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Gap is finding out whether boosting the minimum wage really boosts business

With companies racing to increase their minimum wages, it's not clear yet whether they'll see a return on investment.

(Pat Wellenbach/AP)

Gap Inc. might not have raised wages before raising wages was cool, but it certainly beat a lot of other companies to the party.

Fully a year before Wal-Mart, Target and T.J. Maxx announced last month they would bump their baselines to $9 an hour, Gap — which has 65,000 employees across its brands in the United States — had already done so, making it among the first U.S. companies to announce an across-the-board hike in its minimum wage. The stated reason was clear.

"Our decision to invest in front-line employees will directly support our business, and is one that we expect to deliver a return many times over,” chief executive Glenn Murphy wrote in a letter to employees.

Those returns aren’t just important for Gap. They could also persuade other companies to pay workers more, as well, if the experiment turns a profit. It’s been almost nine months since the $9 wage kicked in. How’s that return on investment coming?

So far, there’s been one clear reaction, a Gap executive said at a conference Tuesday in Washington. For years, the company had tried to get more people to apply to work at Gap’s stores. Only the wage increase made any difference.

“Almost immediately, we saw our applications increase by double digits,” said Dan Henkle, the company’s global head of human resources, on a panel at the Council of Institutional Investors’ spring conference. That, in itself, should lead to better performance, he thinks. “The idea is, the more people who are applying to your stores, the greater the pool to choose from, you’ll get the best talent into your stores."

As for things that impact the bottom line, like employee retention and in-store sales? Well, they don’t know yet.

“One of the things we’ve asked for is patience,” Henkle said. “We’re not expecting that some of the biggest investments we’re making are going to show overnight success.”

They do expect it to show success down the road, though. To that end, Gap is working with Harvard supply chain expert Michael Hiscox to set baselines and measure change. Ultimately, Henkle said, he believes in the “good jobs strategy" articulated by MIT professor Zeynep Ton — who sat on the panel with him — and seemed baffled by the stock price hits that companies have taken after announcing wage increases.

“Why is it that this investment was getting so much scrutiny when companies make investments all the time in marketing, IT, real estate?” Henkle asked. “Of course, it’s going to cost money, but there are benefits associated with those investments."

The conference audience included fund managers and capital strategists for unions like the United Food and Commercial Workers, which had come to Gap originally with the proposal to raise wages, and brought Ton's work to Gap's attention.

Of course, outside the frontline workforce, there are other operational changes that can make people happier and more productive. For back-office employees, Gap has also instituted a “results-only work environment,” which allows people to work whenever from wherever, as long as they get things done. “The results were spectacular by any measure,” Henkle said.

The company is also tinkering with reforms to the scheduling system, which has been a big priority for activists who argue that more predictability in shifts and full-time positions are crucial for worker livelihoods. Henkle has been working with Hastings College of Law to devise pilots in some 30 stores nationwide that could facilitate shift swapping, for example, which helps people get a break if something unpredictable comes up.

Finally, Gap has gotten rid of performance reviews, which was a very popular move — but haven’t ditched performance measurements. They don’t really need to, after all, with so many other ways to figure out how you’re doing. “We have millions of metrics,” Henkle said.

Which, of course, is why they’ll be able to figure out whether raising wages makes a difference.

This article has been updated with information about the scheduling pilots and UFCW's role in Gap's decision to raise its minimum wage. 


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