Walmart Is Lowering Starting Pay. Will Other Employers Follow?

​With company pay strategies in the spotlight, the nation's largest private employer has made a significant move that indicates compensation aggression may be cooling.

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Walmart, which has roughly 1.6 million U.S. employees, has lowered starting pay for new hires who prepare online orders for curbside pickup or delivery to customers' homes, as well as for workers who restock store shelves, according to reports. The change began in July, with new Walmart employees making about $1 an hour less than those who joined the company a few months earlier.

Walmart said in a statement that the move was made in part so that starting pay was consistent across positions, but the news still is a reversal from the days when the retail giant boosted pay for most of its workers in a competitive job market. Earlier this year, Walmart hiked its minimum wage for store workers to $14 from $12.

While this latest move is significant given Walmart's size and influence, the news isn't all that surprising given shifting economic tailwinds, experts said.

"Continued economic uncertainty brought about by high interest rates is cooling demand for workers in certain sectors, including retail, leisure and hospitality, and manufacturing," said Garry Straker, vice president, compensation consulting at Salary.com.

Indeed, the labor market has shifted from an employee-driven one that spurred competitive wages and benefits to woo and retain workers to a slightly cooling one as employers remain concerned about a potential recession.

Mara Marino, senior compensation consultant at Salary.com, added that companies' budget constraints may limit how much they can allocate to employee compensation.

"After a period of steady salary increases, organizations may need to prioritize other investments, cost control or profitability, leading to a stabilization of wage growth," she said, adding that salary stabilization does not necessarily mean that salaries as a whole will decrease. Instead, she said, "they may remain relatively steady or increase at a slower rate compared to previous periods."

Will Other Employers Follow?

The big question: Is Walmart's announcement about reduced starting pay for employees an anomaly, or a canary in the coal mine? It could be both. For instance, other organizations have continued to boost pay as they try to recruit and retain workers. Amazon announced just this week that it is bumping the average hourly pay for warehouse and delivery workers, with those roles averaging about $20.50 per hour and some locations offering as much as $28 per hour.

But given the size and scope of Walmart, it's possible that other organizations—especially those in the retail sector—might follow suit, with cost control being a factor.

"Companies are looking to manage margins and profitability," said Kathleen Quinn Votaw, CEO of TalenTrust, a Denver-based recruiting and human capital consulting firm. "As we move into Q4 and 2024 with a possible recession looming, other employers will look at their numbers closely. Employee wages are a major line item."

Straker said that whether or not starting wages will fall depends on the industry. Some industries are still seeing a shortage of workers. For instance, significant wage gains persist for union employees in transportation, package delivery and warehousing industries, where demand for workers remains high. That's providing more leverage for collective bargaining groups to negotiate wage gains.

"I think wage movement will be uneven," Straker said. "We will see some winners and losers in the months ahead."

Employers Should Consider Other Factors

The move from Walmart comes after employers have largely boosted pay and benefits to remain competitive in a hot labor market. Several studies, for instance, have found that budgets for salary increases are the highest in years. New research from WorldatWork, for instance, found that salary increase budgets reached their highest level in 20 years in 2023.

Employees expect competitive pay, as well. Workers' average reservation wage—the lowest salary employees say they would take for a new job—has risen to $78,645, according to the Federal Reserve Bank of New York.

Although pay strategies remain competitive, some signs point to potential slowing. For instance, consulting firm WTW surveyed more than 2,000 U.S. organizations for its Salary Budget Planning Survey released this summer and found that U.S. organizations are budgeting an average increase of 4 percent in 2024—down from the actual increase of 4.4 percent in 2023 and the 4.2 percent rise in 2022.

The Walmart news is just another sign of slowing momentum.

But before employers think about reducing wages or putting the brakes on pay increases for existing employees, experts said organizations and HR leaders should consider the full picture.

For instance, even though WTW's projected 2024 figures are down slightly from the past two years, they remain much higher than the 3.1 percent salary increase budget in 2021, as well as other increases in pre-pandemic years. WorldatWork also found that U.S. employers are budgeting an average hike of 4.1 percent in 2024—still a competitive boost.

Marino said that organizations' pay strategies shouldn't simply mirror Walmart's—or any other firms.

"I would caution against impetuously following or mimicking the strategies of other companies without considering potential risks and consequences," she said.

The economy is influenced by several pressures, including monetary policies, global events, consumer behavior and technological advancements, she explained, adding that attempting to understand and predict its behavior without expert guidance can "lead to misinterpretation and costly mistakes."

Plus, "companies can implement rate reductions regardless of broader economic conditions, and in the case of Walmart or any large corporation, their decisions are often influenced by a multitude of factors and considerations that we may not be directly aware of," Marino said.

For employers that may be weighing reducing starting pay, Marino said they should consider the long-term implications of the decision—including how it may affect the company's reputation, employee morale, applicable labor laws, and ability to attract and retain talent in the future.

"Bear in mind that lower starting salaries might lead to higher turnover rates among new hires, as they may be more likely to leave for better-paying opportunities elsewhere," she said.

Votaw agreed, saying that employees continue to have lots of choice in the market, and many will choose to work for an employer who pays them a fair and reasonable wage. "Over time, this business decision could impact their margins and their customers' experience," she said of Walmart's decision to cut starting pay.

Overall, Marino said organizations shouldn't put too much weight on the Walmart pay news.

"Just because a particular strategy, product or approach is trending or widely adopted by competitors doesn't necessarily mean it's the right thing to do at your company," she said.