' pay to a "living wage," or the hourly pay workers need to earn in each local area to afford basic necessities. As of last June, Ikea pledged to base those minimums on MIT's Living Wage Calculator, a publicly available tool anyone can use to see what's needed to cover basic expenses such as housing, food and child care in a given county or metro area.
"We always wanted to make sure we were fair," said Ikea U.S. Chief Financial Officer Rob Olson, in an interview. "The way we compared fair in the past was being above average. The realization we had was that’s not enough."
By publicly tying its wage floor to MIT's calculator, Ikea put itself in the position of needing to keep up with any recalculations the tool makes. And in May, the professor who created the calculator, MIT's Amy Glasmeier, released an update with fresher data, as well as a variety of changes to the method for determining the living wage area to area. The local dollar amounts generally went up across the board.
Ikea's Olson said that the company is now increasing its wage floor in the locales where the calculator shows higher wages. "It’s really about being transparent and open with our coworkers," he said. "They can check with the calculator to see that we are staying consistent with that."
Glasmeier said that many companies, some even larger than Ikea, rely on her data to help set wages. But many are not as public about it, or use it in a way that allows them to be held accountable. Ikea is explicit about "being willing to be judged," Glasmeier said. "In my experience, this exists as part of their cultural constitution."
The new data will mean significant increases for workers at some of the retailer's 40 U.S. stores. In Elizabeth, N.J., the new data will prompt the minimum wage to increase by more than 20 percent, rising to $13.02 an hour. In Portland, Ore., it will rise 17.7 percent, to $11.25.
Some 32 percent of the company's 10,500 workers stand to get a raise as a result of the recalculation.
Olson said that only one of the company's stores is located in a market where the living wage, as determined by MIT's calculator, dropped slightly. In Sunrise, Fla., it fell from $11.72 to $11.55, but Olson said Ikea will keep the minimum for both existing and new workers there at $11.72. He also said that Ikea's minimum is also sometimes higher than the calculator's suggestion, because of the need to pay competitively higher wages or due to local minimum-wage regulations.
When asked if the company is committing for the foreseeable future to use the MIT calculator, which Glasmeier updates annually, Olson would only say the company would "evaluate our wage structure every year."
But for now, Ikea seems to be satisfied with its success. The new approach to wages has resulted in higher quality job candidates and 5 percent lower turnover for existing employees, according to Olson. Since last year, said Olson, the company has been hiring for three new stores, "and the applicant pool for all those locations has been above expectations."