Several years ago, Bank of America created a bit of a stir within the financial services industry by establishing a minimum wage of $20 per hour. All entry-level jobs, such as tellers, would be paid this higher wage. This wage is considerably higher than what the living wage movement proposes at $15 per hour, which supporters believe will help keep people out of poverty. For Ceto clients that competed with Bank of America within their markets, this created a great deal of concern.
A few years later, Brian Moynihan, Bank of America’s CEO, told the financial press that the increase in the Bank’s minimum wage significantly reduced turnover and saved the Bank millions of dollars in lost productivity, recruiting, and new hire training. Now, Bank of America is planning an increase from $20 per hour to $25 per hour over the next four years. In addition to lower staff turnover, the Bank believes that the higher wages are attracting better-quality employees.
The High Cost of Employee Turnover
As an operational efficiency expert who works with client organizations to improve their operational capabilities and lower overall cost, paying a higher entry-level wage may seem counterintuitive. However, employee turnover is expensive and creates waste in the organization. It takes time and effort to train employees, and many clients complain about the revolving door within their branches. Some clients have 50% or higher turnover within their front offices.
In some cases, turnover results from an entry-level individual transferring internally to a higher-paying position. Considering it often costs $5,000 or more to replace entry-level employees, it may be worthwhile to pay better and keep them longer rather than spending large amounts to recruit and train new people. Also, organizations with high turnover require higher staffing levels to maintain productivity and client servicing. Lower turnover requires fewer employees to operate daily. These are strong reasons to consider paying a higher rate to entry-level employees.
Higher Wages Lead to Happier and Stronger Employee
But what if that entry-level front-office position paid like a job in the back-office? Ceto recommends clients consider an internal transfer after someone has been on the job one year instead of the typical six months. This way, clients promote an excellent branch employee who stays longer within the branches. Bank customers often complain about excessive branch turnover, making it more difficult to build lasting relationships. Increasing starting pay for entry-level employees may help alleviate some of these issues.
Branches that migrate to a universal model but pay lower wages and hire primarily high school graduates tend to have more retention issues. This turnover makes it challenging for staff reduction as universal models strive to attain. Some financial institutions operating within a universal banking model recognize that college-educated employees may cost more but are more qualified to work within the universal model. By paying higher wages, institutions can attract and retain higher-skilled talent who tend to stay longer and provide a better customer experience. These factors lead to continuity in branch operations and higher customer satisfaction and customer retention.
In addition to the financial benefits an organization may reap from paying a higher wage for entry-level jobs, it is also a boon to the organization from a societal perspective. The institution paying a living wage or higher helps their communities thrive since employees can afford to purchase more goods and services that stimulate the overall economy. Since about 75% to 80% of our economy is consumer-driven, it makes sense that higher-paid individuals will spend more money benefitting everyone, including our institutions.