In the world of compensation strategy and design, some things are highly predictable. When an expense goes up, there must be a correlating financial adjustment in order to pay for that increased expense. This adjustment could be realized through one of a few options, which include the potential reduction of other expenses, or the increase of other revenue streams in order to cover increased costs.
With the implementation of minimum wage increases in Ontario, we are starting to see how the required cost adjustments are being achieved. According to numerous media reports, the restaurant industry is offsetting the increase in payroll expenses by raising product prices – a cost that is ultimately absorbed by the consumer.
Click here to read about the impact of minimum wage on consumer pricing.
As noted in the article, the increase in consumer price adjustments can be connected directly to minimum wage increases for employees. It is interesting to note, however, that the extent of the increase in employer expenses is significantly greater than expected. It seems that many employers in Ontario may not have taken into account some of the additional compensation-related cost increases that have resulted from legislation imposing a higher minimum wage.
This article provides us with a good example of how and why compensation planning must take into account more than just wage or salary increases.
No matter how the financial adjustment is realized, good compensation strategies will require careful planning and timing if they are to be implemented successfully – and this includes a broad range of compensation-related considerations.
Additional minimum wage increases are a known quantity for all businesses in Ontario. With this in mind, businesses need also to ensure that thoughtful compensation planning (taking all cost-related expenses into consideration) is a known quantity – one that feeds into rational and reasonable economic responses.
Discussion Questions:
- How would you design an affordable compensation strategy that supports on-going minimum wage increases over the next two years?
- What types of rewards or incentives could you offer to employees that are cost neutral?
- From your perspective, do restaurant owners have other options to pay for increased wages besides increasing menu prices? Explain your rationale.