After being on the frontline of the pandemic, then grappling with an edgy public and a spike in shoplifting, its been a tough few years to work retail. But for Walmart Inc. managers, at least, things are looking up.
In January, the company announced that it would significantly boost store managers’ pay. They will now receive annual stock grants of as much as $20,000. Average base salaries were raised to $128,000 a year, from $117,000. The retailer has also changed the way it calculates bonuses: It will continue to evaluate sales, but the profit generated by a manager’s store will play a bigger role, motivating the leaders to improve performance. If a manager hits all targets, they could earn a bonus of up to 200% of base salary. All told, a successful manager of a high-performing store could now pass the $500,000 mark, according to Bloomberg News.
That’s far more than the typical pay of a US store manager, which is around $100,000 per year (though those running complex locations are frequently paid more).
Although the announcement raised analyst eyebrows, it’s a smart move for Walmart — and given that the company’s influence as the world’s biggest retailer, could be good for society too.
It made the change to hold onto key managers, who are especially important at Walmart’s supercenters, which can be as big to 200,000 square feet and stock more than 100,000 product lines.
But the pay bump can help in other ways, too. Walmart has been attracting more higher-income consumers as middle-class families have seen their incomes squeezed by inflation. One of the simplest ways to keep them coming back is to get the retail basics right: keep the fresh produce appealing, shelves stocked and aisles clean. Motivated managers can make a difference.
Unsurprisingly, better paid workers tend to be happier workers, according to human resources analytics company Revelio Labs Inc.
There’s evidence this contentment can boost company and stock performance. In a 2012 study, Alex Edmans, Professor of Finance at the London Business School (then at Wharton School), found that firms on Fortune’s list of “100 Best Companies to Work for in America,” which have superior employee satisfaction scores on factors including pay and benefits, outperformed peers by 2.3-3.8% per year from 1984 through 2011. A follow-up by Hamid Boustanifar, associate professor at the EDHEC Business School, and Young Dae Kang of the Bank of Korea found that the relationship still held: companies on the publication’s list earned an excess return of 2-2.7% per year through 2020, with particular outperformance during tough times.
In the case of Walmart, shares are up almost 30% this year. Of course, the changes to mangers’ remuneration happened only six months ago. But there is a good chance that they contributed to its better than expected first quarter.
Costco Wholesale Corp. is also known for paying wages above the industry average and offering generous benefits. Twenty years ago, some Wall Street analysts took issue with this approach. That now looks short sighed: The shares are at a record high.
To be sure, the relationship between high worker remuneration and market success is not universal. For example, Target Corp. has long paid bonuses and awards stock to store managers — although it hasn’t disclosed how much. The retailer also offers benefits including free access to further education. Yet its shares have been overshadowed by a slump in demand for non-essential items, languishing at close to half of their 2021 high.
But to really understand the power of a pay scheme like Walmart’s, you need to look beyond the financial markets. While everyone deserves a living wage, a job that delivers a large sum can be life-changing, helping a family get on the housing ladder or achieve a new level of education. And opening that pathway to employees who may not have a college degree is particularly transformative.
To provide those opportunities — and to do so in a way that motivates an entire workforce — requires companies to put mindful policies in place. Employees throughout the organization must be able to work their way up to store managers and above. Walmart says about 75% of its store, warehouse club and supply chain managers started as hourly employees.
Typically, a person can join a retailer as, for example, a shelf-stacker or cashier, perhaps part-time. They can go on to take responsibility for different sections within the store, before joining the management ranks. Across the industry, career moves happen every 14.5 months on average, and generate a 15.2% pay uplift, according to the National Retail Federation.
Indeed, some CEOs have moved from entry-level jobs to the C-suite. For example, Costco’s new Chief Executive Officer Ron Vachris started as a fork lift driver at age 17 in 1982 at Price Club, which later merged with Costco.
Without such a pathway, high wages for store managers can create a feeling of us-versus-them among employees. For the same reason, some element of the greater management rewards must be shared throughout the store.
Indeed, Walmart also recently announced a new bonus program for full- and part-time store staff, whereby, for example, a long-serving full-time employee could earn a bonus of up to $1,000 a year. This means that every level within the store can earn remuneration above an hourly wage.
Stock may also be part of these compensation plans — though that requires employees to take the rough with the smooth.
At Starbucks Corp. full- and part-time employees may be rewarded with “Bean Stock,” which turns into Starbucks shares over two years, as long as they remain with the company. It has paid out about $2 billion-worth since 1991. However, Starbucks shares fell to their lowest level in two years last month, which can be demoralizing for holders (on the plus side, as new grants are based on a specified dollar amount, rather than number of shares, this means current awardees get more stock).
Yes, companies take a risk by offering workers more compensation — but the reward is worth it. When criticized in 2004 for being too generous, then-CEO of Costco Jim Sinegal said: “I happen to believe that in order to reward the shareholder in the long-term, you have to please your customers and workers.”
Two decades later, that thinking is paying off. It’s heartening to see more retailers following in his footsteps.
A message from Advisor Perspectives and VettaFi: To learn more about this and other topics, check out our podcasts.
Bloomberg News provided this article. For more articles like this please visit
bloomberg.com.
