The story you hear frequently about why Henry Ford made this decision was that he wanted to allow his workers to be able to afford to buy his cars. The wage increase certainly made the cars (and many other products) more affordable for Ford employees, but the historical consensus is that Ford actually made this decision for a different reason: To reduce employee turnover–and, in so doing, reduce recruiting and replacement cost.
In 1914, a business executive named Henry Ford did a startling thing: He announced that he was going to more than double the wages he was paying his employees, from $2.34 to $5 a day — the equivalent of $120 a day in today’s money.
The country was as shocked by this then as it would be today.
A powerful company voluntarily sharing some of its profits with its rank-and-file workers and paying them more than it absolutely had to? Had Henry Ford gone mad? Didn’t he understand that the only goal of a business was to make money?
Didn’t he realize that, as a successful business executive, he was entitled to make as much money as he could possibly make–the financial health of his employees being nobody’s business but their own? Didn’t he understand that smart executives pay their employees no more than “market rates” because the executive’s job is to “create shareholder value,” everyone in our economy gets what they deserve, and the financial well-being of employees is not something that business owners or bosses or shareholders should be concerned with?
Yes, Henry Ford understood all that.
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