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The Cheesecake Factory has done well for its employees by raising their wages.
Many companies, especially those in some form of retail, have been prompted by the low unemployment rate and new state laws to review the salaries of their lowest-paid workers.
But as The Cheesecake Factory has found, a pay increase can also lead more workers to seek overtime. The resulting increase in labor costs was among the topics the company discussed Thursday in its second-quarter earnings call.
The Cheesecake Factory reported a 10% year-on-year increase in labor expenses, even as its revenues and profits also increased.
The company had targeted 5% wage-rate inflation. It said the rises were in-line with expectations, though there was an incremental impact from overtime.
Here’s what Cheesecake Factory president David Gordon said during the earnings call (transcript via Bloomberg):
“We did see more overtime than what we had been seeing. We’re – that’s certainly going to be a focus area for us as we look forward working on getting overtime down by better management of schedules or in and out times or just hiring, getting fully staffed faster, so that will definitely be a focus for us in the second half of the year.”
Not long after, Gordon told analysts the company was “going through that art and not a science of trying to balance our desire to continue to protect our margins but also to grow guest traffic.”
Higher wages are great for workers. But if the company continues to spend a greater share of its revenue on wages, via more overtime or blanket pay increases, it may have to pass on these higher costs to consumers via more expensive cheesecake.
And that’s the dilemma for many companies.