In this Jubilee year, the issue of wealth distribution, especially as it relates to the larger macroeconomic issues of international debt and globalization, has received a good deal of attention and analysis. For this we should be thankful. What has not received much attention, however, are the responsibilities of managers and entrepreneurs toward wealth distribution in their own businesses. How should managers and entrepreneurs, especially those who bear the name Christian, distribute resources within their limited sphere of influence? Or to put it more bluntly: How do they become distributors of justice, rather than maximizers of self-interest? So as not to be too abstract on this topic, I want to examine a specific organizational practice that has specific implications for wealth distributionwages.
Managers often describe wages as an instrumental activity that "attracts, rewards, retains and motivates employees who best achieve the strategic goals of the organization." These strategic goals tend to be exclusively economic in nature: to increase productivity and efficiency, raise customer satisfaction and retention, maximize shareholder wealth and so forth. This instrumental value of pay, while important, tends to cloud and even crowd out a Christian insight: A wage can never exhaust human labor. Work is always more than its economic output or instrumental value, precisely because work changes God’s creation, and we in turn change ourselves. There is no price to compensate us for this kind of work.
One company wrestling with integrating this noble and transcendent vision of human work with the instrumental reality of wages is Reell Precision Manufacturing in St. Paul, Minn., a producer of hi-tech clutches and hinges for the office-machine and computer industries. The company operates on the practical application of Judeo-Christian values for the "growth of people." Based on its mission, Reell believes that all its workers should be paid at least a living wage, or what they call a target wage. In 1996 their estimate of a living wage in St. Paul was $11 per hour ($22,000 per year). The actual market-rate wage or "sustainable wage" for assemblers in the company was $7 per hour ($14,000 per year).
The discrepancy of $4 between a living wage and a sustainable wage resulted from a tension between two principles operating in the company: the principle of need and the principles of business economics. While the management of Reell desired to pay its employees not only their market worth, but also the worth of who they are (persons made in the image of God who deserve to have at least their minimum needs met), management was all too aware that customers would only pay for the "instrumental value" of work. If Reell would pay $11 per hour while competitors paid $7, Reell’s cost disadvantage would increase their likelihood of losing customers. Realizing that the ought of a living wage always implies the can of a sustainable wage, the company had to rethink seriously how it was doing business and had to act creatively.
This rethinking took on several dimensions. First, Reell’s management resisted the temptation to abandon their responsibilities to the mechanical forces of labor markets. They saw themselves as moral agents in the marketplace and not as mere technicians. Nor were they simply working toward a target wage because they thought it would attract and retain employees who would make the company more money (although they certainly welcomed the economic benefits of the policy when they came). In the words of Aquinas, Reell’s managers were "well disposed toward" their employees.
Second, they realized that every action has a reaction, and that raising wage levels without changing the work process would have serious consequences on their cost structure. So in order to raise labor rates to pay a living wage, they would have to reduce their overall total costs. They eventually saw that low wages were merely a symptom of a much larger problem in how the company worked. When work is designed to use $7 of talent, it is difficult to pay people anything more than that amount.
What concretely enabled the company to pay a living wage was a whole new way of doing work. Reell redesigned the assembly line from a Command-Direct-Control style management, in which management and engineers made all the decisions concerning the assembly area, to a Teach-Equip-Trust style management, in which employees were taught inspection procedures, equipped with quality instruments and trusted to do things right on their own assembly line. By restructuring the work process according to the principles of participation and subsidiarity, employees decreased set-up times for new products, reduced the need for quality inspection, increased overall quality and required less supervision. By reducing these costs, the company not only was able to pay a living wage; it also created more humane work.
The living or target wage does not come automatically. For example, the reason the company called it a target wage was that it was something it was working toward. When an employee is hired with no experience and no skills, the company pays the worker the market rate ($7 per hour or whatever prevails at the time), but then makes a commitment to move that employee to the target or living wage ($11 per hour) through training and skill development. As employees learn skills and gain experience, which Reell provides for employees, their pay goes up accordingly. Typically, it takes an employee two to three years to reach a target or living wage. I will return to this issue shortly.
Reell did not have to lay anyone off throughout this whole process. The engineers who originally supervised the workers and inspected quality were freed to focus on things they were trained to docreate a better-designed product. With a better quality product, Reell was able to gain a premium price for its product and also increase sales, all of which provided adequate revenue to support a living wage and avoid layoffs. While the moral and economic order do not always converge, we should take heed of those cases that do.
There is more to be said about how Reell’s mission guided its decision-making on wages, but it is important to be clear where the company’s responsibilities lie in light of the Christian social tradition. This tradition, especially as it is articulated in Catholic social teaching, does not hold Reell (or any firm) responsible to pay employees in excess of a sustainable wage (a wage consistent with the sound financial management of the firm), even if that wage falls below a living wage. To do so would unjustly place Reelland all the firm’s employeesat risk of economic failure. In a market economy, no firm can be obligated to pay without regard to the fact of labor costs on its competitive position, since that would amount to the imprudent choice of self-defeating means. Nevertheless, Reell does have an obligation in justice to create right relationships with employees to work toward a living wage. This is why it is permissible for Reell to pay less than a living wage, so long as it is working toward correcting the situation through means like training and skill development.
While at times managers are caught in an irresolvable bind of the market, managers and entrepreneurs often have an area of discretion, which is usually larger than they think it is. When they fail to see this area of discretion, they act like pawns of market forces beyond their control rather than like distributors of justice who can contribute to the growth of others. Reell met the strategic demands of efficiency, productivity and quality while at the same time satisfying the basic human needs of their employees. The firm’s experience underscores an essential insight: The just wage is not a static concept, a flat demand laid upon a firm. It is, rather, a dynamic concept, a goal that is established through a common regard for justice and that is to be pursued with a prudent regard for concrete possibilities here and now.
Yet this point of individual and organizational virtue cannot be taken out of the context of society’s broader responsibility for a just wage. There are times when employers cannot pay a living wage without violating a sustainable wage. For this reason, as Pope John Paul II has explained, employers are not and cannot be solely responsible for achieving living wages. In a real sense, any individual firm’s living wage can only be an instance of a social achievement founded on cooperation with other employers, employees, unions, government and other "indirect employers." For apart from a comprehensive commitmenta social commitmentto a living wage, those who decide unqualifiedly to pay living wages in highly competitive, commodity-driven, price-sensitive markets, risk economic disadvantages that cannot long be borne. If the market wage in the industry is below a living wage, and there is no place to reduce labor costs, employers who decide to raise wages unilaterally will price themselves out of the market. Obviously, this constraint becomes increasingly decisive in international markets, a point the protesters in Seattle made quite clear to participants in the World Trade Organization.
In this age of globalization, a just wage is a complex problem. Yet this complexity cannot remove the responsibilities of managers and entrepreneurs to be effective distributors of justice. To embrace justice, they must realize that an instrumental view of wages, although necessary, is insufficient to help people and themselves grow in their work. It is difficult to believe, for example, that Reell could have developed a living wage policy if it had been concerned only about employees’ instrumental effect on shareholder value. Rather, the company saw employees as more than factors of production or simply costs to be reduced. Management saw employees as who they really are: persons made to be treated with human dignity because they are created in the image of God, destined for glory.
But we should have no illusions here. Justice will not create a blinding flash of "pay nirvana." It will not relieve managers and entrepreneurs of their cost burdens as these relate to pay. In fact, life often gets more complicated for today’s managers and entrepreneurs precisely because they are asked to do more than what traditional business practice has done. What Reell seems to have found, however, is some comfort in the reflection that the burdens involved in the quest for just wages are borne for the sake of the common good and God’s kingdom, and that success in bearing them is itself growth in virtue.
Michael J. Naughton is the director of the John A. Ryan Institute for Catholic Social Thought of the Center for Catholic Studies (www.stthomas.edu/cathstudies/cst) at the University of St. Thomas, Minn., where he holds a joint appointment in the theology department and the Graduate School of Business. His forthcoming book, co-authored with Helen Alford, O.P., is Managing as if Faith Matters: Christian Social Principles in the Modern Organization (University of Notre Dame Press).