Recently I've discussed the December 2006 Harvard Business Review article The High Cost of Low Wages with several small business owners. The article's well supported thesis is "stingy pay and benefits don’t necessarily translate into lower costs in the long run".
Certainly when looking at a counter-intuitive suggestion like this it is comfortable to be dismissive out of hand. What is harder to put aside is that in case study after case study this model holds true. Many business owners, however, are convinced it doesn't apply to their industry. There is certainly support for the idea that pay and benefits are not the only thing that matters in many industries.
While employee pay is not a direct indicator of success, the Costco model certainly suggests it is a part of the puzzle. Further employee compensation plans say a great deal about management's attitudes towards employees. If I as a manager expect an employee will be stealing from me, a short timer and not worth investing in guess what I'll get? Read more about Skepticim about employees persists