Bank of America made waves in the financial services industry by implementing a $20 per hour minimum wage for all entry-level positions, including tellers, several years ago. This wage exceeds the proposed $15 per hour living wage advocated by poverty alleviation supporters. However, Ceto clients, who are Bank of America's competitors in their respective markets, expressed concerns about this move.
Bank of America's CEO, Brian Moynihan, later informed the financial press that the increased minimum wage significantly reduced turnover and saved the bank millions of dollars in lost productivity, recruitment, and training expenses. The bank plans to further raise the minimum wage to $25 per hour over the next four years, believing that higher wages attract higher-quality employees.
The Cost of Employee Turnover
As an operational efficiency expert assisting client organizations to enhance their operational capabilities and reduce costs, paying a higher entry-level wage may appear counterintuitive. However, employee turnover proves to be an expensive and wasteful aspect of any organization. Training employees requires time and effort, and many clients lament the revolving door situation in their branches, with turnover rates exceeding 50% for front-office staff.
In some instances, turnover occurs when entry-level individuals internally transfer to higher-paying positions. Since replacing entry-level employees often costs $5,000 or more, providing better compensation and retaining them for longer durations may be more worthwhile than incurring substantial expenses in recruiting and training new hires. Moreover, organizations with high turnover must maintain higher staffing levels to sustain productivity and client service, whereas lower turnover necessitates fewer employees for daily operations. These factors serve as compelling reasons to consider offering higher wages to entry-level employees.
Higher Wages Lead to Happier and Stronger Employees
Imagine if an entry-level front-office position offered a compensation package similar to that of back-office roles. Ceto recommends that clients consider promoting outstanding branch employees to internal transfers after one year rather than the typical six-month period. This approach enables clients to promote excellent employees who stay longer within the branches. Excessive branch turnover often leads to customer complaints and impedes the development of lasting relationships. Increasing the starting pay for entry-level employees may help alleviate these issues.
Branches transitioning to a universal model while offering lower wages and primarily hiring high school graduates tend to encounter higher retention challenges. Such turnover complicates staff reduction efforts essential for achieving the goals of the universal model. Some financial institutions operating within a universal banking model recognize that college-educated employees may command higher costs but possess the qualifications necessary for success within the universal model. Institutions can attract and retain skilled talent by offering higher wages, leading to longer tenures and improved customer experiences. These factors contribute to operational continuity, enhanced customer satisfaction, and increased customer retention.
In addition to the financial benefits an organization may reap from providing higher wages for entry-level jobs, it also holds societal advantages. Paying a living wage or higher contributes to thriving communities as employees can afford to purchase more goods and services, stimulating the overall economy. Considering that approximately 75% to 80% of our economy relies on consumer spending, it makes sense that higher-paid individuals will contribute more to the benefit of everyone, including our institutions.