By Jack Cumming
You may think that a $30 minimum wage would be madness. If so, then madness may be in the future just as we are emerging from the “madness” of the pandemic. Bank of America has just announced that it is moving voluntarily to a $25 minimum wage. That is likely to draw a jump in job applications. There are two sides to the employment challenge: attracting new employees and retaining them for the long term.
It was a bold gesture when in January 1914 Henry Ford doubled workers’ wages. It was big news. It solved his labor challenges. It became the engine for the rise of American workers into the middle class, and it lifted Ford to be the premier American car manufacturer. Can senior living act with comparable boldness and foresight?
With the pandemic, the senior living industry showed its resiliency in the speed with which it responded. It can do as much in responding to the growing pressure to increase wages across the industry. The challenge is that the market is already groaning at the cost of senior living. To meet the wage challenge fundamental change will be needed.
How We Got Here
You’re familiar with the free-rider problem. We have it with vaccination. Everyone should get vaccinated, but if everyone else gets vaccinated, then I won’t have to, and I don’t want to. That egotistical holdout is what economists call a free-rider. Have efforts to pay executives handsomely created a free-rider phenomenon that is causing political turmoil?
Executive pay wouldn’t have become a political force if everyone had been moderate in the pay packages offered to executives. That didn’t happen. The rationalization arose that competent executives could only be attracted and retained if their compensation was competitive. The Towers Watson consulting firm has made a business out of providing such competitive compensation studies.
Unintended Consequence of IRC 4958
For nonprofit executives, Internal Revenue Code provision 4958 loomed threateningly with draconian sanctions for excess pay. Comparative studies to the rescue, and compensation spiraled upwards. The stock option-driven pay packages of for-profit corporate executives were part of the comparisons since nonprofit executives might otherwise leave for the greener (color of money) pastures elsewhere.
Unfortunately, stories of high-paid executives play into a perception that some people are benefiting while others are unjustly disadvantaged. Result: today’s political pressure to increase lower-paid workers’ share of the economic pie by government action.
The median annual pay package for a CEO at an S&P 500 company hit $12.7 million in 2020, according to a report from the Associated Press. That’s over $100 per minute if the CEO works a full 2,000 hour year, compared with 50¢ at a $30 hourly wage or a quarter for the likely new $15 minimum. Is the CEO as effective as the combined efforts of 200 lesser workers (or 400 at the proposed minimum)?
The senior living industry is no exception to these political pressures for pay equity. Is it best to wait for government action, or is there an advantage in acting now? What steps should corporate leaders anticipate to prepare for rising wages? Could early action to elevate lower-level workers’ pay and opportunities strengthen staff caliber and overcome the workforce challenge? Does the board’s compensation committee give as much care, study, and attention to the compensation and perquisites of lower pay workers as it gives to executive compensation? When to act and how to respond are crucial strategic business judgments now confronting boards and executives.
Can It Be Done?
Throughout our nation’s history, business leaders have risen to whatever challenges are thrown at them. When businesses are forced to pivot – as was the case with the pandemic, and as continues to be the case with rising wages – leaders prove to be adaptable. If the target is a $30 minimum hourly wage for a corporation, resourceful leaders can meet the challenge. It can be done. It’s not easy.
Obviously, such a mandate – or corporate goal – would require accomplishing the necessary workload with fewer employees. Savings from technology, e.g. equipment to facilitate a two-person transfer, or to simplify recordkeeping, are the easy part. Rethinking the service offering to eliminate redundant or unnecessary work steps or even positions, is harder.
An objective external analysis of work processes can often show what’s possible. No executive likes to face layoffs. There is a common perception that nonprofit executives find it even more difficult. The redeeming truth is that most laid-off workers land on their feet and thrive.
Finally, there’s what’s most difficult – eliminating entire departments. Kendal Corporation, for instance, has residents manage most of the life enrichment function with a lower staffing requirement than is common across the industry. Select independent living resident volunteers can be crucial in helping pivot to a higher minimum wage for paid employees. This, of course, requires that those residents who are chosen be trained and qualified for what tasks they take on. They also have to be expected to meet reliability and competency standards to be retained in the volunteer program.
Using resident volunteers to handle chores in support of higher wages for staff would be a radical departure from today’s practices. Senior Centers already do this, but the senior living industry tends to think that residents just want to retire and be amused. Many residents do in fact retire into a recliner, but there are those who might step up to meet qualification standards if it enabled higher wages for staff.
Rethinking the common “no tipping” policy is another possibility. For instance, with the workforce challenge, many providers now offer less frequent housekeeping with a modest rebate on the monthly fee as an offset. Those providers could allow those residents who don’t need the offset to redirect it to the housekeeping staff, who now have a more complex workload. Similarly, it’s common in private clubs, which also do not allow tipping, to add a service charge in lieu of tips to meal and other service tabs. These changes, too, can help up compensation for workers. Such bold thinking requires cooperative engagement with residents and employees. Not all senior living leaders are capable of engendering that kind of buy-in.
Is This Too Radical?
At this point, the possibilities are clearly too radical for most executives. That opens the opportunity for innovators to consider new projects. For instance, an expert senior living operator can partner with existing multi-family operators who may have aging resident populations. The classic case is the Morningside Gardens Cooperative Community in New York City which was early recognized as a Naturally Occurring Retirement Community (NORC). That recognition led to the creation of Morningside Retirement & Health Services, Inc. for:
- “Helping frail and at-risk elderly residents of Morningside Gardens remain in their apartments comfortably, safely, and with as much independence as possible,” and
- “Providing programs and activities which promote health and opportunities for engagement with particular attention to the special needs of the infirmed, homebound and isolated 60+ age adults living in Morningside Gardens.”
These purposes are the expertise of senior living operators and meeting these needs can provide an ancillary line of business with lean staffing. Since multi-family housing already tends to have lean staff, and the multi-family industry avoids large central corporate offices, the result can be an emerging business model that can help meet the objective of elevating staff wages through productivity improvements, greater employee commitment, digitalization and technology, and an obsession with cost containment.
Restoring Wage Equity
Lastly, we have the question of what is a fair day’s pay for a fair day’s work? That’s a question that applies to top executives as well as frontline workers. If a corporation sets an above minimum pay level for top or bottom workers, the expectation is that performance will be commensurate and that the hiring and promotion processes can be proportionately more selective.
$30 is an arbitrary target . . . it’s a goal that we can work with and analyze to determine practicability and fairness. It’s likely that government will mandate a new minimum wage, with $15 an hour the number that is most often cited. Minimums seem to be workable, even as they create cascading effects that are difficult to manage.
IRC 4958 was an attempt to set a maximum. The idea of a mandated maximum failed, and we have seen top pay packages escalate. Do businesses get better performance from a CEO who is paid $900,000 than they do from one who is given $500,000? The evidence suggests that there is little correlation between executive pay and corporate performance. It’s time to restore the appearance of equity and fair play. Senior living can distinguish itself by taking the lead.
Boards and customers can expect fairly paid workers to commit to self-improvement undertakings – operating efficiency, education, and industry engagement. That can help the corporation better meet its mission and values with higher expectations of competency, performance, and results. Bold actions can change the face of senior living to make it more attractive for the generation now entering age eligibility. It may even unleash creative thinking to overcome the objection that “we’re not ready for that yet.”