The Real Reason for Wal-Mart’s Wage Hike

When Walmart announced that it was giving all employees raises, bonuses—or both—thanks to the new tax cut, it didn’t take long for the political spinning to start around the news. For Republicans and Trump supporters, it added up: This was the trickle-down effect that proponents of the law promised. Many conservative websites headlined Walmart’s explanation—“Walmart Sharing Tax Cut Savings Via Pay Boost, $1,000 Bonuses,” the Fox News story read; others went a step further, offering it as proof that the “Trump tax cut is working.” Some, though, were more skeptical. Tweeters were quick to jump on the fact that Walmart sibling Sam’s Club had also shuttered 63 stores that same day as evidence that these might not exactly be boom times for the retail giant. For these people, Walmart’s announcement was political spin from a famously stingy company eager to prove that only after Walmart got the tax law it wanted would it finally be able to give its employees a little more—and do Republicans a political favor in the process.

So which is it: a real bonus for the company or political gamesmanship? Walmart’s employees are getting real benefits, most directly, they can thank the GOP tax bill. But it’s also clear that Walmart is feeling very good about the economy overall, along with the other companies who gave their employees raises and bonuses in the wake of the tax law’s passage. As much as the immediate Walmart news might have been inspired by fresh cash the tax law is freeing up—at least $1 billion in Walmart’s case—the company’s moves are a sign that America’s largest retailer and largest employer thinks unemployment will remain low and economic growth steady—and that revival has ramping up since well before the 2016 election.

Story Continued Below

The math of the raises, bonuses and benefits expansions certainly makes sense given Walmart’s tax cut explanation: raising starting pay nationwide, giving employees a year-end bonus, adding significant benefits for staff who are parents, or want to be. The new tax law, reducing Walmart’s rate to 21 percent, will save the company between $1 billion and $2 billion a year. (Walmart pays between $6 billion and $7 billion a year in taxes now.) Walmart put the costs of yesterday’s new pay and benefits at less than $1 billion company-wide.

But there are reasons to be skeptical the decision stemmed only from the tax cut. In its official announcement, and in a letter to employees, Walmart CEO Doug McMillon said the corporate tax cuts passed by Congress and signed by President Trump inspired Walmart “to accelerate a few pieces of our investment plan” in the United States, as if these moves might have been in the planning stages. Rolling out paid maternity leave across 4,752 stores is hardly something you can do in 20 days.

Walmart’s burst of generosity is clearly a competitive gambit—in a job market that’s getting tougher for employers, the company wants to keep its employees from moving elsewhere.

First, Walmart raised starting pay to $11 an hour for front-line employees. Today, 600,000 hourly Walmart employees — 60 percent — work in states where the minimum wage is less than $8 an hour. That’s Walmart setting base pay almost 40 percet above the minimum in places like Texas, Pennsylvania, Virginia, North Carolina and Missouri. (Walmart raised its own base to $10 an hour in 2016.) Walmart also announced it was giving out $400 million in one-time bonuses to its hourly staff—a first in its 56-year history.

The company also rolled out three big new benefits—fully paid maternity leave of 10 weeks for full-time employees; fully paid parental leave for spouses of newborns, of 6 weeks; and up to $5,000 to employees who want to adopt a child. Those are “sticky” benefits—the kind that might keep you from leaving Walmart just to earn 50 cents or $1 an hour more, or might woo you to Walmart in the first place. Walmart might not have needed to worry about that in a weak economy with plenty of people looking for work, but they clearly understand they’ll have to fight for employees going forward—and that’s a sign of a strong economy that’s been long in the works. The changes were even greeted with enthusiasm Friday by a long-time group of self-organized Walmart employees called “Our Walmart.”

But, for a company that keeps such thin profit margins, that $1 billion in tax breaks is a lot, and it seems that the timing came together. Korey Lundberg, a spokesman for Walmart, pointed out that the company just finished open enrollment for its benefits programs at the end of 2017, and wouldn’t have imagined rolling out new benefits until the end of 2018. The new benefits will begin, Lundberg said, “as quickly as we can.”

And the point about the Sam’s Club closures undermining the cheerful tone of its press release doesn’t quite hold up either. Closing 10 percent of the U.S. Sam’s Club stores the very same day and laying off 10,000 employees looks terrible, but doesn’t say anything about the company’s improved pay or its optimism about the US economy. The Sam’s Club news was not actually announced; it started to leak out on Twitter and Facebook as store staff and customers showed up on Thursday morning at Sam’s Clubs that had closed, even though they had been open on Wednesday. The optics were terrible: Even as Walmart was celebrating its own generosity, it was firing10,000 employees. (They will all be allowed to apply for other Walmart jobs.) Only late in the day did the company confirm the nationwide wave of closings, and even then, in contrast to Walmart’s previous practice, it didn’t provide a list of stores and locations.

But the Sam’s Club closings have more to do with a changing strategy under CEO Doug McMillon. The culture of Walmart under founder Sam Walton and until very recently had been to pick smart store locations and then make those stores work, however long it took. But McMillon has abandoned the idea that any particular Walmart stores are iconic. If stores can’t be made to make money, it’s OK to close them. In a world where Walmart finally has a worthy competitor—Amazon—McMillon understands that the company can’t have any sentimental attachment to buildings. In fact, Walmart announced that up to a dozen of the warehouse-like Sam’s Clubs it closed will be turned into distribution and delivery centers for customers shopping at Walmart online. So the closure of the stores was arguably a far-sighted move to keep repositioning Walmart against Amazon, not a sign that the bonuses were somehow disingenuous or a political payback for Republicans.

Walmart has powerful business reasons for being more generous to its workers. Four years ago, McMillon looked around and concluded that the company’s employees were long under-valued, and that cutbacks during the recession had made their lives even worse. He’s lifted wages across the company, improved training, and—as important as anything else—increased staffing store-by-store. Working for modest wages, in a busy, understaffed Supercenter, is discouraging—bad for morale, bad for customers, bad for Walmart’s business. McMillon is trying to change that.

And the move itself will have a swift, tangible impact, no matter the motivation. These benefits are real, and they will matter. If you’re living on $25,000 a year, you likely don’t have $5,000, or even $1,000, in a savings account for adoption expenses. Walmart adding that benefit might literally make it possible for you to adopt a child. Similarly, 10 weeks of paid maternity leave (replacing the company’s current program of about six weeks of partially paid leave) might make it financially possible for you to have a child.

Bonuses of $200 to $1,000—depending on years of serve—are modest for employees at a company where the annual profit is $14 billion. But if you make $350 a week, a $300 bonus is going to make an immediate difference in your life. If you make $10 an hour, moving up to $11 an hour—getting an extra $30 or $40 a week—will do the same.

There’s plenty of cynicism about Walmart, much of it well-earned. And trying to support one adult on $24,000 a year is a challenge, let alone stretching that kind of pay across a spouse and kids. A dollar an hour helps, but doesn’t change that basic math. But the bigger impact of these raises shouldn’t be understated. In many places in the U.S., Walmart still sets the rhythm and the pace for both retail and employment, and so the company’s moves are likely to “trickle up” for low-wage employees well beyond Walmart’s own Supercenters.

Walmart’s bosses looked at the windfall the tax cuts create, and over just 20 days, they asked the question, what can we do for our own employees with this money? Whether you buy the cynical explanation or the charitable one, that’s encouraging news—even for the people who might roll their eyes at the victory lap Republicans are taking.