Walk the Talk: Is it Time to Consider a Living Wage Floor?
By Kaelan Forbes
What does it mean to be able to live off of the wages of your employer? Some organizations orient towards a minimum wage threshold as dictated by state or local municipality regulations. Some organizations anchor on local entities researching a living wage estimate based on a multitude of factors like housing, childcare, food, transportation, etc. Of course, there is no standard or best practice approach for adopting a living wage for a single organization. Which begs the question, how do we ensure staff are earning a wage that is sufficient enough to provide for themselves and their families? I have long wrestled with the methodology for recommending a wage floor that embodies a client’s core values, as well as my own.
Calculating a Living Wage Base Salary
One of the most leveraged living wage calculation tools is the MIT living wage calculator. If you are unfamiliar with this phenomenal resource, it is an annually updated guide developed by the Department of Urban Studies and Planning to understand the different living costs of different nuclear circumstances. In their User’s Guide, it states their approach:
“[the living wage model] is a market-based approach that draws upon geographically specific expenditure data related to a family’s likely minimum food, childcare, health insurance, transportation, and other basic necessities (e.g. clothing, personal care items, etc.) costs.”
Using the MIT living wage calculator is a great step in understanding the implications of different wages across different familial scenarios and the working status of members. They have estimates for a one adult household, two adult households with one working adult, and two adult households with two working adults. As a result, we can begin to understand the nuances of different thresholds of liveable wages in a given area based on these familial scenarios.
A complement to the MIT living wage calculator is the ⅓ median rent (housing) rule. Somewhat outdated, as some critics might say, as folks typically have different proportions of their income allocated towards their housing costs, so it may be difficult to ascertain what is an appropriate rule of thumb. However, my approach is to look at studio/one bedroom and two bedrooms, the minimum threshold to live, not survive, but live off of, should be necessary to calculate an appropriate salary to meet this criteria in a specific geographic area. Edgility reports both in our living wage analysis for clients.
Determining an Appropriate Base Salary Living Wage Floor
To reiterate, there is no set standard or best practice for deciding a living wage floor that’s appropriate for an employer. However, I have found that clients engaging in performative allyship and equity pick a living wage floor that they feel is the best one for their organization. Which raises a major equity red flag. There are two approaches that remove implicit or explicit biases when developing a living wage floor estimate for an organization.
- Researching the average household size for a specific geographic area: example – the average household size in the United States according to the US Census Bureau and Statista is about 2.60 to 3.13 people. You’ll need to justify how you round of course, whether it is to 3 people or 4 people to calculate estimates, but using the former metric you can find the median of the MIT living wage calculator family scenarios of the two adults (one working) with one child and two adults (both working) with one child to calculate a living wage floor. To go one step further, you can use the ⅓ median housing rule and average 1 and 2-bedroom apartments, and with the MIT living wage estimates find the median annual salary (or hourly pay) of a living wage threshold.
- The second way to determine the living wage floor for your organization is to simply calculate the median salary for all of the MIT living wage family scenarios and the ⅓ median housing rule for 1 and 2-bedroom apartments in a given location. This removes bias and creates a solid midpoint of recognizing the different family structures that exist.
With transparency with staff, both methods have rational justifications for incorporating into a compensation program. Simply picking and choosing an MIT living wage scenario because it feels good (or more likely, because it is more affordable) is not an equity-minded approach to calculating such a threshold.
Incorporating a Base Salary Living Wage Floor Into your Compensation Model
I would be remiss if I did not mention the financial implications of incorporating a living wage floor into your compensation structure. Of course, if there are financial barriers to incorporating a living wage floor into your model, then perhaps it is time to re-evaluate your values and mission and where you can redistribute money in the organization (lower increases for executive staff, for example) to commit to providing a wage that all staff can live off of. However, being honest and transparent about where the living wage estimate was derived from is important to call out for staff to understand. Suppose you’re picking a certain threshold like MIT living wage for 2 adults (both working) 0 children. In that case, it’s hard to justify this as a living wage floor that you’re incorporating into your compensation structure if that is an inaccurate representation of the household size for your geographic location. Placing a living wage floor is critical in organizations “walking the talk” of equity-centered compensation design.
What if a Living Wage Floor is Too Competitive?
I hope I know what you all may be thinking: “Embedding a living wage floor would make our starting positions more competitive than our other roles.” You would be correct. The market is inherently flawed and is predicated on replicating systems and structures that reproduce inequities. A salary may be competitive per the market valuation, but that does not mean that the salary is liveable. In these instances, it’s important to override or redefine the market valuation for these positions by committing to a living wage floor. Some organizations want to keep the target market percentile consistent across the organization, so if a living wage floor represents the 65th percentile, then they create a corresponding structure that targets the 65th percentile as a whole. This can be costly, so overriding the market for a living wage floor and creating an at-market (or even under-market) structure is a viable option as well, and is indeed an approach many clients take. The main takeaway is that the goal is to ensure all staff can still provide for themselves and their families, regardless of the target market percentile an organization can financially support sustainably. You may also have a higher number of applicants for your positions, because people will want to work for an organization that is committed to its values.
Walk the Talk: Are you Ready to Commit to a Living Wage Floor?
I understand that committing to a living wage floor can seem overwhelming. It is no small undertaking on your journey towards equity-driven compensation. However, we’re here to support you in determining an approach that is representative of the financial reality of your organization, your external competitiveness, and your internal parity considerations as you consider pledging to your staff and community that you’ll take care of them holistically. One key takeaway is that a living wage floor is the bar for starting your journey for equity-driven compensation. While alignment with your mission and values is critical for staff to feel compelled by the work they do, staff should not be penalized for working at a social-driven organization. Staff work in order to afford their basic needs, and if those needs are not being met, I ask you, is an organization truly living their equity values?
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