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Yahoo Finance Editor-at-Large Brian Sozzi sits down with Paychex CEO Martin Mucci to discuss wage growth, the importance of retaining employees, and inflation.
[MUSIC PLAYING] BRIAN SOZZI: All right. Joining me now is Paychex CEO Marty Mucci. Marty, good to get some time with you here. You know, I'm still reflecting a good bit on the February employment report. And the lack of wage growth I think surprised a lot of folks. Have you seen any signs from your vantage point that this is starting to turn around? MARTIN MUCCI: Well, yeah, Brian, really, we're showing from a small business-- these are businesses under 50 with the Paychex Small Business Index-- we're showing wages up pretty strong, almost 5%. Again, if you go back to just May of '21, just last year, that's 2% less-- that was 2% less back in May. So we were about 2.7% average annual wage increase. Now it's almost 5%-- 4.8% wage increases. BRIAN SOZZI: There's been much to be talked about and discussed on the great resignation. How are small businesses holding onto employees in this type of environment where we see so much job hopping? MARTIN MUCCI: Well, it's very difficult. Smaller businesses, many times, don't have the benefit plans, they don't have retirement plans, they don't have as many opportunities to have work flexibility either. So they're doing their best. They're raising wages. They definitely are seeing the wage rates, as I said, almost close to 5%. And they're trying to add things like retirement plans and those things that are really attracting and retaining their employees. But it's a little bit harder for the smaller businesses who don't have quite as much flexibility. BRIAN SOZZI: When I hear 5% wage growth, at first that sounds good. But if you drill into it, look at the Consumer Price Index-- that is now nearing 10%, if not higher, for some of the categories in there. Essentially, those wage gains are being wiped away. What are your thoughts on that? MARTIN MUCCI: Well, yeah, that's true. What's really interesting also if you go a little bit deeper into our data, we show it's different by generation. So millennials, for example, those around 26 to 41 years old-- they're seeing about an 8% wage increase in general. The Z generation, the youngest, of course, are seeing the minimum wage-- they're seeing 13%, where you're seeing kind of Baby Boomers that group more around 2% to 3%. So it's very different by generation because, of course, the millennials in that age group are really the ones that are probably moving around the most and taking those increases as they jump from job to job. BRIAN SOZZI: Any words of wisdom to that millennial crowd, Marty? They are leaving jobs. They're not staying in those jobs for much longer. I mean, to gain that experience, it seems to be one year, two year at max, three years-- and then they're out the door already and then they have a LinkedIn profile with 10 jobs on it. MARTIN MUCCI: Well, it's a very different generations, certainly, than mine. But I think it's about what the experience is for you as an employee. We see that in our own employees. You've got to keep it a fresh experience. You've got to work through their career development. They want to know where they're going. And if you can offer those opportunities to move around and continue learning and growing in your career, then you're going to keep those people for the most part. Wages certainly being a part of that, but it is very important to them that they have workplace flexibility, whether that's hybrid working and so forth. But also, are they continuing to learn and grow? If you do that, I think you'll keep a lot more of them than sometimes we're seeing today. BRIAN SOZZI: Is keeping talent one of your most important priorities as CEO of Paychex? MARTIN MUCCI: It really is, Brian. You know, it's so important, particularly when you bring great people in and you build their experience level-- they get to know the company, they know our clients, they know how we're growing as a business, and they reflect our values as well. So it really is important to retain the best people. And we're working hard to do that with all the things that I've mentioned. We're working very hard. Things change constantly. Got to keep a good, close pulse on your team, and find out what's important to them, and then make sure you're changing as a company as well. BRIAN SOZZI: How are you-- how are you doing on the wage front? MARTIN MUCCI: We're doing pretty well. We're seeing probably that same kind of wage increases as we look at it. Some jobs are much larger increases because you're trying to keep those. When you look at the IT development, the security, the infrastructure on the IT side-- that certainly is demanding more wage increases to keep people. But also, again, you have to give them more than just wages. That could keep them temporarily. Is there a place for them to grow and be promoted? And with Paychex, we're now at over 16,000 employees across the country and a little bit into Europe. We work hard to try to move people around and give them new opportunities. That plays a very important role, particularly for that millennial generation. BRIAN SOZZI: Where are you seeing-- going back to your survey and your findings on jobs, what states are hiring the fastest? MARTIN MUCCI: Yeah, you know, it continues to be really the South and the Southwest. North Carolina is number one, you have Arizona in there as well. It's the states where people are migrating to. You're seeing that-- everyone knows that more people are migrating to the South and the Southwest. And that's where the people are. So you're seeing the best job growth because there is a limited supply. Where you have more supply, you're getting better job growth. And those are the states that are doing it. BRIAN SOZZI: Well, if those jobs are growing, does that also mean that you're seeing the fastest wage growth in those states? MARTIN MUCCI: Not always. In the South, we tend to have a little bit lower wages. I think it's just historically where their minimum wage has been and, therefore, the wages are a little bit lower sometimes in the South. You're seeing the highest wages on the coast-- more on the West Coast and, of course, in the Northeast. Some of that is tied to taxes as well, of course. And so you're seeing a little bit higher wages there and a higher wage growth. But the South probably a little bit lower wages, but there's more opportunities. BRIAN SOZZI: It is interesting in our world of business news, we are now talking seemingly every day about a recession. And that doesn't fit too well just listening to what you're saying. And you're discussing hourly earnings growth, according to your survey, up for 10 straight months, unemployment level around record low levels. Do you see any signs of recession? MARTIN MUCCI: Well, we don't at this point. You know, it certainly has that concern. One of the things that we've seen in consumer sentiment, not in our, but in the national numbers in consumer sentiment-- is that it's up 30%. The feeling that someone is going to be worse off financially in the next year is up 30%. That's, like, the highest number of people since the mid-1940s according to the survey. And it's very interesting that you think that could cause things where people start spending less, they get a little bit more concerned about what the market's going to do. Are they going to get enough wage increases to offset inflation? What's going to happen? Where is inflation going to hit them? So that's a little concerning that could have a little bit of a pullback on spending, which could cause a little bit of a slowdown in business expansion and formation. We'll have to see how that happens. But right now, things are still going pretty good. Wages are up and job growth is still strong. BRIAN SOZZI: I just want to flesh this out more, because you took over as CEO of Paychex, I believe, in 2010. MARTIN MUCCI: Correct. BRIAN SOZZI: Not far removed from the Great Financial Crisis. Do you see any comparisons to what is happening now or what might happen in the economy later this year to those periods? MARTIN MUCCI: Not really. At this point, I don't see that. I see-- you're always concerned about inflation, but it's still trying to figure out how much of the inflation piece of this is temporary, or is it supply chain, and so forth. There is a huge demand, for example, for housing, right? And so when you see that, you know there's going to be a lot of jobs in construction. But right now, construction is hamstringed with the lack of supply. They can't get lumber. They can't get other supplies. So that's slowing construction job growth down. But the demand is there. So when you see the demand is there for these kind of things, I think that can still drive a lot of job growth, wage increases, and more income to people. And so right now, I think there's still a lot of hope there that if we can get supply chain fixed, that will continue to drive the economy. BRIAN SOZZI: You know, and part of the reason why we're even having this discussion of recession is because we're now in an interest rate hiking cycle period. You have seen these periods before. Do you worry about it as a leader of a company like a Paychex? MARTIN MUCCI: Well, we do now. Paychex also benefits from higher interest rates, because we withhold taxes and then pay them for our clients at any one time. We hold about $4 billion worth of funds. We earn interest on that-- there hasn't been any interest for many years or very much of it. And so we'll benefit to some degree from that. But overall, you worry about the impact on things like housing. Will that slow down housing because mortgage rates are higher, et cetera? Will that impact our clients from the fact of having access to money? Don't see that yet, and certainly not at the lower interest rates. You know, I also grew up at a time when-- coming out of college at a time when mortgage rates were 13% in the early-'80s. So it doesn't feel that bad to me yet. But to people who have seen almost no interest rates or very low interest rates, it's a little concerning. So we'll have to see how it comes out. But right now, I don't think it's too concerning. BRIAN SOZZI: You're giving me flashbacks. My mom always likes to tell me when she bought her first house, her mortgage was like 20% or something like that. Just to your point, as someone who has not seen those rates before, it's almost hard to believe. MARTIN MUCCI: It is. And it will have some impact. People are trying to look at homes now and the kind of higher prices that are out there for housing-- you know, now you throw a higher mortgage rate on there, that's going to take some people out of the market, which is disappointing. So we'll have to see how that goes. But I do think that-- I don't think the interest rates will get that high that it'll cause that big of a problem. But it's all relative to what you're used to. BRIAN SOZZI: I think at the rate I'm going, I might be paying 20% interest on a little $1 million shack down the corner of my block at the rate I'm going here. But we'll leave that as a discussion for a different day. Paychex CEO Marty Mucci, always good to get some time with you. Stay safe. We'll talk to you soon. MARTIN MUCCI: Thanks, Brian. BRIAN SOZZI: Appreciate it. [MUSIC PLAYING]