Fifteen states have increased their minimum wage in 2016, with more on the way. In Seattle, for example, large employers will have to pay a $15 minimum wage by January 2017. These increases will seriously affect low-wage employers such as retailers and restaurants, which means investors should be asking some tough questions to see which low-wage employers in their portfolios will benefit from the wage hikes and which will lose:

How are you increasing your labor productivity?

If a company raises wages, it needs to increase labor productivity or either raise prices or lose profits. Simply cutting employee hours is not a viable solution. Companies that rely on understaffing to squeeze more profit out of fewer people will never get to the land of high productivity and great service that creates customer loyalty. The operational problems caused by understaffing will stymie attempts to lower costs and reduce service. So how can a low-wage retailer increase productivity? There are three possible approaches.

Automate. This can make sense in some environments, especially for routine information processing. But it’s a different story for retailers and fast-food companies — the largest low-wage employers. Robots are not yet good at social interactions or tasks that require dexterity, such as unpacking crates, shelving shampoo, making a burrito, or arranging flowers. That’s not to say that automation wouldn’t help in some ways. Wouldn’t it be cool if robots could round up the carts from the parking lot or if everything had an RFID tag and customers didn’t need every item to be scanned at the checkout?

So far, the technology we hear most about in retail is self-checkout. But self-checkout by itself does not automate the checkout process, it just outsources the task to customers. That doesn’t work so well when there are many items to scan or when things suddenly get complicated — say, when the customer realizes she got the wrong item or when she wants to use two coupons for the same product. Self-checkout can also increase customer theft.

Consequently, investors should ask: What technologies are you planning to use to increase labor productivity without undermining service or increasing costs elsewhere?

Simplify processes. There are many ways to simplify processes in low-wage service settings. Perhaps the most significant is to reduce product variety within a category and cut back on promotions. My local, low-cost supermarket has over 250 types of soup, over 50 types of milk, and over 50 types of shredded cheese. As research has shown, customers are less likely to buy anything when there is too much choice and they are less satisfied with what they do choose. Such variety also boosts costs and decreases labor productivity. With so many products in a limited space, shelving takes more time and not all units fit on the selling floor. So employees have to put the extras in the backrooms and bring them out when the units on the selling floor are sold — an error-prone process that often leads to stockouts. And of course, employees spend a lot of time moving products around and changing prices and locations of products due to promotions.

Given this reality, investors should ask: Do you want to pay people $15 per hour for all this non-value-added work? What are you doing to simplify so your people can work more efficiently?

Improve work design. Many low-wage employees could work more productively — if the company would let them. Standardizing routine processes and providing enough equipment, training, and time would help employees do their work properly. Cross-training allows employees to do useful work even when there are no customers. Empowering employees to make simple decisions for customers would reduce the time spent on small issues and deliver faster service.

With this in mind, investors should ask: How are you changing work design to improve productivity?

How are you using your workforce to cut costs and increase sales?

Another way for higher wages to pay off is if the employees themselves help reduce costs. One of the truths that makes the Toyota Production System so successful is that those closest to the work are in the best position to improve it. They have the most detailed knowledge and the strongest motivation. If a company can create an improvement system with mechanisms to hear employees’ ideas (the easy part) and to act on them (the hard part), costs will go down.

Employees can also increase sales. They know things about their local customers that no centralized system can know. They know what the customers are asking for that the store or restaurant doesn’t have.

Of course, all this requires enough time to do the daily work and engage in improvement. Many low-wage employers think that increasing labor productivity means doing as much as possible with as few people as possible all working as quickly as possible. But key aspects of great service can’t be speeded up. An IT system may find an answer quickly, but it can’t listen to the customer’s problem more quickly or with any empathy. Nor can thinking about improvement and experimenting with countermeasures be speeded up.

For these reasons, investors should ask: What are you doing to gather ideas from your people and to act on them? How are you leveraging employee knowledge to improve service and sales? How are you making sure your people have enough time to do their tasks well, give great service, and contribute to continuous improvement — all of which will pay back their wage increases?

What is your plan for transitioning to high performance?

If a company’s answers to any of the questions above is some variation of “we’ll find a way,” it has a problem and investors should worry. None of the changes I have mentioned are that easy. They require a shift from seeing employees primarily as a cost to be minimized to the generator of profits and returns. If a company’s leaders view employees this way, they will realize that it makes sense to invest more in them.

Higher investment, of course, doesn’t just mean higher wages and more training. It also means setting high expectations and doing everything you can to help people meet them. As I learned from my own research, that’s when you find convenience store clerks and grocery store cashiers who love providing great service and love their companies for helping them do it.

Right now, most companies are used to operating in the realm of mediocrity — from recruiting to training to job design to performance management. I have visited many retail chain stores since I started my research in the late 1990s. It is not unusual to find stockouts, messy (or worse) backrooms, new employees who still haven’t been trained, not-so-new employees who can’t answer basic questions, and managers who know about problems that are losing the company money but feel no urgency to solve them. Lack of care and respect for employees means that employees lose concern for their work.

Getting from there to excellence will take years. So these companies better get started. Investors can do them a favor by prodding them for serious answers. What exactly is the plan to move to excellence? What are some useful measures of whether progress is being made?

The minimum-wage hike will deeply affect low-wage employers. The companies that muster the most competence and motivation (that means leadership) in moving towards excellence will win. The others will either have to make less money or else increase their prices and lose out to their competitors.

The message of the fast-food strikes, the living-wage bill, and the attempts to raise the minimum wage is that big business should give low-wage workers more pay and either increase prices or make less money. I agree that low-wage workers should get more pay, but I don’t think their companies or their customers have to lose.

As I argue in my upcoming book, The Good Jobs Strategy, handled the right way, paying higher wages can be part of a strategy that brings in higher profits and return on investment and also lower prices and better service for customers. Yes, all at the same time. So the higher wages are not a giveaway, a concession, or in any way a net loss. How is that possible? Ask low-cost service companies like Costco that have been doing it for decades.

These companies think about employees not as costs to minimize but as capable human beings with the potential to generate sales and profits.  Therefore, they invest in them.  Not only do they pay higher wages than their competitors do, they also provide more training, more stable schedules, and adequate resources for getting work done. They also set high expectations and enforce them.

Doesn’t all this cost a lot? Of course it does. But that’s only part of the strategy.  These companies also design and manage work in a way that makes their employees more productive and takes full advantage of a committed, motivated, and capable (that is, well-paid, well-trained, and well-treated) workforce.  And if you think this all sounds like magic, let’s walk through the nuts and bolts of how they make this work.

These companies manage their operations in very specific ways that are quite unusual in their industries. Specifically they make four operational choices:

1. They reduce costs and simplify work by offering fewer products and services.
2. They combine standardization with empowerment, each in its most useful place.
3. They cross-train employees so that they are always busy and so that they are all well equipped to assist customers.
4. They deliberately overstaff so that employees have enough time to do their jobs well and to contribute to continual improvement.

As I said, this isn’t a matter of lofty mission statements and employee-of-the-week awards. It’s down-and-dirty hardcore operations management, guided by these four choices. Why these four? Because they work. Together, they turn high investment in employees into even higher returns in the form of productivity, profits, growth, customer satisfaction, adaptability to crises, and ability to seize opportunities.

Here’s one example. During the global economic crisis, two companies that offer their customers the lowest prices, Walmart and Mercadona, Spain’s largest supermarket chain, tried to lower costs by reducing product variety.  Walmart’s effort failed—customers were unhappy and sales dropped.  Walmart pulled back on the strategy and its chief merchandising officer ended up leaving the company.  Mercadona’s effort, on the other hand, succeeded—customers were happy and sales increased.  The company was able to reduce its prices by 10% during the economic crisis—a big deal for the customers.

Why was Mercadona’s effort successful?

Mercadona’s employees, employees who are knowledgeable about products because Mercadona already offers less and employees who are empowered to be part of, and have the time for, continuous improvement, helped management identify products most important to their customers.  After the company reduced product variety, Mercadona employees knew which products were no longer on the shelves, which products were acceptable substitutes and they communicated all this to their customers.  Again, they could do this because they are empowered, cross-trained and have the time to engage the customer.  When Mercadona made mistakes in pulling back certain products, employees immediately recognized the mistake and communicated it to management.

Mercadona’s employees responded in this way because Mercadona has followed the strategy I described above, which I call the good jobs strategy, for almost twenty years.  Apart from making the four operational choices, Mercadona invests in its employees. Employees are well paid and well trained. Every new employee gets a four-week training, which costs the company about €5000.  About 85% of employees are full-time. They have excellent benefits. They get their schedules one month in advance and work regular shifts. But the employees are so productive, so innovative, so loyal and motivated, that they more than pay back Mercadona’s investment in them.

At the end, Mercadona emerged from the economic crisis as a stronger player and captured a lot of market share from competitors.  And all along, it had the lowest prices in Spain and was very profitable. That’s the power of the good jobs strategy.

Of course, the good jobs strategy—high investment in employees combined with four operational choices—is no easy or quick answer to the massive social problem of having nearly one in four working adults between 25 and 64 who don’t even make a living wage. But it is a workable and sustainable strategy in which everyone—employees, customers and investors—wins.  We need more companies to follow it.

Last year, when we had our third baby, the nurses at the maternity ward were fantastic. They checked on my new daughter and me routinely and always with a smile.  When they saw how exhausted I was after a 20-hour delivery, they reminded me that they could take care of my daughter while I slept at night and that I needn’t feel guilty about it, especially with two more kids waiting for me at home.  The night I finally took their advice was the best night of sleep I had had for several months.  I knew my daughter was in good hands.

Some of those nurses never knew how grateful I was to them.  We ended up leaving the hospital in such a hurry that I didn’t have a chance to thank them in person.  Back home, with three kids to take care of, I just plain forgot to send them a thank you card.  When I thought of it again a few weeks later, I remembered how wonderful they had been but I had already forgotten their names.

I felt ashamed and I still feel ashamed, but that made me realize something I should have realized long before. I write and talk and teach about what companies can do to make jobs better for their employees, yet I never thought seriously about how we, the customers, can make those jobs better.  But we can.

Certainly we can make life worse for employees.  Some of the retail employees I interviewed for my research—especially those who worked for companies that offered low-paying jobs with lousy benefits, too few hours, and unpredictable schedules, and whose jobs were designed in a way that didn’t allow them to do a good job—told me repeatedly what a pain customers could be.  Some customers made extra work for the employees by messing up the stores, some complained too much, and some were plain rude and insulting.  Inadvertently, we can also make life worse for employees by asking them to do things they either don’t know how to do (because they didn’t get the training) or don’t have the authority to do.  Instead of being upset with the employee, who generally can’t do anything about it, we ought to let the company know we’re mad at them for designing people’s jobs so poorly that they can’t give us good service even when they want to.

But back to the subject of making people feel better.  We’re always free to thank an employee when he or she deserves it—right on the spot and, for experiences like the one I had at the hospital, also with a letter to the employee and his or her manager.  That asks a little bit of effort of us—first we have to make sure to get the employee’s name, then write the letter. But it’s a small effort and, I can tell you, it really feels good to do it.

It accomplishes some good, too. When we as customers express our gratitude to employees, it shows the employees that what they do matters.  And that, according to the late social psychologist Richard Hackman, makes one’s job meaningful.

By expressing gratitude, we also provide employees with valuable feedback on their performance, which they may not get much of from their managers.  Hackman argues that knowing that one is doing one’s work well and that it matters to other people increases both motivation and satisfaction. When people are satisfied with their jobs, they are also more effective.  Effective employees produce better products or deliver better services, more productively and with fewer errors.

Recently, experiments by Adam Grant and Francesca Gino show that receiving expressions of gratitude makes people feel more socially valued and increases the likelihood that helpers would provide assistance again—and not just to the person who thanked them but to others as well.

And so our gratitude can circle around and end up benefiting us, too.

About a month ago, my husband and I had our fourth baby.  I had the same great experience at the hospital.  But this time, I wrote my thank you letter to the nurses to let them know how much their kindness, competence, and compassion mattered to me and my family.  It felt as good to thank them as it had felt to be treated so well in the first place.