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Cramer: Subtle sign of maximized profits

Wednesday, 18 Dec 2013 | 6:55 PM ET

When looking for a company that aggressively maximizes profits, Cramer often looks for this sign.

"I look for companies that pay top dollar to associates while offering outstanding benefit packages too," Cramer explained.

That may sound counter-intuitive. After all there's a debate underway right now about raising the minimum wage and how burdensome the additional costs would be to companies and by proxy their shareholders.

But Cramer believes companies that offer better pay and good benefits may actually be maximizing profits.

How's that possible?

Those kinds of companies typically have a much better retention rate than rivals. Because training each and every new employee is quite costly, retaining more workers keeps costs down and profits up.

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That's a concept that Cramer first learned during his tenure at Goldman Sachs.

"It was my job to keep track of who stayed and who went and to be sure I knew the details of each departure. I was told that historically Goldman Sachs tried hard not to lose anyone it wanted to keep."

Although that sounds quite warm and fuzzy Cramer said Goldman's reasons were quite cold and pragmatic. Goldman likes to make money and the firm knew that "departures, any departures, of good people, translated into reduced profits and increased costs as the next person was trained for the job. "

On average, at Goldman, it took a new employee in Cramer's unit about six months of training to achieve the same efficiencies as others in the group.

"Until that time those new trainees represented cost."

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Therefore, whenever Cramer hears that a company pays its employees well, he thinks its stock warrants further investigation because he takes it as a sign that management understands how to effectively maximize profits.

"They know there's a big cost to the firm when people leave. They know that turnover is a killer to the bottom line."

Which stocks are on Cramer's radar now for this reason?

"I think it may be the secret behind the successes at Whole Foods, Starbucks, Chipotle and Costco," Cramer said.

In recent conversations on Mad Money, all of the CEOs at these 4 companies talked about the importance of paying well and offering solid benefits.

"They've figured out how to manage their biggest investment cost, their people, and the more humane, the more remunerative they are to them, the bigger the bottom line," Cramer said. "No wonder they have the highest price-to-earnings ratio in their respective businesses."

Call Cramer: 1-800-743-CNBC

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