Some Companies Boost Starting Salaries, But Getting a Raise Is Hard

Some Companies Boost Starting Salaries, But Getting a Raise Is Hard

Pay growth is sluggish and stifles buying power

Dana Wilkie By Dana Wilkie September 10, 2018
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The Death of the Pay Raise
Part 3 of a four-part series.

This past June, Costco Wholesale raised its starting wage from $13 an hour to $14, even though the current federal minimum wage is $7.25 an hour—a rate that hasn't changed since July 2009.

The membership wholesale giant also awards hourly employees regular wage increases based on number of hours worked. The company's average wage for hourly workers in the U.S. now stands at $23.

Costco is among a few companies that have raised wages at a time when the economy is strong, unemployment is at an all-time low, many businesses are turning healthy profits and the financial markets have surged. Yet for many low- and middle-income workers, wages remain relatively stagnant, in some cases barely keeping pace with the yearly rise in the cost of living and in other cases not keeping pace at all.

Walmart, Kroger, Dollar Tree, Target, Ross Stores and Shake Shack are among the companies that have said they've been under pressure to raise wages, according to transcripts of recent earnings calls with these companies' leaders. Some of these companies, and others, have already taken that step.

 
Rodney McMullen
Kroger CEO

"The majority of our investment in labor has been in starting wages. And in the past, we've always had people very easily would come for a job, and make it a career, and understand over time there is wage progression. Over time, as jobs became very plentiful, that starting wage became more important. So, we've meaningfully increased starting wages across the company."

Q4 2017 call with stakeholders:

Phillip Wilson, president and general counsel of the Labor Relations Institute Inc. in Broken Arrow, Okla., said he hears a "common refrain from progressive groups" that company leaders are so out of touch with rank-and-file workers that they don't see the disconnect between stalled wages and a strong economy. It's a refrain, he said, "that doesn't fit with the reality I see."

"Most company leaders recognize this issue [of stagnant wages] and do all they can to attract talent and provide the best wages and benefits they can," Wilson said. "There are countless examples of folks who start at low-skilled, entry-level jobs and work their way up to a living wage and a much better career. It's not the easy or popular answer, but it's true."

[SHRM members-only resource: Salary Survey Directory]


Despite Some Efforts, Wages Overall Remain Flat

To be sure, government data and business projections indicate that, overall, wages for many low- and middle-income workers in the U.S. remain relatively flat.

According to August 2018 data released by the U.S. Department of Labor, real average hourly earnings for nonsupervisory employees were lower than they were a year ago. Furthermore, any positive changes that have occurred over the last year—little though they may be—have been largely offset by increases in the consumer price index.

Michael Hartshorn
Ross Stores CFO

"Let me give you a couple of reasons for why we're raising the minimum entry wage rate, why we're paying the one-time bonuses, and improving the benefits programs. Firstly, although we’re currently happy with the hiring pipeline and our ability to retain existing associates, we recognize the labor market is pretty dynamic and competitive. And there is no doubt with the strengthening economy as well as the effects of tax reform that those things are going to continue to push up wage rates, and it’s important for us to keep pace with those changes."

Q4 2017 call with stakeholders:

Average salary budgets for 2019 remain little changed at about 3 percent growth despite falling unemployment, according to the WorldatWork 2018-2019 Salary Budget Survey.

Patrick Callans, Costco Wholesale's senior vice president for HR and risk management, said he could not speak to what other companies are doing about stagnant wages, but he noted that at Costco, "the importance of paying good wages for our hourly employees isn't merely an HR perspective, it's a fundamental Costco principle.

"We know that paying good wages makes sense for business," Callans continued. "An important reason for the success of Costco's business model is the attraction and retention of great employees. Instead of minimizing wages, we know it's a lot more profitable in the long term to minimize employee turnover and maximize employee productivity, commitment and loyalty."

Tim Low, senior vice president for marketing at PayScale, a compensation data and software firm, said Costco's move is an example of how one leading company could start a movement.

"Costco has always had a reputation as a company that pays fairly and believes in fostering positive employee relationships to drive better customer experiences. Increasingly, employers are having to stay on top of their own social contract with workers to make sure that they don't end up losing in the war for talent," he said.

A Movement by Major Banks

In December 2017, Wells Fargo announced it would raise its minimum wage from $13.50; the bank's lowest pay rate increased in January to $15 per hour.

Other banks soon followed. Fifth Third Bancorp announced a plan to raise its minimum hourly wage for all employees to $15, as well as to distribute a one-time bonus of $1,000 to more than 113,500 employees.

Randy Garutti
Shake Shack CEO

"We are living in good economic times [with] low unemployment, and that means it's harder than ever for us to find [employee] teams. Let me give you an example of how we're doing this, and how we're thinking about it. We're going to open at Nashville, Tennessee. The minimum wage is $7.25. We're going to start people -- start -- at $13 an hour. That's what it takes to get a great team member that can build and bring the hospitality and that Shake Shack will bring to that market, and we're super excited to pay that."

Q2 2018 call with stakeholders:

BB&T Corp., Bank of America, PNC Financial Services and U.S. Bank made similar announcements. For instance, U.S. Bancorp, the parent company of U.S. Bank, announced that it will hand out a $1,000 bonus to nearly 60,000 employees. The bank also plans to increase its minimum wage for all hourly employees to $15 per hour. Additionally, the bank said it will make "enhancements" to its employees' health care options, effective for the 2019 enrollment period.

Sometimes, it takes a leading business figure to start such a movement.

Larry Fink, CEO of BlackRock, the world's largest hedge fund, wrote a remarkable open letter to CEOs this past January. In it, he spoke of the need for a new model for corporate governance that takes into account that while 2017 equities "enjoyed an extraordinary run—with record highs across a wide range of sectors … popular frustration and apprehension about the future simultaneously reached new heights.

"Since the financial crisis, those with capital have reaped enormous benefits," Fink wrote. "At the same time, many individuals across the world are facing a combination of low rates, low wage growth and inadequate retirement systems. For millions, the prospect of a secure retirement is slipping further and further away—especially among workers with less education, whose job security is increasingly tenuous.

"Your company's strategy must articulate a path to achieve financial performance. To sustain that performance, however, you must also understand the societal impact of your business as well as the ways that broad, structural trends—from slow wage growth to rising automation to climate change—affect your potential for growth," he shared.

Recent Pay Raises May Not Be Enough

"Some corporate leaders do realize a need to raise wages to compete for employees," said Anastasia Christman, a senior policy analyst and director of research at the National Employment Law Project (NELP), an employee advocacy group. "And some companies did give one-time bonuses to low-wage workers after last year's corporate tax changes" were passed by Congress and signed by President Donald Trump.

However, she and other economic experts say it's important to recognize that while workers tend to be grateful for these wage hikes and bonuses, it's not a sustainable way to close the pay gap between top earners and those at the bottom. She noted that many of the companies that have recently raised pay have done so only for starting wages.

"For these firms to be responding to the larger issues of income inequality, they need to be raising wages for all their front-line workers and, according to government data, that is not taking place," she said. "To compete with other firms seeking workers, these companies have had to raise starting wages, but once these workers are on the job, they see little income growth over time and thus have little ability to save, pay off debts, buy a home, purchase items for their children or achieve the other markers of individual economic success."

Scott M. Colosi
Texas Roadhouse President

"But as you know, unemployment is very low. The labor market is very tight. You see tons of businesses talking about how hard it is to hire people and the kinds of benefit packages and wages that they're offering people. It is extremely competitive right now, and very challenging across the board."

Q2 2018 call with stakeholders:

The media teams at Walmart, Abercrombie & Fitch, Dollar Tree, Target, Ross Stores and Foot Locker either declined to be interviewed about their recent decisions to raise wages or stagnant wages in the U.S., or they did not reply to requests for interviews.

The American Bankers Association, the CEO Roundtable, the Business Roundtable and the U.S. Chamber of Commerce either declined or did not reply to requests for interviews on stagnant wages.

It is important for business leaders to recognize that pay is now among the top three characteristics that engage workers, but many of those workers don't understand the economic dynamics behind wage stagnation, Low said.

A November 2017 study conducted by PayScale found that how people are paid relative to the market for their position matters little in terms of employee satisfaction. What does matter is how employees feel about the pay process, which has 5.4 times as much impact. The authors defined "pay process" as "how pay is determined at my company, [and whether it is] a fair and transparent process." In other words, workers tend to be more satisfied with their pay if they can understand how a company determined what they should earn.

For that reason, "the responsibilities of HR teams may have never been greater or more important," said Lynn Reaser, chief economist at the Fermanian Business & Economic Institute at Point Loma Nazarene University in San Diego.



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