Employee theft is a source of loss simply too costly to ignore, which is why loss prevention practitioners are always on the lookout for novel ways to prevent it. But what if the best theft-prevention tool wasn’t a security measure at all? What if you just paid your store associates a little more money? Would that make a difference? To what extent can wages act as a loss prevention tool?
On Sept. 25, Target announced its plan to boost staff pay. “This October, we’re raising our minimum hourly wage to $11—and we plan to increase the minimum hourly wage for all team members over the next few years to reach $15 by the end of 2020,” the company said in an announcement. According to the consensus of research, Target may experience a range of benefits for its investment, including an increase in worker productivity and decline in turnover and sick days.
But what does social science research say about theft? Might Target’s minimum wage shift lead to less internal theft from a more loyal, content workforce? A study from a few years ago may provide a clue.
In theory, it makes sense. A worker’s relative wage surely affects his or her perception about whether the retailer is treating them fairly. And there is ample proof that when workers feel they’re victims of unfair treatment, they’re more likely to steal.
However, in practice, employees may have little awareness of the difference between their wages and those of employees at other retailers. So the question—to what degree does a retailer’s wage scale contribute to or prevent employee theft?—is one that needs empirical examination.
Researchers from the University of Southern California and University of Illinois at Urbana-Champaign studied the issue, hypothesizing why they thought they higher compensation might discourage employees from stealing.
1. Employees receiving higher pay would feel more warmly toward their employers and would rather reciprocate than retaliate.
2. Since higher-paid workers want to hold on to their jobs, they would not be as likely to steal as lower-wage workers might. In this case, rather than loyalty driving down theft, employees are acting in their self-interest and protecting a job they want to keep because of its better pay.
3. Firms offering relatively higher wages could attract more honest workers to start with.
After finishing their study, the researchers believed that they did, in fact, discover a cause and effect. “Our results suggest that by increasing wages, firms can deter employee theft,” concludes the study, Relative Wages and Employee Theft in Retail Chains, Sandino and Chen, 2012.
The researchers reached their conclusion by studying a sample of retailers and examining the extent to which relative wages—employee wages relative to the wages paid to employees in competing stores—affect employee theft as measured by inventory shrinkage and cash shortage. The study controlled for each store’s socioeconomic environment, monitoring environment, and type of employees. The first data set came from 76 stores in a midsize retail chain; the second was from 251 stores within 31 retail chains.
Although theft went down when pay went up, the results were not sufficiently dramatic to suggest that raising pay to cut theft is a strategy that makes fiscal sense by itself. “Even though relative wages help reduce employee theft, the benefit seems to be outweighed by the cost (of the pay raise) if we only consider the direct effect of relative wages on employee theft,” the study concludes.
The study found that the effect of wages on employee theft is partially explained by a decrease in employee turnover. As such, “although the theft-reducing benefits of wage increases in and of themselves do not justify the costs of wage increases for the average store, the benefits from increasing employee wages are likely to be greater if firms have relatively high employee turnover rates.”
Additionally, the study found that higher wages cut theft more as the number of employees on duty increased. This is most likely because employees who are paid higher relative wages are not only less likely to steal themselves, but they are more likely to engage in monitoring other workers; while relatively low wages may lead coworkers to collude against their employer, thus exacerbating theft, or to simple ignore theft by others. Figure 1 reflects the gap—showing that when three coworkers were present, retailers in the study with the lowest wage scale suffered nearly three times the shrinkage of sample retailers with the highest wage scale.
Conclusion: Raising staff pay to cut theft won’t provide a direct cost-benefit or make sense for all stores. For retailers that contend with relatively high turnover and have enough employees simultaneously on duty for mutual monitoring to play a role in loss prevention, however, the money saved by reducing theft may substantially cover the bump in pay—while providing the ancillary benefits of higher morale, increased productivity, and so on.