Walmart gets a quick return after raising employees’ pay
It’s a start. Walmart U.S. CEO Greg Foran, according to report by The City Wire, said the decision to increase the amount the company pays hourly workers is yielding dividends as the retailer saw both an increase in job applicants and a reduction in turnover soon after it announced its plans.
While some remain concerned the pay raise will cut into the chain’s profits, most analysts appear willing to give Walmart the time to see how the changes affect its top and bottom line performance. Lower turnover will certainly reduce recruiting and training costs for new hires, helping the retailer to boost earnings.
Better pay could produce other benefits as well, among these a reduction in shrink. According to a study of convenience store employees published in the Journal of Accounting Research in 2012, there is a positive correlation between increasing pay and reducing theft by employees. In the study, an increase in pay of $1 an hour led to a 39 percent decrease in employee related shrink.
Photo: Walmart
Other studies, according to a report on the Journalist’s Resource website, have shown that cutting wages leads to an increase in shrink.
While Walmart execs have cautioned that it will take more than just pay increases to improve the customer experience, a happier and more stable workforce should provide higher levels of service eventually leading to more positive top line results.
Finally, while the wages paid by Walmart for many hourly workers, including department managers, may not elevate them above the federal poverty line, more money in their paychecks will almost certainly benefit the chain in increased purchases.
Discussion Questions
Where do you think Walmart and other retailers that have increased wages for hourly workers will see the most benefit? Have the retailers that have increased pay for hourly workers gone far enough or too far with their hikes?
Poll
BrainTrust
Max Goldberg
President, Max Goldberg & Associates
Roger Saunders
Global Managing Director, Prosper Business Development
The article does a good job of explaining the primary benefits: lower turnover, increases applications, lower shrink and happier workers. That said, there is no reason for full-time employees to be paid so little that they need to be on federal assistance. Companies need to pay a living wage, and Wall Street needs to get used to this concept.
The costs of turnover are certainly measurable, as George’s article points out. Over time, Walmart and other stores will be able to gauge the higher costs of payroll vs. the lower costs of recruiting and training. Short-term, however, this is unlikely to deliver a payback.
But as an intangible benefit to service levels, employee morale and goodwill among shoppers, the higher pay scale will begin to pay dividends sooner rather than later. Consumers are well aware that higher-paying retailers like Costco, Nordstrom and The Container Store also have some of the highest customer satisfaction ratings in the business — and it’s no accident.
Each independent public or independent retailer should be positioned to decide what to pay in their local marketplace, using the State or Federal minimum floor. Paying people more has to be followed by other operational steps that can strengthen the store in the consumer’s mind.
Great ideas don’t come strictly from the board room. Listening to and observing associates will deliver significant incremental store improvements. Commitment to training and the development of associates by front line managers and, on occasion, outside trainers, raises productivity. Stores should walk the talk and let associates know how the store is performing against benchmarks — what gets measured, gets done — share the view, as communication counts.
Associates need to be trained and encouraged to walk the store to see it through the eyes of the customer. Provide associates with the type of hours that they are seeking — millions of people in Retail are seeking part-time status, don’t limit them to the day parts that don’t permit them to learn and participate in the success.
Don’t slow down the hourly pay increases when an associate builds up tenure. Pay them more if their performance is meeting/exceeding expectations. People want to know of and be rewarded for their part in success.
The results within the store are endless when the store succeeds: more hours, cleaner stores, improved productivity because associates know others are depending upon them, lower shrink, faster service for customers, increased knowledgeable and trustworthy associates with whom customers can interact, a friendlier environment for all, teamwork among associates, etc.
Life is simple. Teach associates to show up on time. Do what they say they will do. Finish what they start. Say please and thank you.
Good article and one that explains all of the benefits of paying staff more. Every retailer should take note.
While I know it’s inevitable, it’s a shame that what is often the least human sector of all (the investment world) has any say in any matters related to better staff management practices. If they had their way, employees would be forced to work for free.
It all depends on who your hire. Sometimes I see a $20 an hour worker at Costco and feel they are underpaid but see a $10 an hour worker and Walmart and feel they are overpaid. When raising pay a company needs to make sure they are hiring people worth the wage and not just raising wages for workers they would prefer to move on. Walmart will probably keep experimenting to see if they can attract better quality people to replace existing workers. At some point they might find a nice sweet spot where a $15-per-hour worker can do the work of two $10-per-hour workers. Costco, The Container Store, Trader Joe’s and many others have already figured that out. Walmart might take a long time to do this because their business has a long and deep history with the less-than-ordinary worker Sam Walton built his business on.
It is hard to argue against Walmart’s decision to pay workers more. I am sure that Walmart will use every metric to measure the impact on it bottom line.
If the payoffs don’t offset the costs, it will find itself in the difficult position of having touted the increases but earning less money. Wall Street (we really should say investors) has a harsh view when a company’s profits don’t live up to its expectation.
Let’s hope for everyone’s sake that it works.
Numerous studies have shown that compensation is a potential dissatisfier, not a motivator. To the extent that Walmart’s employees were dissatisfied with their pay, it would show up in all facets of their work and service. As a shopper, it just wouldn’t feel like a great place to shop.
If the new salary levels eliminate the majority of Walmart employees’ dissatisfaction, and that remains to be seen, then it should show up in happier and more motivated (or, since compensation is a potential demotivator, less unhappy and less unmotivated) employees, which will translate into increased productivity, improved service and an overall more welcoming environment for shoppers.
Bottom line is that to get a better handle on the returns from this change, it would be interesting to view Walmart’s top and bottom line results over the next little while and correlate it to their employees’ (hopefully increased) satisfaction levels.
It sometimes strikes me as strange how companies let the structure of their P&L drive their decisions. Retailers will “invest” vast sums of money on upgrading stores with the logic that it will attract more shoppers. That investment is depreciated over time and is a “below the line” subtraction. “Labor” of course, is seen as an “expense,” despite that fact that it may have more impact on customer satisfaction and continued traffic than any new shelf fixtures or newly installed carpet.
“How do we raise margin? Simple, we cut expenses. What is the most flexible expense to cut? Labor!” That is backwards thinking that Walmart has apparently changed.
It’s great, but possibly costly PR. If companies can offset those costs with lower turnover, reduced shrink, and an increase in applicants, then it’s free PR. You can never go wrong with that.
The long term benefits of a happy and loyal workforce would be better than the immediate and measurable gains. The pay increase is great but its effect can be amplified greatly when combined with a “we care about employees” attitude.
Walmart’s moves are way overdue, and it’s gratifying to see that they acknowledge the great results. Perhaps Wall Street will take the longer view…the results are going to be really important for a segment of the American workforce.
As a result of the increased wages, employee retention improves. This is a huge cost savings to Walmart (and most other retailers) as the cost of on-boarding, training, etc. goes down. Wages may, at least for the short term, make employees happier. That can lead to higher levels of customer engagement from those employees. However, as the execs of Walmart smartly caution, it will take more than a higher wage to improve the customer experience.