This week (Jan. 5) in 1914, Henry Ford, the head of the Ford Motor Company, stunned the business world by announcing that, henceforth, Ford employees would not only share in the car company’s profits, they also would be paid the unheard of sum of five dollars a day. That doubled their previous wage.
Ford’s fellow captains of industry were not amused, calling his wage hike bad business, misplaced altruism and a terrible precedent, but Ford — who was anything but an altruist — saw the move as both a cost-cutting measure and one that would increase productivity.
Recall that Ford previously had introduced the moving assembly line in which stationary workers, repeating the same function over and over, assembled cars using standard, interchangeable parts. This was a quantum leap in operational efficiency and greatly reduced production time, but it had a down side. The work was mind-numbingly boring, and since it required no real skills, employees had no pride in their work. As a result, absenteeism was a chronic problem as employees either frequently called in sick or simply quit. Such a high turnover rate was also expensive, both because it was disruptive and because money had to be spent retraining replacement workers, many of whom also were soon calling in sick or quitting.
But after Ford announced the five dollar wage, a princely sum in 1914, workers flocked to Ford’s plant. Absenteeism plummeted, costs went down, productivity increased and sales of Ford’s famous Model T skyrocketed. By 1916 the Ford Motor Company had sold nearly a million cars and earned profits of $60 million.
In addition to paying his workers more, Ford also tried to improve their working conditions. Ford established a policy that if a worker was not performing well in one job, before being fired he or she would be given an opportunity to work in another job. Ford even insisted that if the company ever needed to lay off workers, it would do so during “”harvest time” — July through September — so that those laid off might get work picking crops until car sales picked up.
But there were trade-offs. The company also established a department of “sociology” in which workers had to submit to investigations into their private lives to ensure that they had the “character” necessary to remain productive workers and members in good standing in the “Ford family.” These investigations became so intrusive they contributed to the establishment of unions to protect worker’s rights.
Henry Ford was considered eccentric — he was virulently anti-Semitic and he could be ruthless — but he established a dynasty that still lasts today and still bears his family name. The list of American businessmen who can also make that claim is extremely short.