One of the Greatest Business Decisions: Henry Ford decides to double his workers’ wages (1914)

The material that follows is adapted from The Greatest Business Decisions of All Time: Apple, Ford, IBM, Zappos, and others made radical choices that changed the course of business, by Verne Harnish, CEO of Gazelles, and the editors of Fortune, with a foreword by Jim Collins.

Lesson Learned: With their pay doubled, Ford’s autoworkers could now afford the very products they were producing. This triggered a consumer revolution that helped create the wealthiest nation on earth.

Henry Ford had a problem. He was becoming too successful. The growing popularity of the Model T was causing him to rethink his ideas about mass production. He had introduced the moving assembly line at his Highland Park, Mich., plant in 1913, and it had worked far better than he could have imagined. The year before the assembly line was installed, he had doubled production of the Model T by doubling the size of his workforce. The following year he nearly doubled production again, but this time he did it with the same number of workers. The assembly line had made the plant so efficient that the Highland Park payroll actually fell.

The trouble was, employee turnover was accelerating at an alarming rate. The dispiriting, mind-numbing work on the line was causing workers to quit en masse. The men (and it was all men back then) reacted to their narrowly defined, repetitive, and physically demanding jobs by leaving them.

Acting on the advice of his devoted lieutenant, James Couzens, Ford decided to take radical action. On Jan. 5, 1914, Ford and Couzens summoned newspaper reporters to the plant to publicize changes in employment policies at Highland Park that they hoped would improve employee retention. First, the company would reduce the workday from nine hours to eight. Second, it was moving to three shifts a day instead of two, opening up lots of new jobs. But the big news came in the third announcement: Subject to certain conditions, Ford would more than double the basic rate of pay to $5 a day. The 11-year-old company was willing to spend an additional $10 million annually to improve productivity and the lives of its workers.

The news spread quickly beyond southeast Michigan. “A magnificent act of generosity,” declared the New York Evening Post. But the Five-Dollar Day turned out to be an excellent investment. Within a year, annual labor turnover fell from 370% to 16%; productivity was up 40% to 70%. Between 1910 and 1919, Henry Ford reduced the Model T’s price from around $800 to $350, solidified his position as the world’s greatest automaker, and made himself a billionaire.

And by raising wages he expanded the overall market for the Model T. As Ford said to reporters that January: “We believe in making 20,000 men prosperous and contented rather than follow the plan of making a few slave drivers in our establishment millionaires.”

Contributor: Alex Taylor III

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