Wages rising for rubber, plastics processors

Some 23 million U.S. households got a dog or cat during the pandemic, fetching Custom Rubber Corp. in Cleveland a triple-digit increase in orders for pet toys at a time when it was struggling to fill open positions.

Americans used home lockdown time to empty animal shelters and welcome playful new furry family members.

As the trend to adopt the so-called "pandemic puppy" took hold, CRC, a rubber and silicone processor, ordered more machines. However, capacity wasn't the biggest problem to meet what turned out to be a 736-percent increase in demand and a 186-percent increase in shipments, according to CRC President Charlie Braun.

"We had machines sitting around with molds in them and no people. That was our bottleneck," Braun said.

To solve it, CRC gradually upped its starting pay of $13.25 an hour, using budgeted profits and funding from the Paycheck Protection Program. Employees in the molding department now start $18.25 an hour and $19 for the night shift.

That's $5 more an hour than CRC paid in January 2020.

Braun, a second-generation business owner, talked about his "mental and emotional journey" to hire more people at higher pay rates at the Manufacturers Association for Plastics Processors benchmarking conference, held Nov. 3-5 in Indianapolis.

"The starting wage is the price of admission," Braun said. "You can talk about a good onboarding program and supportive supervisors and training opportunities and tuition reimbursement and even free food in the lunchroom. All that stuff is great, but at the end of the day, in this marketplace right now, if that sandwich board outside your building doesn't say $18 an hour—or whatever it is for your particular area—you don't have a chance, in my opinion."

Jennifer Lockman, human resource manager at Intertech Plastics Inc. in Denver, agreed. The company has two injection molding plants that employ a total of 150 people. One of her biggest hiring challenges a fast-food restaurant located between the two plants.

"I had employees tell me the McDonald's banner says they will pay $18 an hour to start. What are you going to do?" Lockman told MAPP conference attendees.

She would counter that the McDonald's positions may not offer the same benefits or 40 hours a week. But the hourly pay remained a stickler to be addressed.

Lockman said current employees and those that left told her, " 'This isn't enough to pay my bills. This isn't enough to feed my family.' That sort of feedback was really impactful."

Lockman talked about hiring challenges and opportunities with Braun. The pair recommend plastics processors:

• Gather data from temporary services and informal surveys of nearby and distant businesses about starting hourly pay rates. Be competitive or better.
• Consider adding a premium. CRC boosted starting pay by $3 an hour to beat other businesses in Cleveland and to achieve parity with suburban businesses. Braun said the premium helps attract new hires with three to five years' experience. "These employees know how to—and want to—hold a job," he added. "Some used to commuted 30-40 minutes out of the city to make $18 an hour. Now they can walk 10 minutes and be at Custom Rubber and get the same amount of pay."
• Understand the price of turnover. At CRC, Braun said it costs about $800 to interview, onboard and train every new employee.
• Pass along the cost of the wage increases to customers, who are already used to paying more for everything from raw materials to packaging and shipping.
• Overhaul the company wage structure for current employees, too. Look at wage rate multipliers to recognize technical and leadership aspects for some positions.

At CRC, Braun was beleaguered by two years of staggering turnover before the pandemic struck. From 2017-19, the company made 407 new hires but gained just one employee for a total of 83.

CRC tried dangling pay increases after the first 30 or 60 days, but it made no real progress at boosting its work force.

When the pandemic was declared in March 2020, Custom Rubber was down to 79 employees and business was about to trend up steeply, thanks to the booming pet industry.

In May 2020, CRC applied for and received an $879,000 forgivable loan from the federal Paycheck Protection Program that let it take what has been described as "the wage wager."

"The PPP was like manna from heaven, and I got to gamble with minimum risk," Braun said.

The molder raised its starting pay from $13.25 to $13.70 an hour in July 2020. The increase attracted some new hires. CRC reached 93 employees in November 2020, but it wasn't enough. The company had about 25 open positions and demand for pet toys was still climbing.

Braun looked at wages again. He read studies and took informal surveys about the starting pay at businesses around him in Cleveland. He learned from job placement agencies that companies paying $17 an hour had the best rate of converting temporary workers to full-time employees. And he saw Amazon was paying $17 an hour at two facilities nearby.

"That was one data point," Braun said.

He also learned starting pay of $13.70 an hour attracted temporary employees who had never held a job for more than six months. Braun recommended a $1.50-an-hour increase across the board effective Jan. 1, 2021. That put starting pay at $15.20 an hour.

Then, Braun looked at the budgeted profit for 2021 and convinced the management team to put 95 percent of it into another wage increase for the molding department. Those employees received an additional $2.55 an hour, bringing their starting pay to $17.75.

"I had the orders, and if we didn't satisfy our customer, they would find someone else. I didn't want that to happen," Braun said.

CRC gave the molding department another raise in June to $18.25 an hour. It all seems to be working. Sales are up and the company now has 147 employees filling orders.

To sustain the wage increases, CRC raised prices for customers. Braun acknowledged this isn't an option for all processors.

"We had a really supportive key customer relationship," he said. "When we talk about pricing, it's a legitimately cordial discussion. They want us to make a little money. The rest of our customer base is industrial and doesn't have long-term pricing contracts and other things associated with the struggles in raising prices."

Concern about price increases for wages is taking a back seat to raw material inflation and other higher costs of doing business, Braun added.

"My customers are so fatigued by price increases from everyone else, in my opinion, that me slipping in another one and adding a little bit extra to cover these wages hasn't been a problem and we have the PPP money as a backstop."

Raising prices was a difficult subject to broach a year ago, but not anymore, according to another MAPP conference speaker, Ted Morgan, a partner at Plante & Moran P.L.L.C. in Southfield, Mich.

"Now it's a reset of business," Morgan said.

Another speaker, Harbour Results Inc. President and CEO Laurie Harbour, urged businesses to closely watch six categories where prices are up: labor, logistics, maintenance, outside processing, purchased components and raw materials.

Harbour warned processors that missed opportunities to raise prices can turn into months of loss. Her Southfield-based firm conducted MAPP's 2021 Pulse Study, which had 90 participating companies with 140 facilities. The study indicated 92 percent of shops reported higher wage costs and 32 percent have passed on the increase.

Other studies show 87 percent of plastics processors are faced with higher logistics and shipping costs and 37 percent successfully passed on those price increases. Another 64 percent of surveyed business have passed along resin price hikes and 51 percent component price hikes.

Companies need to look at all wages and not just for new hires, Lockman said. Intertech built out a wage bracket for hourly and salaried employees that sets starting and maximum pay and has wage multipliers and a cost-of-living factor.

A couple of the multipliers recognize technical and leadership aspects of positions with higher pay rates.

"Every single position in the organization is on a spreadsheet," Lockman said.

Intertech's finance department can run numbers through and make budget recommendations.

Every six months, Lockman checks to see if the wages are still in line with the competition and other factors. She plans to make that a quarterly task going forward.

"Trust me, it was really hard to be behind the curve and get ahead of it. We want to stay ahead," Lockman said.

Human resources departments like to offer employees perks, she added.

"We want to give lots of PTO and throw them parties and recognize birthdays and anniversaries. Those things are great and people love them," Lockman said. "But sometimes they just need to see that number on a paycheck. All the other stuff is important, but we have to pay our people to come to us and we have to pay them to stay with us."