Why Walmart Giving Their Workers Raises Is Smart Business

Why Walmart Giving Their Workers Raises Is Smart Business

Walmart has announced its lowest-paid workers will be getting a raise. Credit: Wikipedia Commons

Walmart has announced its lowest-paid workers will be getting a raise. Credit: Wikipedia Commons

This month, the Associated Press reported that Walmart will spend $1 billion on raises and training for its lowest-paid employees. Workers will now earn, at the very minimum, $9-an-hour, and then get $10-an-hour if they stick around for six-months.

The decision comes after a wave of protests about the wages Walmart and other retail giants pay their employees and the benefits – or, perhaps more accurately, the lack thereof – they offer. So the move will unquestionably give them some good PR, at the very least.

But is it a good business move? Does paying employees more for jobs that require no experience and are easily filled a smart decision for a company that’s entire business model is about having the absolute lowest prices?

In a vacuum, simply raising wages would probably be a mistake, considering how price sensitive Walmart shoppers are and the huge amount of competition the company faces. However, increasing wages in conjunction with some of the other moves they are making makes a lot more sense, and could actually save the company money in the long run.

Of course, like everything in business, it all comes down to the execution. But, from a theoretical point of view, not only is Walmart’s raises good PR, it is smart business as well.

Reasons Against Paying People More

Let’s face it – nobody goes to Walmart for the experience, they go because Walmart is cheap and has everything you need. And the company knows that – after all, their slogan is “Always Low Prices.”

In the past few years (I would argue partially because of our president), there have been more protests than ever against companies that pay low wages, like Walmart and McDonalds. Coupling that with the Occupy movement and just a general sentiment against big corporations and the “1 percenters”, Walmart’s PR is probably worse than ever.

And yet, people still shop there – annual sales have increased by almost $70 billion in the past five years – and their stock price has risen from 53.59 five years ago to an impressive 84-plus today. So, despite all the complaints, people are still shopping at Walmart, and you wonder if any of this bad PR even matters.

On top of that, Walmart already pays nearly all of its employees more than the minimum wage. The AP reports that less than 6,000 of its 2.1 million employees currently make the federal minimum.

Bottom line, Walmart is so successful because it doesn’t pretend to be anything other than what it is. Sure, the stores might not be the best (although, in fairness, they do seem to be relatively clean), the workers would probably rather be doing something else, but it is cheap and convenient, and that’s why people go there.

So why raise wages?

Why It Makes Sense

Again, I think if Walmart just arbitrarily raised wages, it would hurt their business. Yes, it would make the pro-labor types happy, or at least less angry, but ultimately it would be a disservice to its customers and shareholders.

After all, as much as people complain about Walmart, their low prices help poor people. Or, middle-class people like me who are just too cheap to go anywhere else.

But Walmart isn’t just giving away higher salaries. They are increasing the amount of training they are giving out, which is like “eh,” but can’t hurt.

More importantly, it is increasing the amount their workers can make – i.e. raising the wage ceiling – that can be earned via good performance. And they are doing more to inform their workers about the opportunity to move up within the company via the Walmart Foundation.

Here’s a fact I bet you don’t know – 75 percent of Wal-Mart’s store managers began as hourly associates, and they earn $50,000 to $170,000 a year. The problem is, most Walmart employees don’t know that, either.

Chipotle has a brilliant hiring process where it gets low-paid workers – just like Walmart – and does everything they can to turn them into high-paid workers. The goal is to have people who are dedicated to the company, because they know the company will reward them if they perform.

Walmart, with this latest move, has the same opportunity. If they can incentivize more of their workers – not all, but at least some – and turn them into dedicated employees, the company is going to start gaining efficiencies.

Maybe, for example, there is only the need for three dedicated workers stocking shelves, instead of five workers who would rather be somewhere else stocking shelves. Maybe, if you get a Walmart employee who actually knows where something is in the store, you’ll get happier customers, which will increase sales.

Bottom line, not just by paying employees more, but by giving them real opportunity for both raises and promotions, Walmart can have a leaner, meaner workforce. That means less turnover, decreased labor costs (ironically enough), a vastly-improved culture and a much better customer experience.

Will it work completely? Probably not, many Walmart employees will see their job as just a job. But if they can get even 10 or 20 percent of employees to care more about what they do, the extra money in salaries will easily pay for itself.

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