Wal-Mart Stores, Inc. (WMT) Doubles Down On Wage Hike Debacle, Will Give Everyone A Raise Next Month

walmartTyler Durden:  Wal-Mart Stores, Inc.’s (NYSE:WMT) attempt to pacify the living wage crowd by giving the company’s lowest paid employees a tiny, across-the-board raise has been nothing short of a disaster.

The fiasco started early last year when the world’s largest retailer decided to spend some $1 billion to appease those who claim the company’s hourly workers don’t make enough to live with some semblance of dignity.

To be sure, the veracity of that claim was never in question. Lowly shelf stockers, cashiers, and door greeters most assuredly do not make enough money to get by – especially considering the soaring cost of housing in America.

The question was whether WalMart was making a prudent decision by hiking wages. More specifically, it wasn’t clear whether the benefits the company’s hourly workers would receive from seeing a few extra pennies on their paychecks each month would offset the wave of knock-on effects the wage hike would invariably trigger.

Sure enough, WalMart almost immediately moved to squeeze more “savings” out of the supply chain by attempting to dictate how vendors spend their excess cash, charging storage fees, and demanding that any savings from the yuan deval be passed on directly to Bentonville.

When that proved insufficient to preserve margins, WalMart resorted to Economics 101: they fired some folks. First at the home office in Arkansas and then at 269 stores where more than 15,000 employees learned this month that they no longer have a job.

Oh, and the retailer unleashed one hell of a guidance cut in October, triggering the biggest decline in the company’s shares in 17 years.

Through it all, we suggested that things would likely get worse for the company because after all, you can’t very well hike wages for one group of employees and not everyone else lest you should inadvertently start a revolt among higher paid workers. That is, you have to preserve the wage hierarchy. For someone who has worked at the company for years, painstakingly climbing the corporate ladder and gradually moving up in pay grade, the across-the-board raise for subordinates will seem arbitrary. Why, the loyal employee might well ask, does the shelf stocker who started two months ago deserve a raise but I do not? Here’s what we said back in August:

Some senior Wal-Mart employees have suddenly realized that although they may still be making more than their subordinates, the wage hierarchy has been distorted and that distortion had nothing to do with merit. Higher paid employees don’t understand why everyone under them in the corporate structure suddenly makes more money and if people who are higher up on the corporate ladder don’t receive raises that keep the hierarchy proportional they may simply quit which means that, for Wal-Mart, raising the minimum for the lowest paid workers to just $9/hour will end up costing the company around $1.5 billion if you include the additional raises the company will have to give to higher paid employees in order to retain their ‘talents’ and avoid a mid-level management mutiny.”

Well sure enough, WalMart announced on Wednesday evening that all hourly workers will receive a 2% pay bump next month.

The cost: around $2.7 billion.

“When the retailer raised its minimum wage last April to $9 an hour, some long-term workers objected to being paid nearly the same as a new hires with less experience,” WSJ writes, “This time Wal-Mart wanted all employees to benefit at once and to clearly communicate the change.”

“Employees want to know they will still be ahead of those who come from an entry-level position,” Judith McKenna, Wal-Mart’s U.S. chief operating officer said.

“At least they are recognizing that the longtime workers who are already making more than $10 need something,” union-backed OUR Walmart’s Tyfani Faulkner added, before noting that she “doesn’t think 2% is enough for employees that often make so little to begin with.”

Precisely. These dribs and drabs may have some symbolic value and may bolster WalMart’s image as a good corporate citizen, but let’s not kid ourselves: a 2% raise isn’t going to be a life changing event for the vast majority of the company’s employees who are still going to struggle.

Does that mean WalMart shouldn’t raise wages?

No.

But what it does mean is that the company should conduct a careful cost-benefit analysis before spending billions on wage hikes that not only make the retailer less competitive in a market that runs on the thinnest of margins, but in fact imperil the company’s odds of surviving in a world dominated increasingly by E-commerce.

Don’t believe us? Just ask the 16,000 WalMart workers who were laid off last week.

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Full press release from WalMart

BENTONVILLE, Ark., Jan. 20, 2016 – More than 1.2 million Walmart U.S. and Sam’s Club associates will receive a pay increase under the second phase of the company’s two-year, $2.7 billion investment in workers. The pay raise, which takes effect Feb. 20, will be one of the largest single-day, private-sector pay increases ever. As an industry leader for competitive pay and benefits, Walmart is also implementing new short-term disability and simplified paid time off (PTO) programs. The combined changes will expand support for associates dealing with extended health issues and provide associates greater control over their paid time away from work.

“We are committed to investing in our associates and to continuing to simplify our business. When we do so, there is no limit to what our associates can accomplish,” said Judith McKenna, chief operating officer for Walmart U.S. “Our customers and associates are noticing a difference. We’re seeing strong increases in both customer experience and associate engagement scores. Five straight quarters of positive comps in our U.S. business is just one example of how helping our associates grow and succeed helps the company do the same.”

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