a. Labor rates and labor costs are the same thing
i. Reality: Labor rates are straight wages divided by time (ex. $7.25/hr). Labor costs are a calculation of how much a company pays its people and how much they produce.
b. You can lower your labor costs by cutting labor rates
i. Reality: Labor costs are a function of labor rates and productivity. To lower labor costs, you need to address both. In fact, sometimes lowering labor rates actually increases labor costs.
c. Labor costs constitutes a significant proportion of total costs
i. Reality: This is true, sometimes. Labor cost as a proportion of total costs vary widely by industry and company. Labor costs may not be the biggest expense on an income statement, but they are the most immediate malleable expense
d. Low labor costs are a potent and sustainable competitive weapon
i. Reality: Labor costs are perhaps the most slippery and least sustainable way to compete. It is better to achieve competitive advantage through quality, customer service, product, processes, innovation, or technology.
e. Individual incentive pay improves performance
i. Reality: Individual incentive pay, in reality, undermines performance of both the individual and organization. Many studies strongly suggest that this form of reward undermines teamwork, encourages a short-term focus, and leads people to believe that pay is not related to performance at all but to having the "right" relationships and an ingratiating personality.
f. People work for money
i. Reality: people do work for money, but they work even more for meaning in their lives. Pay is an unsustainable way to try and keep employees. Companies need to find ways to encourage loyalty and commitment with other factors, not just pay.