In the December, 2006, issue of Harvard Business Review, Wayne Cascio has a short article titled “The High Cost of Low Wages,” taken from a longer article he did for Academy of Management Perspectives. In the article Cascio, a professor of management at University of Colorado, compares the salaries of two retail giants, WalMart and Costco.

WalMart’s subsidiary, Sam’s Club, competes directly with Costco. Yet while Sam’s Club pays an average of about $10 an hour, Costco pays an average of $17 an hour. In the cut-throat business of retailing low-price merchandise, where wages make up a substantial part of costs, how can Costco afford to pay wages that are more than 40% higher than Sam’s Club wages?

Cascio points out that the “fully loaded cost of replacing a worker who leaves (excluding lost productivity) is typically 1.5 to 2.5 times the worker’s annual salary” — but to be conservative, Cascio pegs it at 60% of a worker’s annual salary. In addition, Cascio points out that each year Sam’s Club loses “more than twice as many people as Costco does: 44% versus 17%.”

Bottom line: even though Sam’s Club pays far less, the annual cost of employee churn for Sam’s Club is $5,274 per worker, whereas it’s only $3,628 per worker for Costco. Cascio concludes: “In return for its generous wages and benefits, Costco gets one of the most loyal and productive workforces in all of retailing…. These figures challenge the common assumption that labor rates equal labor costs.” [Emphasis mine. Reprints of this article may be purchased online: Link.]

While Cascio does his calculations for the world of retailing, I believe the same principles apply to congregations. Churches often pay low wages in the mistaken assumption that they are saving money. However, low wages can contribute to high turnover. And in the church world, it takes far longer to build full productivity in an employee than it does in the retail world, suggesting the full cost of replacing a church worker is substantially higher than it is for Costco or WalMart.

Given the phenomenon of Baumol’s cost disease [which I defined in a past post: Link], I believe that churches also have to find ways to boost productivity. Generous salary and benefits packages alone won’t boost productivity — good management and evaluation are obivously necessary as well. On the other hand, low salary and poor benefits are likely to contribute to lower productivity — if you pay WalMart-level wages, you’ll get WalMart-level work.

Paying low wages and providing skimpy benefits packages may seem to save money for churches in the short term. But the most cost effective solution is to cut back on staff turnover and to boost productivity, by providing excellent salary and benefit packages.

For reference: Tables of salary guidelines for Unitarian Universalist churches can be found online: Link. Salary guidelines for the American Guild of Organists can also be found online: Link.