Wal-Mart: Employees up $1 billion, shareholders down $9 billion

Fred WhittleseyConscious Compensation: The Impact Compensation Blog

Wal-Mart

Just yesterday I told a client of mine from the retail sector that the big news in retail hourly employee compensation was the continuing executive compensation controversy – soon to be further fueled by the publication of CEO Pay Ratios, which will be most extreme in the retail and hospitality sectors – and the migration of the theme to “income inequality” and pressures to increases wages of the lowest paid employees.

About 12 hours later, Wal-Mart announced that the company will increase employee wages to a minimum of $9.00 per hour, and to $10.00 per hour next year.

The media interpretations of this action vary widely:

Wal-Mart Raises Pay to Retain Workers as Labor Market Tightens

A Wal-Mart worker making $9 an hour would have to work 2.8 million hours to match the CEO’s pay

Walmart (WMT) Stock Slipping Today After Raising Hourly Wages to $10

Wal-Mart Stores Inc. Earnings: Buzz Over Worker Pay Raise Can’t Mask Poor Performance

It’s too early to speculate whether the shareholder reaction was solely in response to the wage increase news or the company’s drop in net income, missed revenue target, and cautious business outlook. Perhaps the wage announcement was intentionally timed with the negative news about revenue and profitability, making it impossible to attribute share price movement to either the wage increase or poor business performance.

As other retailers have learned, paying more to store-level employees can actually be a strategy for increased business results – Costco, Ikea, The Container Store, and many others are successful case studies in this approach.

The ripple effect of this announcement goes far beyond Wal-Mart profitability and shareholder value.  This will put pressure on other low-wage employers – retailers, restaurants, hotels, and more – for both competitive and public perception reasons. The race is on to be a more “conscious” company though few will use that term for fear of scaring investors.

Of course, this is not news in my home State of Washington where the state minimum wage is $9.47 per hour, and the City of Seattle which is transitioning to a $15 minimum..  I wonder if the State will outpace Wal-Mart in the race to the $10.00 level.