Wal-Mart Stores Inc. is boosting its starting hourly wage to $11 and delivering bonuses to employees, capitalizing on the U.S. tax overhaul to stay competitive in a tightening labor market.
The increase takes effect next month and will cost $300 million on top of annual wage hikes that were already planned, the world’s largest retailer said Thursday. The one-time bonus of up to $1,000 is based on seniority and will amount to an additional $400 million. The company is also expanding its maternity and parental leave policy and adding an adoption benefit.
Wal-Mart, the nation’s largest private employer, has fought in recent years to improve its image in the U.S., as it weathered criticism over its treatment of employees. With the wage increase and bonus payment, the company seeks to even its pay gap with resurgent rival Target Corp., while simultaneously sending a high-profile thank you to the U.S. government for slashing the corporate tax rate.
“Tax reform gives us the opportunity to be more competitive globally and to accelerate plans for the U.S.,” Chief Executive Officer Doug McMillon said in the statement.
The move comes three years after Wal-Mart last announced it was raising wages, spending $1 billion in 2015 to lift starting hourly pay to $9 and then to $10 the following year -- for workers who complete a 90-day training course. The increase cut into profit and was criticized by some longer-tenured employees as unfair to them. Since then, many states have enacted minimum wage laws, meaning that a “sizable group” of its 4,700 U.S. stores already pay $11 an hour, according to spokesman Kory Lundberg.
“We think this is a prudent use of tax reform proceeds as it reinforces the company’s commitment to improving in-store service levels and will pressure other retailers to invest more heavily into wages and prices,” Ben Bienvenu, an analyst at Stephens, said in a note.
Investors didn’t have a strong reaction to the pay hike. The shares were
littled changed on Thursday, trading at $99.65. The stock advanced 43 percent in 2017.
The nation’s unemployment rate has also plummeted to 4.1 percent from 5.7 percent since Wal-Mart’s first announcement of higher wages in 2015, creating a battle to recruit and retain cashiers and shelf stockers.
Even with the wage bump, many workers will struggle if they’re the sole breadwinner. A rate of $11 an hour translates to $22,000 a year for a typical 40-hour week, with two weeks of unpaid vacation time. The federal poverty level for a family of four is about $24,600, according to the U.S. Census Bureau.
The wage hike follows Target’s October decision to increase its minimum hourly wage to $11, which it will further boost to $15 by the end of 2020. Costco Wholesale Corp. and other retail chains like TJX Cos. have also raised wages in recent years.
The moves by Wal-Mart and others could help move the needle on stubbornly stagnant wage growth during the current economic expansion -- if an increasing number of companies follow with their own pay hikes. Average hourly earnings for production and non-supervisory workers were up 2.3 percent in December from a year earlier, according to Labor Department figures. In the previous economic uptick, wage growth peaked in December 2006 at 4.2 percent on a year-over-year basis.
Wal-Mart’s decision makes it the latest corporate titan to plow expected tax savings into employee payouts. Boeing Co., AT&T Inc. and Wells Fargo & Co. have all made similar announcements in recent weeks. Wal-Mart said it’s “early in the process of assessing potential additional investments” it could make.
Wal-Mart also is coming off a resurgence in same-store sales in recent years, giving it more of a cushion to boost pay. Last quarter, the Bentonville, Arkansas-based company posted its strongest U.S. sales gain in more than eight years.