The Ethics of Wages

By Kyle Hubbard, Ph.D., Assistant Professor of Philosophy | January 6, 2017

Money

The minimum wage was one of the most common ballot questions posed to voters in the past election cycle. While the minimum wage votes were a bit lost amid all the attention paid to the presidential race as well as the marijuana ballot measures, four states approved measures raising their state minimum wages to at least $12/hr. by 2020 and one state (South Dakota) voted overwhelmingly against lowering the state minimum wage. In addition to the growing national campaign pushing for a $15/hr. minimum wage and the political discourse surrounding income inequality, it is clear that wages will be a prominent political topic going forward.

While these debates about the minimum wage play out in the political arena and involve the legal question about what wage governments (state or federal) should mandate, wages also have a significant ethical component. Regardless of the legal minimum wage, there is a more profound ethical question about wages that all employers (government, private, public, and non-profit) must wrestle with, i.e., 'what is the right amount to pay to our employees and how should we pay them'?

Too often, employers don't think about wages from an ethical perspective but merely from an economic one. The typical employer says something like, "we pay our employees what the market will bear." But in order for this answer to be ethical, further questions needs to be asked such as, 'Why should I pay an employee the going market rate'? 'Are there good ethical reasons for doing so'? The following reflections are an attempt to help employers begin to consider some of the ethical questions about wages. This is not a complete list and there are certainly many more questions for employers to consider.

1) Can my employees live on their wages?

Much of the impetus behind the campaign for a $15/hr. minimum wage is the idea of the living wage. $15/hr. is an attempt to approximate the wage that a person needs in order to have her basic needs met. While a $15/hr. minimum wage law would mandate such a wage, every employer should be asking, can my employees live on the wages we're paying them? This may not necessarily mean paying $15/hr. For example, if you employ teenagers for part-time summer jobs, there may be ethically legitimate reasons to pay less than what one would pay to a full-time adult raising a family. What factors should be considered in determining a living wage? Many factors need to be considered, from housing and food to the cost of transportation.

One helpful place to look for a rough approximation of a living wage is MIT's living wage calculator which breaks down the costs of living, and the corresponding living wage needed, for every county in the US. It is a good place to start when considering what a living wage should include. One important consideration about the living wage that tends to be overlooked in the legal minimum wage debate is that each organization's ethical obligations to their employees are different. A large corporation that banks a healthy profit most quarters may simply be able to pay their employees more than a small business startup. The living wage is an ideal that I would argue every employer should aim to pay. If it is not possible yet, set it as a significant priority/benchmark for the organization to achieve. If it is not a priority, then it is too easy to spend money in other areas of the organization.

2) How do we compensate our employees?

Another important consideration beyond how much to pay your employees is how you will pay them. Many business scandals have arisen from compensation structures that encourage shortcuts or outright corruption. For example, the Wells Fargo scandal is rooted in the company's compensation structure that almost required employees to illegally open up bank accounts without customer permission in order to meet their sales quotas. While some blame can go to individual choices, more of the blame must go to those who implemented a system that punished employees who did not meet their quotas. While the Wells Fargo case may be an extreme one, it is worth asking about your organization's compensation structure, are we tacitly promoting an unethical and unhealthy culture through the way we incentivize our employees? Is our internal culture so competitive that it all but requires our employees to cut corners or to not cooperate with their coworkers because they are in such fierce competition with them? Sure, competition can motivate people, but people are not just competitors. Most people are also motivated by an organizational culture that encourages and rewards cooperation, teamwork, and quality work. Is your organization rewarding quality work or is it rewarding achieving quotas without regard to how employees are achieving them?

3) How should you reward education, experience, and loyalty?

When hiring a new employee, employers often pay more for education and experience. Insofar as it is relevant to the position, there does not seem to be anything ethically problematic with doing so. The working assumption being that an employee with more relevant education and experience will need less training and perform quicker and higher quality work than someone who lacks the same education and experience. However, I wonder if employers too often overvalue these things? Once an employee has been with you for a while and is now just as good, if not better, an employee than the one with prior education and experience, is he or she brought up to the same compensation level?

Finally, how should employee tenure and loyalty be factored into wage decisions? Loyalty and fidelity is an important human virtue and the longer an employee has committed to the organization, the more her commitment should be factored into the wage. However, one problem is that the loyal employee often is not rewarded in the same way as a peer who is constantly on the lookout for another job offer that she will use to negotiate a higher salary. While it may be necessary to raise this employee's salary to keep her, does your organization also reward the person who does the same work but does not come in with the other job offer and is instead a faithful employee to the organization? Too often when it comes to compensation, employers forget the value of the steady and faithful employee.

These are just a few of the ethical questions to consider when determining wages and the compensation structure for an organization. If you are interested in continuing the conversation about wages or about other ethical issues in business governance, please comment below or read other posts on our blog.

We also invite you to enroll in the next non-profit governance workshop or attend an upcoming speaker event to learn more about ethics in governance.