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A Surprising Benefit of Low Pay in Family Businesses

David Ransburg
David Ransburg

I recently met with a family business owner who is quite open about the fact that he consistently pays his employees at a below-market rate. Given that he also makes great efforts to ensure that his company delivered the very highest level of quality, I questioned him about his low pay strategy.

I thought – somewhat naively, it would now appear – that higher quality demanded higher employee wages. He believed that low pay helped him to find the right employees for his company – those who would be dedicated, hard working, and have a strong belief in the company’s vision and mission. In other words, offering low pay – and having a reputation for doing so – provided his company with employees who weren’t working solely for the money. And, he believed, an employee who works for reasons other than just the money is an employee who will ultimately deliver higher quality.

While I remained somewhat skeptical, his argument did move me slightly because it reminded me of the common refrain about the low pay received by teachers. Even though all agree that teachers are so important, we, as a society, want them to be passionate about their jobs and to see their work as meaningful – not to do it for the money alone.

Now, there’s some research that further supports this line of thinking. The Institute for the Study of Labor (IZA) in Bonn found that relatively few workers are motivated by their organization’s mission, BUT those who are so motivated provide substantially higher effort AND receive lower pay. Granted, higher effort does not guarantee higher quality… but, I would suggest that it’s a good start.

Have you found a similar benefit of low pay in your family business? Or, are there other surprising benefits of low pay that you’ve seen?

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