Photo: Walmart
Walmart gives workers a raise and weighs in on the minimum wage debate
Walmart made a lot of news yesterday.
The retailing giant announced that its same-store sales in the U.S. increased 8.6 percent during its fiscal fourth quarter as online sales jumped 69 percent.
Management also said it plans to make $14 billion in capital investments over the next year, its highest number in years, as it seeks to automate and scale fulfillment activities across the chain’s network of stores, local fulfillment centers and market warehouses.
Of all the Walmart news, none gained more attention, however, than the announcement that it would raise wages for 425,000 associates in the U.S. who stock shelves and fulfill orders from its various points of distribution. The retailer said it would increase pay for these workers to a range of $13 to $19 an hour based on location and tenure.
The bump, which is to take effect on March 13, will raise the average wage for these workers to over $15 an hour. Walmart said that it would eliminate quarterly bonuses paid to these associates after the first quarter.
A spokesperson for the retailer told The Wall Street Journal, “The overwhelming majority of our associates say their hourly wages are the most important part of their pay.” She said associates prefer the certainty of hourly pay over bonuses that fluctuate from one quarter to the next.
A Yahoo Finance article asserted that Walmart’s decision to raise wages will put pressure on rival retailers and could hurt the recruiting and retention efforts of dollar stores in particular.
In an interview with CNBC, Walmart CEO Doug McMillon said the company supports a raise in the federal minimum wage from its current level of $7.25 an hour but he is not behind moving that to $15 an hour as advocated by the Biden administration and Democratic Party members in Congress.
Instead, he is promoting, indexing the minimum based on location and cost of living.
Mr. McMillon said in the interview that he believes that a phased-in approach with a minimum indexed to location and cost of living would provide businesses of all sizes with certainty around wages so they could plan appropriately.
The Walmart CEO’s position is not new. He advocated for the same phased-in and indexed approach last June in his capacity as CEO of the Business Roundtable, a lobbying group composed of the nation’s leading chief executives.
- Walmart Reports Record Q4 and FY21 Revenue – Walmart
- Financial presentation to accompany management commentary Q4 FY2021 – Walmart
- Walmart Promises Raises for 425,000 Workers After Strong Holiday Sales – The Wall Street Journal
- Walmart CEO: Federal minimum wage should be raised – CNBC/YouTube
- Walmart to hike wages for 425,000 workers to average above $15 an hour – CNBC
- Walmart CEO says Congress should fix the ‘lagging’ federal minimum wage – CNBC
- Walmart just dealt a major blow to other retailers – Yahoo Finance
- Is Walmart’s CEO the right leader for Business Roundtable? – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: What will Walmart’s decision to raise hourly wages for 425,000 workers and end quarterly bonuses for these same employees mean for the retailer and its rivales going forward? Do you agree with Doug McMillon’s views on phasing in and indexing the federal minimum wage?
Poll
BrainTrust
Mark Ryski
Founder, CEO & Author, HeadCount Corporation
Gene Detroyer
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
Treat employees well, pay them fairly, and business results improve – what a radical concept! Sarcasm aside, I give Walmart full credit for coming to this realization and more importantly acting on it. I agree with McMillion’s approach to indexing.
I understand retailers’ relentless pressure to minimize labor expense, but these decisions rarely consider the downside impact of not paying frontline staff well – poor customer service, lower conversion and ultimately lower traffic as customers stop shopping stores with bad service. All retailers need to reflect on the valuable and critical role their frontline workers play in delivering business results. Forget platitudes and hollow “we love you” sentimentality BS, put your money where your mouth is – it’s not charity, it’s an investment that will pay off in business results.
This. Thank you Mark – you hit all the salient points.
It feels like smoke and mirrors and sleight of hand. An average of $15 doesn’t mean anything. How skewed is it by the people who make more? Minimum wage is called such a thing for a reason. Saying our average minimum wage is $15 is a major oxymoron.
On top of that, they take away quarterly bonuses because workers prefer more in hourly wages? Of course, at $15 or less, they need more money today and not three months later. But it is not an either/or situation. Very disappointing.
The discussion also needs to include the Federal and State worker supports such as SNAP — we’ve all seen the documentation showing far too many Walmart workers needing to be on assistance just to get by. And how about all the local tax incentives to get distribution centers and retail stores to site in a particular location? Honoring a uniform Federal minimum and not whining is the least they could do, considering how our taxes have directly subsidized them.
Given that the cost of living varies enormously across the country, local indexing makes sense – although it would be complex if administered at a federal level. Which rather makes the case for states to be the primary mechanism for minimum wage determination – and many do currently take the lead.
As for phasing, I agree with Doug McMillon’s point. Especially right now, businesses need time to adjust and adapt. Just imposing something overnight – and I am not sure that is what President Biden is actually suggesting as he has said he is open to phasing – would be a disaster, especially for smaller firms.
There’s also the impact on jobs. Higher minimum wages will increase the drive to automation, lead to some job losses, and wage losses due to scheduling changes. After the U.K. introduced its living wage, a lot of retailers adjusted job schedules and hours to the determinant of workers. Doesn’t matter whether you see that as right or wrong, it’s what happened and it’s an issue that needs to be considered.
Not knowing what the bonuses equated to, it’s hard to say whether this is a net gain for employees. That said, wages should be indexed based on the cost of living in the region of the country stores are in so I agree with that sentiment.
The pandemic has proven that if we treat the front-line associates as essential, then their compensation, benefits, and career growth opportunities should reflect how important their roles are. As a critical component of any retail strategy, front-line store associates are customer-facing, reflect the values and what the brand stands for, and make a significant difference in positively impacting the bottom line.
It’s high time that a federally mandated $15 minimum wage law is put in place, especially as the cost of living, healthcare, and education have risen significantly over the past few decades. While capital labor expenses are a variable expense, the front-line workers are the lifeblood of any retailer. The value they bring to the table should merit the cost of living increases and other performance-based incentivization/compensation plans.
It is important for companies to show a mutual commitment to employees and raising wages, it certainly demonstrates the company’s willingness to invest in its people. Additionally, being an “employer of choice” is a growing importance and future employees have greater expectations of companies doing the right things, including paying a “fair wage.” Indexing is an excellent way to make sure stores stay in business and profitable and the two largest cost contributors to labor markets are location and cost of living.
The appearance is that Walmart is making an effort. Whether or not the numbers are what they appear to be, this is a new Walmart. Retailers can’t go wrong by treating their employees well. It translates to the way employees treat customers and, consequently, it increases sales and fosters loyalty from customers and from employees.
The federal minimum wage in the U.S. is an embarrassment. It must be raised. I don’t care if it is the phased in Biden proposal to $15 or the more complex proposal by McMillon. McMillon’s recommendation to index is is absolutely necessary. But both will accomplish the same objective — getting more money in people’s hands, the people who will spend it, and moving the total economy forward.
I just looked at a Bloomberg chart showing the buying power of the federal minimum wage today adjusted for inflation. It has about half the buying power today as each incremental increase was passed. So as we wring our hands about job losses that an increase in the minimum wage might create in the short term, did we wring our hands about the loss of real wages for workers that today’s workers experience?
An increase in the minimum wage is long overdue. It’s ludicrous that it hasn’t happened in so many years. But indexing and cost of living considerations also make abundant sense. Walmart needs solutions that scale across wide swaths of society and geography, so learning from their thinking and their execution sounds like a great place to start the conversation on this subject. Walmart solutions need to work for both the employees AND a business that needs to be profitable. Let’s pay attention.
Doug McMillon’s views protect Walmart’s low-cost leadership. Simultaneously boosting wages and e-commerce capabilities comes with an exorbitant price tag that could scare investors. (Walmart is also investing in strategic partnerships and expanding into finance and advertising.) Lots of money is going out over the short- to medium-term, so McMillon is in no rush to raise wages yet. His phased approach makes sense for Walmart’s core strategy and stakeholder expectations.
Yet, by paying workers more now – while they take frontline risks during a pandemic – rivals like Target and Amazon gain an edge in recruitment, retention and PR.
High marks to Walmart for putting a positive spin on its wage decision, even though it’s not really all that positive for workers. But the optics are better than Kroger’s decision to close stores in response to worker pay regulations.
Walmart is moving the affected employees’ total compensation to a more immediate timeframe. Getting a quarterly bonus may mean a nice check when they get it but getting the extra money in each paycheck allows them to plan better. It has the added benefit of being a defined amount rather than a bonus whose size isn’t known until it is received.
I heard this on the radio yesterday and literally let out a, “go Walmart!” It’s a free-market dream when a gridlocked, bi-partisan government does nothing and then business takes the right thing to do and just frickin’ does it. Helps that they’re on fire, but to share the gain out, again, is righteous, no matter what color your stripes are. Compassionate capitalism at its best.
Nobody should complain. This is what everyone wants — a higher hourly wage. Walmart pays more than the minimum wage, so bumping up what they are currently paying should be appreciated. At the same time, they take away the quarterly bonus. I’m okay with that. This way everyone knows what they will be paid. Pretty simple. As for doubling the minimum wage, that needs to phased in over time. Indexing, as Mr. McMillon suggests, is an option.
It’s nice that a corporation that was allowed to profit at the expense of many of its rivals is endorsing increasing the minimum wage. There was no reason Walmart should have been declared “essential” and allowed to open when other specialty retailers were forced to close during the pandemic. Social distancing guidelines could have been implemented in other retail stores just as they were in Walmart.
So Walmart enjoyed record sales and profits as a result while thousands of other businesses were bankrupted or have been brought to their knees. Now Walmart wants to increase the labor costs on its competition as well as on businesses in all industries, regardless of size, regardless of whether they can afford it.
Some jobs just aren’t worth $15 per hour. Flipping burgers is not a $15 per hour job. A cashier is not a $15 per hour job. Low-skill jobs are not worth $15 per hour. What happens when these low-tier jobs see their wage rates artificially inflated is it puts pressure on the wage rates above them. A worker currently earning $15 will now demand higher compensation than the low-level entry worker getting the same pay.
The one good aspect of McMillan’s proposal is phasing it in and indexing it to location. Businesses in West Virginia can’t readily keep pace with those in NYC so if you’re going to advocate saddling your competitors with higher costs, this is at least a better way of doing it.
Rich, fair points about the disparity between the essential Haves and non-essential Have Nots. I agree, policy makers created an even more unfair playing field. I suspect that this in part a function of more/better lobbying efforts.
Let’s also not forget that Walmart hasn’t been leading the wage increase band – Target’s been moving in that direction well before Walmart, so Walmart’s decision may be more of a defensive rather than offensive move. That said, as you rightly point out, it still has the effect you describe regarding the wage pressure for the majority of retailers who don’t have the financial wherewithal.
I do have one disagreement with you on the wage commentary. I’m not sure how you get to your conclusions about what jobs are worth – I haven’t ever flipped burgers, but I bet workers serving mile long drive through lines in Dallas/Houston right now are worth a lot more than $15. And frankly, on any given day this would be a hard job to do.
And since you raised the idea of what a job is or isn’t worth, we should also consider the discussion up the chain of command – are CEOs worth 320 times what the typical worker makes? According to the Economic Policy Institute (non-profit/nonpartisan think tank), the average CEO salary in 2019 was $21.3M (including stock, etc.) I don’t think average CEO job is worth $21M.
Walmart’s position of increasing the minimum wage is great. However, tying it to some mystical number in some broadly outlined area is baffling and confusing. Where does a particular region end and another begin? How much does each carry as a wage multiplier? Why?
We should note that the Biden Administration’s minimum wage proposal is a gradual escalation of wages over the next 5 years (indexing), but is national in scope. A national minimum wage should reflect this, not regional aberrations.
Walmart has made quite a few cuts in store staffing in the past couple years (not only fewer bodies, eliminating most department managers, and also eliminating entire in-store departments like the cash office) and in store “middle management” (no more support manager, assistant manager position was cut, etc.) type positions to pay for this. The clerk-level worker now has more responsibility than before and is being paid more.
I am glad to see this. Higher wages will yield better efficiency, less turnover, and more dedicated staff. I am satisfied with the level of service at many of the Walmart locations I go to, there are many employees who have worked there for a long time and while their sense of urgency is not great some of them are exceedingly friendly. The service isn’t perfect but it does the job. Target on the other hand, I consistently receive terrible customer service that is disengaged, rude, and zombie like at one store (Reno, NV) and just okay customer service at the other locations I visit (no better than Walmart, but not necessarily any worse).
Wages in the US are going to remain regional for quite some time. There is simply too much difference in costs around the US for overhead, housing, etc. by region. The national minimum wage may go up in the next few years but it won’t get to $15 in the next few years. And certain regions will continue to have higher minimum wages and adjust those wages as necessary.
What employers even pay the minimum wage anymore? I know of some fast food/pizza franchise chains that were paying it to cashier/order taker positions in my area as recently as a couple years ago. The operation of these places was so poor I simply quit going to them. I do think it was a direct reflection of their paying minimum wage.
Small move with a major impact. When companies pay bonuses, they have the flexibility to increase or decrease them at any time. When they go from bonuses to higher fixed wages they lose flexibility but gain by offering more stability to the wage earner.
“Walmart said that it would eliminate quarterly bonuses paid to these associates after the first quarter.”
Other than this — which cynics might say reduces the wage increase to more of a “Look…Squirrel!” moment — I see WMT’s move as a positive; and I certainly agree with a phased in approach, although critics will argue that 1) the “phase in” should have started so long ago that we’re now already at the “full implementation” point; and 2) opponents will attempt to kill any further increases (Personally I think both of these points have a lot of validity, but that’s a political matter).
The indexing is more problematic: uniformity in Federal Laws is, if not in fact a Constitutional requirement, than at least a desirable feature; the practice in the past was to have the Federal an absolute minimum and let high costs states set higher limits. I don’t know why we should change that now.
It is interesting to note that the article also mentions that Walmart’s CEO “is not behind moving [the federal minimum wage] to $15 an hour.” Increasing the average associate wage to $15/hour at Walmart may increase employee engagement, but it will also enable Walmart to be more selective about which associates they want in their stores. This advantage would disappear if their competitors were forced to offer the same wage if the federal minimum wage increases.