On January 5, 1914, Henry Ford announced something audacious. His company was coming off a year of record-breaking profits, and rather than simply taking them home with him, Ford decided to do something unprecedented and entirely different: he would give a hefty portion back to his employees.
It was an elegant solution to a pernicious problem. Ford knew that his company and his products were only as good as the men and women who comprised it and built them. He also knew that the pace at which he asked his workers to produce cars was unrivaled and taxing. Employee turnover was high, and created residual problems with the learning curve for new employees slowing down overall production. He also needed to be able to recruit the best workers available, as they could ultimately improve quality and overall sales. For Ford, it all came down to his employees.
With around twenty million dollars in profits that year, Ford decided that roughly half would go into a fund for his employees. It wasn’t a gift, however. The money would be used to shorten the workday to eight hours from nine, and raise overall salaries significantly. No employee of the Ford Motor Company (over the age of 22) would be paid less than five dollars per hour, which amounted to a near doubling of salary for the lowest paid employees. Everyone received raises, and Ford’s workers were easily the highest paid in the industry.
The critics were loud, but Ford ultimately silenced their arguments when his employee-focused policies were allowed to play out. Morale improved drastically, meaning that even though the day was now an hour shorter, Ford was able to churn out more cars of better quality. Happy workers are harder workers, and do better work. It was really that simple. These efficiencies meant that Ford could lower the base prices of their cars, which had the interesting and much more than symbolic effect of making it so Ford factory workers could actually afford to purchase the cars they built. There were so many Ford workers who were proud of the cars they were building now buying them that sales increased.
Ford’s decree came at a time when wages and workdays were on the forefront of the national conversation. Unions were growing and demanding, through the strength of combined worker voices, reasonable pay for reasonable days of work. The idea that a business owner would so dramatically increase worker pay and voluntarily reduce working hours was remarkable at the time. But Ford’s move was more than just a factoid; he proved, in a large scale real business setting, that rewarding workers and treating them well could have a hugely beneficial effect on the business as a whole, and make him even more profitable in the long run.