Business forgoes minimum wages for salaries in effort to woo workers

RAYGUN Owner Mike Draper and Soul Slice CEO Karter Louis join Yahoo Finance Live to discuss how the labor crunch is impacting small businesses.

Video Transcript

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AKIKO FUJITA: Well, small business owners reported a record number of job openings last month. The National Federation of Independent Businesses reporting that about 48% of small business owners aid they couldn't fill job openings last month. That was up from the number in April. And it was the fourth consecutive month of record high openings within small businesses.

To talk more about that, let's bring in Mike Draper, Raygun owner, as well as Karter Luis, Soul Slice CEO. And Mike and Karter, we should point out, we've got both of you on because you've said that you've actually had a lot of success trying to fill some of those jobs. Mike, you're in Des Moines. Karter over in Oakland.

So Mike, let's start with you on what you have found about the marketplace as you look to fill about roughly a dozen openings. What have you found in terms of how much leverage employees are seeking and what you're able to offer to fill those jobs?

MARK DRAPER: I think one thing we're able to offer is decently lit closets for doing Zoom calls in. No, that was a joke.

We, I think, over the years, have come up with a plan for employee retention that kind of takes a lot of things into account, not just pay but kind of equity in how people are treated and what type of work environment it is. And it's not anything, necessarily, that we've had to update since the pandemic. But it's something that, I think as people have looked out at what they're going to do during the day and what kind of jobs they want to be in and what kind of work environment they'd like to be in, it's an approach to employee retention that probably makes sense for a lot of people now.

ZACK GUZMAN: Yeah. And Karter, I mean, we keep hearing from politicians the idea that maybe unemployment benefits are making it harder to bring back employees or hire new ones to fill the vacancies. I mean, how much of that are you maybe seeing or maybe boosting maybe the negotiating power that some of these workers have? How does it all play out in the real world?

KARTER LOUIS: I think that's pretty much a talking point in my opinion. I think we've seen the devastation of the pandemic is that on the restaurant industry. And as a result, I think workers want better conditions, better opportunities. And so I don't think it's a matter of people wanting to stay home and stay on unemployment.

But I think that the reckoning has come for the restaurant industry. People don't want to go back to the same. I think that's what it is mostly.

AKIKO FUJITA: And Karter, you've talked about how you've thought about the hiring process over the pandemic. You used to run several restaurants before. This time around, you're looking not necessarily to pay hourly wages but have a fixed salary for employees. You've talked about making sure that employees are sort of paid more equally. Can you talk a bit about that evolution and what kind of response you've gotten as you've looked to hire?

KARTER LOUIS: Well, really for me for this venture, I just wanted to sort of take everything that I've learned over the last 35 years in restaurants. I've operated over eight restaurants. And really just put into play what folks have said, like, oh, we should do this, we should do that.

The biggest piece is salary. I think a lot of operators leverage profit by not providing gainful employment to their employees. And so for this model, we decided, what if we put every single employee on salary? We felt like that would make them more engaged and feel more part of it.

And then the biggest thing for restaurants is labor. Labor and retention, those are the two things. And labor comes down to, can you offer someone a full-time job. I mean, I think people don't realize, the low-level restaurant workers, which we would say like the dishwashers, runners, those type of people, they are making very little money. Most of them cannot afford to live in the country.

And then you have the top tier managers, servers, who are making a lot of money. Even the hierarchy's different. So we decided to take all that away. Everyone is paid the same rate at our company. It's only based upon your skill level based on our assessment and what we want we want to do in our development of our employees.

And so I felt like if we did that, that would be a good thing. And it worked. Look, we put it into our pro forma. And it was amazing. We had stable labor, which we think gives us the opportunity to grow even more as a company.

ZACK GUZMAN: Yeah. And Mike, I mean, I'm curious it sounds like you haven't had maybe as hard a time bringing people back or hiring workers right now. When you see that, I mean, would you agree with Karter's point that it's mostly a talking point when you hear politicians saying people would rather stay on unemployment and maybe just continue not working rather than coming back right now?

MARK DRAPER: Yeah. That's not something that we've seen even when unemployment was at a higher rate per week. So again, it's always difficult for people to wrap their minds around any big, complex issue like employee treatment and work environment. It's a lot easier to say, oh, well, it's just this one issue. It's just pay, or it's just unemployment rather than everybody kind of holistically looking at, well, how is your scheduling handled? How is your sick pay handled? How is your actual flexibility? Things like that.

We've obviously have a lot of part-time staff who work in clothing stores. They might be in college or in high school or just want a part-time job. But it's still handy for them to have predictable scheduling, a schedule that's mapped out for a month. Then you don't have to send people home when it's slow. They can be able to rely on when they're going to be working and how much money is coming in.

It's kind of that stability. But at the same time, you have to take the time to cross-train employees and to have enough staffing so that if somebody needs to leave for a health or family emergency, somebody else can slide in.

So it's not just rate of pay, necessarily because if somebody is making a little bit less but there's enough staff to cover them if they have to leave, that's going to reduce one of these stressful pressure points. So there's no quick fix to it if you're a government or a business.

AKIKO FUJITA: And Mike, you've got a pretty good pulse on what's happening out in the Midwest, given that you operate in a number of markets, whether it's in Des Moines or Omaha or Chicago. How are you looking to shift up your hiring process as you see the demand for workers only increase? And we talk so much about these record openings.

MARK DRAPER: We oftentimes don't even post our job openings publicly. We only post them internally. And then people who work here will let people they know, friends or family, know that we have a job opening. So we look at that as one indicator that the work environment here is pretty healthy and that we're able to fill a lot of positions without having to really beat the streets and bring in a lot of people.

But a lot of it does come down to employee retention. We don't have as much churn, so we don't have as many people to replace. So we don't need to do massive amounts of hiring because we don't have massive amounts of people leaving.

AKIKO FUJITA: Mike Draper, the owner of Raygun over in Des Moines and Karter Lewis, CEO of Soul Slice in Oakland, it's great to talk to both of you today. Really appreciate you joining us today.