Why paying above minimum wage makes sense

We’re a medium-sized business trying to attract and retain the brightest workers. Our newly hired chief executive of f icer (CEO) is planning to offer competitive pay and perks. As the human resources (HR) manager, I’m tasked with studying the matter carefully. Please help me navigate this. — Flower Girl.

Good for you and your CEO. Many organizations treat the minimum wage like a sacred ceiling rather than a legal floor. They pay workers just enough to keep them from leaving and expect them to work hard enough not to get fired. But that’s a false economy.

However, payroll savings don’t automatically mean saving money. In reality, the logic of paying above the minimum wage can be summarized in one line: you either pay for performance or pay for problems.

In 1914, Henry Ford shocked the business world by doubling his workers’ wages. Competitors thought he was crazy. Within months, turnover dropped, output soared, and the Ford Motor Co. became a productivity legend.

Ford’s logic was simple: paying well is not charity; it’s strategy. He understood that happy workers make better cars — and eventually, more profits. More than a century later, his lesson still applies in factories, offices, even fast-food restaurants.

When you pay only the bare minimum, you attract applicants with the bare minimum credentials. There’s nothing wrong with that — unless you’re in business to win, not just survive. For example, a salary that’s at least 50% higher than the minimum sends a strong message:

We want the best and the brightest workers, not the cheapest.

Let’s say the minimum daily wage in Metro Manila is P700. If your company offers at least P1,100 for the same job, your job ad suddenly becomes more attractive than 80% of other companies. You won’t just get more applicants; you’ll get better ones.

In HR math, better input equal better output.

Low pay leads to high turnover. High turnover leads to high replacement costs. It’s a vicious cycle where you keep hiring, training, and losing people. It’s like filling a leaking bucket with water.

A competitive pay structure is better than a constant hiring headache. Choose wisely — pay 50% more to keep a worker, or spend 100% more while finding, training, and breaking in a new one. You may not realize the total cost yet, until you do the HR math.

When you pay decently, workers stick around — as long as you treat them kindly. They develop loyalty, competence, and that priceless thing called institutional memory that you can’t get from new hires.

MOTIVATIONAL SPEAKERS
Organizations spend at least P150,000 per engagement to hire popular motivational speakers to boost employee morale for few hours. But a fair and decent wage motivates every single day. That’s not all. Motivating people is job number one for line supervisors and managers, not motivational speakers.

You don’t need fireworks in the form of motivational seminars. People who feel respected don’t need to be reminded to work hard. They do it naturally — and productivity rises not because of slogans or inspiring stories, but because of management sincerity expressed through daily employee engagement.

Further, underpaid workers often require constant supervision. They look busy when the boss is around and vanish as soon as they’re gone. Over time, the company spends more on close monitoring than on actual management.

Higher-paid employees, on the other hand, value the trust given to them. They need guidance, not babysitting. They’re self-motivated because they feel invested in. The result? Managers can focus on bigger strategic things, not surveillance.

Employees who earn above-market wages carry themselves differently — with pride and professionalism. That attitude spills over to customer service, teamwork, and product quality.

DOING IT RIGHT
It’s not easy. You have to do it systematically through an intelligent process. You don’t simply follow the advice that people must be paid at least 50% above the minimum wage; you must do it properly with the following steps:

One, compare notes with industry leaders. Benchmark with friendly organizations within your location — in an export-processing zone, perhaps. If not, buy the latest salary survey report. That will help you determine whether 50% above the minimum is enough.

Two, establish or review your salary structure. This covers job analysis, job descriptions, job grade levels, and salary ranges (minimum to maximum) for each level. This must be supported by a robust policy and regular internal equity checks.

Three, design merit-based incentives. People should compete not out of desperation but aspiration. They should aim for promotions and pay increases because they want growth — not just survival — done through an objective performance appraisal system.

Four, have competent line leaders. Train your supervisors and managers to become effective coaches. Clarify their roles. Give them proper and right exposure. Build a culture of thinking with the help of their workers.

In conclusion, understand that the cheapest labor often becomes the most expensive mistake. Saving hundreds of pesos upfront can cost you far more in errors, delays, and rework — proof that bargain hiring is rarely a bargain in the long run.

Consult your workplace issues for free. E-mail Rey Elbo at elbonomics@gmail.com or DM him on Facebook, LinkedIn, X or via https://reyelbo.com. Anonymity is guaranteed.