story by Kim Souza
ksouza@thecitywire.com
Less than a year after promising to address worker pay, Wal-Mart Stores CEO Doug McMillon has made what he calls a bold move to invest $1 billion in corporate revenue to raise the pay of 500,000 of the lowest paid Wal-Mart employees.
McMillon, who began with Wal-Mart as a hourly employee, promised to address the issue of worker pay and job advancement last year when adding staff to stores during the holiday shopping rush hours. In an email to workers on Feb. 19, McMillon reiterated that “people make the difference at Wal-Mart,” which is why he plans to raise the starting pay to $9 an hour or higher by April and up to $10 an hour in February 2016. (See the McMillon video at the end of this report.)
It’s just one piece of the puzzle being addressed, according to Walmart U.S. CEO Greg Foran, as the retailer seeks to improve customer service among its 4,500 U.S. stores. Foran also began his retail career as a hourly employee, but not with Wal-Mart.
Aside from raising the pay for entry level jobs, Wal-Mart is also raising the average pay of department managers to $13 per hour and up to $15 by the following year. The plan includes providing workers more opportunities for training flexibility over their own schedules. As the nation’s largest private employer Wall Street analysts applaud the retailer for this action.
WORKER RETENTION
”It’s long overdue at Wal-Mart,” according to CNBC contributor Jim Kramer. “It’s good to see the company trying and address some of the problems that have drug on for too long with their workforce, knowing that the investment in the short term will nip at earnings.”
He said retraining employees who stay on the job an average of six to nine months is a budget buster and Wal-Mart’s effort to pay a higher wage might in fact help them attract a workforce that will stay on the job long enough to improve customer service.
“We know we can’t raise customer service levels unless we ensure we are first taking care of our associates,” Foran said during a media call following Thursday’s (Feb. 19) announcement.
For a company that proclaims the “Customer is alway No. 1”, an investment in customer service is a no-brainer. But Foran put it in perspective saying, “We also have to treat our associates as good as we treat our customers. We have to give associates a clear understanding of what it takes to get promoted in our business.”
Allen Ellstrand, an expert in corporate management teams at the University of Arkansas, said better pay at the bottom and expanded opportunities for department managers will mean the company can attract and retain better talent in the future – talent that is key to improving store operations and ultimately the company’s earnings over time.
“On a couple of levels this wage announcement is a good move. From a public relations perspective it’s a positive step forward. From a practical level, the employer turnover has been a big problem when workers are tempted to leave for better wages elsewhere,” said Allen Ellstrand, an expert in corporate management teams at the University of Arkansas.
Paul Trussell, an analyst Deutsche Bank, said the investment in wages is good news.
“Part of Wal-Mart’s problems have been out-of-stock inventory, long check-out lines and disgruntled workers. The new CEOs are taking steps to correct some of these past evils,” Trussell said.
‘POWER OF THE MARKETPLACE'
The National Retail Federal applauded Wal-Mart’s decision to increase bottom wages.
“Today’s announcement by Walmart regarding associate wages is just another example of the power of the marketplace. Like many other retailers, Walmart made its decision based upon what is best for their employees, their customers, their shareholders and the communities in which they operate,”
McMillon said Wal-Mart’s decision to raise wages has been in the works for the past year as he and Foran have been out in stores and witnessing areas that needed improvement relative to understaffing concerns.
Critics said perhaps Wal-Mart IS moving ahead of what is a national trend toward a higher minimum wage as four states, including Arkansas voted to raise their minimum wages in November.
The move to boost worker pay also received political attention.
“I applaud Wal-Mart for its plan to increase wages for the company’s U.S. based full and part-time employees,” U.S. Sen. John Boozman, R-Ark., said in a statement. “This sets the example for other American companies that investing in their workforces is important to their bottom line. Business-based initiatives like this are best set by companies and states, not forced on by federal government policies.”
Arkansas Gov. Asa Hutchinson issued this statement: “The Walmart story has always been about the American Dream. Sam Walton embodied that dream, building the world’s largest retailer through hard work, vision and exceeding the expectations of his customers. He would be proud of the forward-thinking plan announced by Walmart today to raise the pay of all current associates, provide those who want it the training and clear path to career success and work with associates on schedules that best fit their busy lives. This is especially good news for Arkansas and its 51,000 Walmart associates.
“Walmart understands that a company is only as strong as its employees. And its visionary new plan makes the company an even stronger, better place to work and advance in a career. I often talk about individuals having the opportunity to climb the economic ladder. Most of us hunger for that chance to earn our success. Walmart provides it.”
CRITICS SAY PLAN ‘FALLS SHORT’
Emily Wells, an OUR Walmart leader from Merritt Island, Fla., said the move to raise wages would not have happened without the work by thousands of supporters to change the country's largest employer. While she’s glad to see the move, it falls short of the $15 minimum wage and consistent hours OUR Walmart continues to seek.
Wells is a soon-to-be mom who earns $9.50 and hour after three years at Wal-Mart. She was most excited about the promise of flexible scheduling as she only gets about 26 hours a week.
"But, without a guarantee of getting regular hours, this announcement still falls short of what American workers need to support our families. With $16 billion in profits and $150 billion in wealth for the owners, Walmart can afford to provide the good jobs that Americans need – and that means $15 an hour, full-time, consistent hours and respect for our hard work,” Wells said.
McMillon said the starting wage is just a piece of the puzzle being worked. He said this investment will mean the average full-time hourly wage at Walmart will be $13, up from $12.85. The average part-time hourly wage will be $10, increasing from $9.48. The retailer said the part-time to full-time worker ratio is about 50:50. Full-time workers log a minimum of 34 hours a week.
He also said there is the benefits package to consider, which includes a “my share” performance bonus, 401(k) benefits and a variety of health care options valued at $22 per day. He also said the one-day wait period for sick pay is being lifted for full-time employees.
A side note to the employment news was an update on Wal-Mart’s efforts to employ 100,000 veterans by 2018.
“We set this goal just under two years ago, and we’re proud to say that we’ve already hired almost 80,000 veterans through this program. Furthermore, over 6,000 have been promoted to roles of greater responsibility since joining the Walmart team,” Foran said.