Something peculiar is happening at companies across America — and it's great news for low-level workers
Reuters
Some of America's biggest companies are suddenly desperate to hang on to their lowest-level workers, and it's resulting in wage increases across the US.
Starbucks, Walmart, McDonald's, JPMorgan, Target, and TJ Maxx are among the companies that have announced wage increases within the last year.
In addition to paying workers more, several of these companies are improving employee benefits and scheduling processes, and investing more in training.
Starbucks announced this week that it will give all of its US employees — roughly 150,000 people — a raise of at least 5% effective October 3.
The coffee chain is also doubling the annual stock award for employees who work at the company for at least two years straight.
A day later, JPMorgan said it would boost pay for 18,000 of its lowest-tier employees, including tellers and customer service representatives, as well as invest more in training.
Many analysts say companies are raising wages only to stay ahead of anticipated local minimum-wage hikes in cities and states across the US.
Others say the raises are simply the result of a tightening labor market that's making it harder to hire and retain talented people in low-paying jobs.
Executives from Starbucks, Walmart, and others have tried to cast the compensation changes in a much more generous light, saying they are meant to show appreciation for employees and improve customer service.
ReutersWhen Walmart CEO Doug McMillon announced $2.7 billion in spending on wages and training last year, he told employees that it was meant to "demonstrate our commitment to you, our associates."
"When we take a step back, it's clear to me that one of our highest priorities must be to invest more in our people this year," McMillon said.
Starbucks CEO Howard Schultz shared a similar sentiment in a letter to employees this week that said the wage increases are intended to "deepen the reservoir of trust between" Starbucks and its employees.
"The world around us is increasingly fragile," Schultz wrote. "But our commitment to you is not. We are in this together, and honoring your needs is essential to Starbucks' success."
JPMorgan CEO Jamie Dimon had a similarly altruistic message on the topic of increasing pay. In an op-ed in The New York Times, he said he was raising the wages of tellers by as much as 62% to battle income inequality.
While many low-level workers have applauded the changes, labor activists have argued that the raises aren't steep enough. Walmart and McDonald's are both in the process of pushing their starting wages to above $10, but labor activists are fighting for a minimum wage of at least $15.
Former McDonald's USA CEO Ed Rensi, however, said a blanket $15 minimum wage would be disastrous, especially for the restaurant industry, where he says labor accounts for about 35% of operating costs.
"They are going to raise prices to offset the cost of labor, and then they are going to lose customers," Rensi told Business Insider in an interview. "And guess what happens when they lose customers? They fire employees because they don't need them anymore."
Wages in the leisure-and-hospitality sector are rising faster than the national average, increasing 4% over the prior year in June.
As wages climb higher, companies are investing more in automation — like digital tablets that allow customers to order and pay for food — that would eliminate the need for some employees, he said.
"McDonald's ... is going to automate everything they can," Rensi said. "This is survival of the fittest. They are going to do whatever they have to do to survive."
Automation has affected the banking industry as well. Now that consumers can deposit checks on their cellphones, a main component of bank tellers' jobs has been eliminated.
In explaining to investors the decision to raise wages, executives are arguing that the investment now will pay off down the road in better customer service, which is expected to eventually turn into more profit.
But investors appear skeptical that the investments will do so.
Walmart suffered its worst stock decline in 27 years in October 2015 after the company revealed its investments in wages would lower operating profits by about $1.5 billion in fiscal year 2017.
The stock price has rebounded since then, up 24% since the October announcement, but it's still down about 15% from where it was before Walmart announced the wage investment in February 2015.
According to Walmart US President Greg Foran, however, the wage investments are already paying off. Foran said in May that stores are already seeing improvements to widespread issues like empty shelves and cleanliness.
"Associates are feeling a little bit more engaged," Foran said.
The company is even seeing sales and traffic improvements, which it said were driven in part by the investments in labor. In the most recent quarter, Walmart's US same-store sales rose 1%, driven by a 1.5% increase in traffic.
ReutersThe changes aren't going unnoticed by customers.
"Our customers continue to tell us they are happy with the changes we're making in our stores, as evidenced by our customer-experience scores, which rose again this quarter versus last year," Brett Biggs, executive vice president and CFO& of Walmart, said on a call with analysts.
McDonald's has also been seeing positive results from its labor investments, according to the company.
The fast-food chain lifted its average hourly wage from $9.01 to $9.90 last July, and it will raise it further to exceed $10 by the end of this year.
McDonald's has also started allowing workers to earn up to five days of paid vacation every year, and it invested in training by implementing new procedures like "ask, ask, tell" to speed up drive-thru service.
McDonald's CEO Steve Easterbrook said recently that the changes "have resulted in lower crew turnover and higher customer-satisfaction scores ... and we are gaining share relative to the [fast-food] sandwich segment."
Customer-satisfaction scores were up 6% in the first quarter, compared with the same period last year, he said.
It remains to be seen how the rising wages will affect Starbucks, Walmart, McDonald's, JPMorgan, and others in the long term.
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