January 5, 2019

FORD’S BETTER IDEA: On this day in 1914, Henry Ford announced that the Ford Motor Company would essentially double wages to $5 a day.

Worker turnover had been high at Ford; in 1913 it had hired 52,000 men for 14,000 jobs. The $5 wage was intended to sharply reduce turnover and the delays, training costs, and employee errors that stemmed from high turnover.  The plan worked (at least at first). Once an employee got a $5 job at Ford, he was unlikely to want to let it go.

But the raise came with a number of strings. Workers had to abstain from alcohol, not physically abuse their families, keep their homes clean, and save part of their paychecks. Ford believed that problems at home, including money problems, led to problems on the job and to absenteeism.

It is frequently said that Ford raised his workers’ pay in order to induce them to buy Ford automobiles and hence raise profits for the company. But Ford wasn’t that math-challenged. There is no way in heaven that 100% of that money would make it back to the company. That said, he probably did sell more cars to his workforce than he otherwise would have. And I am sure he wasn’t against that.