Wal-Mart Stores Inc. (NYSE:WMT) announced Tuesday that CEO Mike Duke will be replaced by Doug McMillion next year. The change in top management comes at a time when the company's financial performance is thriving, but also just as its labor disputes are increasingly becoming a national issue.
As one of the world’s most valuable companies and one of its biggest private employers with 2.2 million globally, the family-run business brought in revenues of $469 billion in 2013 and generated profit of $27.8 billion over the same period. Despite this, the average Wal-Mart salary for its lowest-paid workers for a 40-hour week is about $18,720, which would be the figure for a five-day week if the employee worked 52 weeks a year and didn’t pay any tax. OUR Walmart, a group of current and past employees, says the average salary is actually about $9 an hour and most workers only work 34 hours a week, resulting in an annual $15,500.
While some workers hope the change in CEO will lead to a resolution of their bitter salary battle with the world’s biggest retailer, for now strikes are popping up all across America, including Tuesday’s high-profile Washington, D.C., walkout, which was designed to disrupt Black Friday preparations. Employees in Minnesota and Miami also walked off the job in solidarity with their D.C. colleagues.
Wal-Mart has refused to comment on the labor unrest, only asserting that its salaries are fair and the chain generates jobs in deprived areas.
The long-standing grievance spiked when a Wal-Mart executive blurted out at a Goldman Sachs Group Inc. (NYSE:GS) investor conference in September that 475,000 of the company’s U.S. employees made more than $25,000 a year, suggesting that the remaining 1 million that live in America do not. This added fuel to the long campaign against Walmart’s pay policy, which ignited when a large protest outside a store in California resulted in 50 arrests just last week.
At the heart of the issue is Wal-Mart employee’s demands for a living wage. A commonly cited figure is around $25,000, although this varies depending on local cost of living and what figures are used. To put that number in context, a study from June found that Wal-Mart workers in Massachusetts are forced to use government benefits like food stamps and Medicaid to top up their average salary. A similar report from California found that 44,000 employees rely on around $44 million worth of taxpayer money to get by. It’s thought that up to $1 billion is spent annually by states all across America to subsidize the lowest-paid Wal-Mart workers, according to ChangeWalmart, an advocacy group in support of Wal-Mart employees.
However, a report released by the Democratic staff of the House Education and Workforce Committee in May 2013 claims that the figure is much greater, as high as $4 billion annually. Adding in the generous tax incentives offered by states to attract Wal-Mart to various areas and the cost to taxpayers, the total savings for the company run into the tens of billions.
Incidentally, it would take the average worker around 750 years to earn the $23.2 million that CEO Mike Duke earned in 2012, approximately 1,034 times more than the company’s average worker.
So how much could Wal-Mart conceivably afford to pay?
Stephen Gandel of CNN money recently calculated that Wal-Mart could afford to give its employees a 50 percent raise, to about $33,315, and still satisfy shareholders. This sounds insane from a shareholder's perspective as it would lessen the dividend and perhaps the share price, but recent examples suggest otherwise. Three years ago Google Inc. (NASDAQ:GOOG) increased their staff salaries by 10 percent and the share price dipped before quickly recovering. Today it’s worth 60 percent more than before the raise.
In addition, a little bit of Henry Ford wisdom may also come in handy to Wal-Mart. Ford was famous for paying his workers double the average American salary – why did he do this? Simple: He figured that if he paid his workers more money he would be able to retain the service of the most talented employees therefore resulting in a more efficient, quicker and satisfied workforce. He would also reduce the cost of repeatedly training new employees, ultimately lowering employee turnover and making his company more money. But more than that, Ford gave his workers spending power to buy his products, lifting them into the middle classes and giving them a socio-economic status rarely enjoyed by industrial workers in those days.
There’s little doubt that Wal-Mart employees shop in their own stores because it’s cheap, but the recent food drive, which prompted employees to give food to other Wal-Mart employees, suggests that this may not be true. In addition, if Wal-Mart did raise its salary for employees it would relieve state and federal welfare, potentially diverting money back to vital public services.