Giving Workers More Money is Key To Increased Productivity Says Japanese CEO
Masaru Tange, the owner of Tange’s Shift Inc, Japan’s highest-performing stock, says the secret to the success of his companies is that he acquires smaller, underperforming businesses and then boosts employee pay, Bloomberg reported.
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Tange’s Shift is a software testing company that acquires businesses near the bottom of the industry supply chain “and raises their engineers’ salaries.” His strategy is to acquire lower-level companies and increase both their utilization and performance. By increasing the efficiency of lower level companies, he eliminates the need — and cost for — middlemen for his outsourcing process.
Since he started in 2014, shares of Tange’s Shift have risen more than 5,500%. The company’s market cap is more than $2.3 billion, putting it on par with American mid-cap companies.
Tange stated, “I have a strong urge to rescue these young employees … I want to create a fair working environment through M&A.”
His strategy falls in line with a premise long-argued by economists called the efficiency-wage theory, which is the idea that increasing wages above market level can essentially pay for itself through increased worker output and retention.
In Tange’s case, the theory rings true. Raising salaries for workers paid for itself by eliminating the cost and need for middleman outsourcing. According to the Wall Street Journal, there is increasing evidence that efficiency-wage theory is true, and that higher wages can boost the bottom line and pay cuts can create employee discontent and even sabotage.
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According to a study by the Workplace Research Foundation, increasing “employee engagement investments” by 10% can increase an organization’s profits by $2,400 per employee per year.
Opponents of wage hikes argue that increases in salaries will ultimately lead to job losses, reported Forbes. Recent research from the Harvard Business Review suggests otherwise though, Forbes added.
Higher wages also suggests a drop in employee turnover, the Wall Street Journal reported. They cited a study by Harvard doctoral students where salaries at an online retailer warehouse were increased from $16 to $18 an hour.
“Prior to the increase, employees moved an average of 4.92 boxes per hour. A $1 pay increase boosted this figure by a third of a box. Higher wages also led to a large drop in employee turnover: a $1 increase reduced the quit rate by 19%,” the WSJ reported.
Tange’s efforts are in line with some of this research, but might not be the only contributing factor needed to keep employee morale and participation high. Factors like career opportunities and brand reputations are also seen as more significant drivers of engagement, according to Forbes.
The most effective strategy Forbes stated is a combination of increased wages and defined growth plans for employees within an organization. Leveraging these different ideas, they say, can maximize one’s odds of getting the most of employees.
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