Hi, everyone, something a little different today, a talk from our new podcast, Ted Business Enjoy.

Sixteen dollars per hour, this amount is above the national minimum wage, and it may seem like enough for entry level employees, but based on their circumstances, it may be far from enough. What if a person is a single parent? What if they send money every month to a relative in need? What if they're still struggling to pay a fifty thousand dollar medical bill from an accident a few years ago? Even if you look at the average hourly market rate across the U.S., 30 dollars per hour may not be enough to keep people from living on the financial brink.

When you look beyond averages and market rates and try to see people's real lives, you may encounter a startling truth that even profitable companies that think they're paying their employees fairly may have employees who are barely getting by. So what can you do about that?

Welcome to the TED Business podcast. I'm your host, Amadeu Back Winola, associate professor of management at Columbia Business School and director of the Bernstein Center for Leadership and Ethics.

Today, Dan Schulman offers insight into a new metric that people invented net disposable income that can help organizations determine if they're paying their employees enough. Dan Shulman is the president and CEO of people and chairman of the Board of Symantec. He served in division president and CEO roles at American Express, Sprint and Virgin Mobile. His leadership has been critical in helping companies meet the 21st century demand of contact free payments. You'll hear him not in a traditional TED talk, but in conversation with TED business curator Cary Hajim on the TED Interview podcast.

And he'll explain the process. He use it people to understand the true financial health of employees. Then after the interview, I'll be back to suggest how we can take that quest for understanding a step further. Dan will also tell you the lengths to which people went to address deficiencies, because it turns out that paying employees enough to feel secure in their financial futures helps the company to imagine what our companies and our communities would look like if every organization did this.

I'm really excited to have Dan here with us. Thank you so much, Dan. Thanks for having me. Pleasure to be here with you. So let's dive right in. PayPal has done something unique in terms of calculating how much to pay people and how much you should spend on benefits. Traditionally, wages are set by the market, but you found that paying as much or even more than other companies wasn't always enough. Can you tell us about that moment?

Yeah, two thirds of Americans struggle to make ends meet at the end of the month. They are financially stressed and it wreaks havoc in their life. And I did a study to look at PayPal employees. We did a research study. And I did it because I thought I was going to get back this great information that I was going to talk about at an employee meeting. Well, we pay because we pay to your point at or above market in every single location around the world.

And what I found is, unfortunately, 60 percent of our operations personnel are entry level employees, our hourly workers face the same thing. They struggle to make ends meet. And that was simply unacceptable for me. I mean, I think the world is changing in terms of the responsibility of corporations, the responsibility of CEOs. And we have a lot of different stakeholders that we try to satisfy from regulators to shareholders to customers to employees. But I think the number one responsibility that we have is the health, financial health of our employees, because nothing could be more important to a company than to have financially secure, passionate employees working for you.

Nobody is going to serve customers better than employees who feel a part of something and feel financially secure and glad to be a part of that company. And so then the real question becomes like, how do you measure that? Because a lot of people think about living wages or a minimum wage. And we we thought that was insufficient. And we came up with a measurement we call net disposable income, which is basically after you pay taxes and you are basically essential living expenses.

How much money do you have left over for discretionary things or to save? And here's the really unfortunate thing. I'm not proud of this, but remember, we were paying at market or above. So I thought the market would take care of this by doing that. We found that for that population, they had four to six percent and net disposable income after paying taxes and essential living expenses. That is not enough. You are going to struggle to make ends meet.

And by the way, ended changes location to location, location around the globe. Right. I mean, there's a different MDI in Manila, a different India, in Omaha, Nebraska, than there is in New York City, et cetera. And so we basically said to ourselves, we need to take India to 20 percent. And that's a huge shift from four to six to 20 percent. But at 20 percent, you actually have the ability to save and to put money away and to take care of discretionary expenses.

And so we did a pretty massive reorientation of our compensation systems. We lowered the cost of benefits by fifty eight percent because benefits are like a regressive tax, like you pay the same amount no matter what your salary is. And so we had a lot of employees who weren't taking health care benefits because it cost too much to go and do that. So we lowered it by 50 percent. We made every single employee of a shareholder and an owner of the business so they could be a part of the success of PayPal going forward.

We raised salaries where we needed to go and do that, and then we wrapped all of that into a financial education program because people had never gotten equity before. They're trying to think through, like, how do I save now that I've got incremental dollars to go and do that? And, you know, that costs us quite a bit of money. But I, I really feel just like we spent a lot of money to take care of customers and covid-19 that companies need to stand for more than just making money for more than just maximizing our profits next quarter.

I firmly, firmly believe that the costs associated with taking care of our employees, taking care of our customers, will benefit us in the long run, multiple fold over the costs associated with doing that. And we're already beginning to see some of the impact of that. And so I think every CEO, every company needs to really start to think about, especially maybe as a result of this crisis. But as I mentioned, we had a crisis before this, like how do we put our employees first, take care of them?

Because if you do that, you'll take care of customers and we take care of customers. You'll take care of shareholders inevitably.

And it's so interesting and it brings up so many questions, I think. I mean, PayPal is a hugely profitable tech business, huge free cash flow and big margins. Do you think this model is something that every. Company can do, whether it's a tech company and manufacturer. I mean, is this what everyone should be focused on? Well, I think that and I don't want to moralize or, you know, so other companies, what they should do, but to me, I think everyone should understand the financial health of their employees.

I mean, that's like a baseline thing to go do. Like what you do post that is up to maybe your financial strength as a company or where you put your order of priorities. But what I found is I thought the market could tell you that. And I'm a big believer in capitalism. I think it's a really in many ways the best economic system that I know of. But like everything, it needs an upgrade. It needs tuning in, at least for these vulnerable populations.

Just because you pay at market doesn't mean that they have financial health or financial wellness. And I think everyone should know whether or not their employees have the wherewithal to be able to save to withstand financial shocks and then really understand, like what can you do about it? Because if people are struggling to make ends meet, they are not as productive at work. They're worried about what am I going to do with my kids? My kid just got sick.

I don't have health insurance. I think I think there's a spiral that occurs. You think you're actually saving money by paying less. But the reality is, you know, at least in my belief system, you take care of your employees and other things and naturally flow from that. They are more productive. They love being a part of that company. They take care of customers better. And all of those things inevitably accrue to the benefit of of a company in terms of how it's trying to serve its ultimate and market.

But it starts with your employees. So, I mean, obviously, you believe in this capitalism needs an upgrade, and I think India is something so many companies should adopt, but do you think this happens through benevolent corporate activity? I mean, I'm channeling my inner Bernie bro here, but I think a lot of people would be skeptical that we should trust companies to do better at this point, should the government step in to raise minimum wages, do other things to protect workers in a more structured way?

Look, I think the government clearly has a role to play. And I think that the private and public sectors need to work closer together to address so many of the issues that we face in our societies across the world, whether that be income inequality, environmental issues, health protections, that kind of thing, privacy. But the way that I think about this is it's very difficult for governments to regulate around this because there's so many different ways of thinking about it.

If I were another CEO, it's actually in your best interests to go and do this because it's a competitive advantage like. We attract, I think, some of the best talent in the world to people because we actually are trying to make some sort of positive difference. I'm not saying we're, you know, the be all and end all, but I don't think people should shirk their responsibilities of at least making a small difference going forward. If enough companies did that, if enough governments, did that make a real difference in the world?

And then the second thing is you have to have values that support that. Those values are incredibly important. Those values should be all about inclusion. They should be about having a diverse workforce. They should be about financial wellness. And when you do that and you attract the very best talent, then by definition, I think the single biggest competitive advantage for any company is their workforce. Strategies are great. You know, a whole number of things are great.

You have a great workforce that's passionate about what they're doing and it's financially secure and they will do amazing things. And I think it's that kind of competitive advantage that will spur companies. So there needs to be a set of CEOs and companies that start to move in this direction. And I believe you're beginning to see more do this. And once that happens, it starts to tip everything. And I think more and more need to do it to maintain their competitive positioning.

And that may seem like a self-serving way that people why people are doing it. But honestly, I don't care whether they're doing it out of the goodness of their heart or they're doing it because it's competitively a disadvantage if they don't. Creating financial health for our employees is the goal. And we've got to get that done. Yeah, I mean, it sounds like you think of this as a win win, but it also sounds like you're willing to maybe think about your employees first and sell it to your shareholders later.

Well, I actually do believe that. And I think that the idea of a multi stakeholder capitalism, that is a time for today. We cannot just think that we have one stakeholder that we need to satisfy. We live in our communities. We live in this world. To have people struggling day in and day out is not good for any company. And we can only do X amount, but we can actually create financial wealth for our employees and we should.

Net disposable income, I think it's a new wave, you know how net promoter score is also known as Northrop's became all the rage. Now, after almost every service you receive from companies, you get asked, would you recommend this service to a friend? My dermatologist even asks me this. Well, I think Ndayizeye may be the next critically important metric for organizations. Here's why. My colleague Joel Bruckner and other scholars work has shown that the process, such as how a company determines pay, is as important as the outcome, how much money its employees receive, and when leaders get the process right, meaning you make it fair and transparent and you base it in genuine care for your people.

Employees are more likely to go above and beyond by doing extra work voluntarily. The process companies typically used to set pay involves checking industry standards and competitors salaries, then picking a number the process that led people to MDI involved actually asking employees how they were doing and what they needed, which is a pretty direct way to show your staff that you actually see them as real people and that you actually want them to be financially healthy, which makes employees start to care more to and their behavior show it all this caring can leave the firm better off.

But let's take the idea of SDI one step further. Yes, as Dan Schulman highlights, we need to raise the pay bar more for everybody. However, we may need to raise the pay bar more for certain people. Throughout my adult life, I've had dear friends, experienced tremendous stress from both needed to support themselves financially and also their parents and extended families, friends who've had the added expense of adopting kids, a family members, friends who paid their aunt's mortgage for several years, friends who send money regularly to their families in the U.S. and abroad, friends who pay the school fees of their nieces and nephews.

I have an MBA. Students share the struggle of choosing the job they like the least, but they paid the most because it was the only way for them to make ends meet. Students who own their small stipends needed to borrow money from faculty members because the stipend wasn't enough for them to pay their rent on time, have enough food to eat and support their extended families. And we wonder why some students drop out of the program. And might I add that if in your mind, you jump to the conclusion that these are all black friends due to my race and the immediate stereotypes we have about who experiences these struggles, I'll let you know that these are friends of differing ethnicities, white, black, Asian, Latin, X, you name it, and different nationalities from American to European to Southeast Asian to African.

One commonality is that their families were all low in socioeconomic status. Another commonality is that they had the same pedigreed education of others in their work cohort, the same workload and similar pay. But they had greater financial need, often due to systemic forces. So, yes, India is a huge step in the right direction. But allow me to make a suggestion that might sound radical, but it shouldn't. When you set about following Dad's advice and actually ask employees about their financial health, try asking them about non obvious expenses.

They may be carrying expenses that might make a market salary inadequate for them and consider paying them enough to make sure that you're not just hitting an average living wage, but you're actually paying enough for this particular employee to live on. In fact, you can make this an official process since we know a fair process is as important as its outcome and without revealing anyone's personal details, make the process transparent so that everyone understands the standards you're using and the care you're taking.

But what if you can't afford to bump up employee salaries, you can actually look for other ways to make employees feel cared for and reduce their expenses like improved health care benefits, flexible hours to adjust for child care crunches or paid family leave. Dan also tried these kinds of approaches at people by adjusting benefits and increasing the company's contribution. My hope is that hearing about these approaches will help you or your employer ask new questions about what good pay really means.

Is the market rate really the right yardstick for financial wellness? Is the same paycheck really the same for different people? And if I really, truly want my employees to be financially healthy, how can I know for sure that my pay scale affords them that? The answer, as people found out, might just be to ask them.

Thanks so much for tuning in. If you want to listen to the full interview with Corin Dann, you can find it on the TED Interview podcast. Ted Business is hosted by me Madugalle Canola. Grace Rubinstein is our producer. The show is edited by Shinozaki and mixed by Dan Deserve special thanks to Colin Helmes, Michelle Quint, Angela Chang, Corey Hajim and Anna Feeling. Talk to you again next week.

PR ex.