An Answer for the Labor Fight

In the “fight” for labor, an earned-hour compensation model can be your answer

The recent WSJ article, Online Retailers’ New Warehouses Heat up Local Job Markets, paints a very real picture of what we see and hear daily from our e-comm fulfillment partners. The surge in e-comm fulfillment paired with the low unemployment rates is creating upward wage pressure and causing fulfillment centers to apply creative measures to bring individuals into their doors instead of those “across the street.”

To address all of these challenges – and to ensure, that we get our gifts or goodies today or tomorrow – fulfillment centers are pulling out all stops. In addition to increasing wages – significantly – fulfillment centers are applying a number of creative measures to attract and retain personnel, such as paying attendance bonuses, subsidizing food or beverages, hosting holiday or celebration meals, and so on.

All of these actions are helping fulfillment centers make their delivery commitments, and provide better quality of life to the associates, but this is also leading to excessive turnover as associates will go across the street for more money or perks. This turnover leads to an expensive cycle of attracting and training new personnel, hoping that they hang on long enough to make it through the full learning curve.

In short, this cycle often leads to fulfillment centers paying a premium dollar for unproductive hours.

An earned-hour compensation model can be a mechanism to help these companies reduce turnover and minimize their risk of paying for unproductive hours. This model allows an employer to stop paying for hours and start paying for the production expected in an hour. The employer is not invoiced for the number of hours an associate earns based on his or her production BUT is paid on the hourly production expectation -hence the term “earned hour.”

This approach accomplishes a few important benefits:

1) For the employer, the earned hour model minimizes the risk of paying for unproductive hours. The employer is invoiced for the number of earned hours. The earned hours represent the associate’s total production during on-standard time* divided by the expected hourly production. A productive associate will generate more earned hours than an unproductive associate, and the invoice will reflect that. This benefit minimizes the employer’s risk of paying premium wages for unproductive hours. (*On-standard time represents the time when an associate is doing his or her core task or picking, packing, or otherwise. Downtime is charged on an hourly basis. There is incentive for both parties to minimize down-time.)

2) The associate is incentivized toward peak performance by way of bonus pay as he or she exceeds certain thresholds. In an earned hour model, the associate has the capability of earning more money as he or she exceeds certain production thresholds. This incentive in itself helps to counteract the challenge of retaining personnel when the neighboring fulfillment center increases wages by $0.50 per hour. When an associate has the ability to earn a couple dollars more per hour through productive performance, he or she is much more likely to stay put, thus reducing the cycle of turnover and contributing to the final benefit …

3) The longer-retained and more productive employee is contributing to lower costs per unit picked (or packed, or …).

As the growth in e-comm fulfillment will continue, so will the battle for labor. The earned hour model can be an effective tool to not only help employers fill the number of positions needed, but also to fill them with a more productive workforce.

Leave a Comment