A Wal-Mart store in Burbank, California. (Photographer: Patrick T. Fallon/Bloomberg)

Wal-Mart Raises Hourly Wage to $11 in Wake of Tax Overhaul

(Bloomberg) -- Wal-Mart Stores Inc. is boosting its starting hourly wage to $11 and delivering bonuses to employees, capitalizing on the U.S. tax overhaul to stay competitive in a tightening labor market.

The increase takes effect next month and will cost $300 million on top of annual wage hikes that were already planned, the world’s largest retailer said Thursday. The one-time bonus of up to $1,000 is based on seniority and will amount to an additional $400 million. The company is also expanding its maternity and parental leave policy and adding an adoption benefit.

Wal-Mart, the nation’s largest private employer, has fought in recent years to improve its image in the U.S., as it weathered criticism over its treatment of employees. With the wage increase and bonus payment, the company seeks to even its pay gap with resurgent rival Target Corp., while simultaneously sending a high-profile thank you to the U.S. government for slashing the corporate tax rate.

On the same day Wal-Mart announced the new benefits, the company also said it will close “a series” of Sam’s Club warehouse locations after a portfolio review, illustrating how cost cutting remains a key focus. Wal-Mart didn’t disclose how many of its 660 units it was shuttering. Business Insider reported it was closing 63 units, citing a company official it didn’t identify.

‘Super Important’

The wage increase comes three years after Wal-Mart’s last big labor outlay, spending $1 billion in 2015 to lift starting hourly pay to $9 and then to $10 the following year -- for workers who complete a 90-day training course. The increase cut into profit and was criticized by some longer-tenured employees as unfair to them.

“We’ve seen wage stagnation for many years, so it’s super important for lower-wage workers to see their wages rise,” said Elise Gould, a senior economist at the Economic Policy Institute. “It’s due to two factors -- state-level increases and a tightening labor market.”

Since Wal-Mart’s initial increase starting in 2015, many states have enacted minimum-wage laws, meaning that a “sizable group” of its 4,700 U.S. stores already pay $11 an hour, according to spokesman Kory Lundberg.

Workers in the District of Columbia and the states of California, Washington and Massachusetts, already earn at least $11 an hour. And New York, Arizona, Colorado, Maine and Oregon will all reach that level next year, as efforts at the state level to boost livelihoods have gained steam. A total of 18 states have increased minimum pay this year.

Wal-Mart Raises Hourly Wage to $11 in Wake of Tax Overhaul

Investors didn’t have a strong reaction to Wal-Mart’s pay hike and the store closures. The shares were little changed on Thursday, trading at $99.92 at 2:56 p.m in New York. The stock advanced 43 percent in 2017.

Lower Unemployment

The nation’s unemployment rate has also plummeted to 4.1 percent from 5.7 percent since Wal-Mart’s first announcement of higher wages in 2015, creating a battle to recruit and retain cashiers and shelf stockers.

Even with the wage bump, many workers will struggle if they’re the sole breadwinner. A rate of $11 an hour translates to $22,000 a year for a typical 40-hour week, with two weeks of unpaid vacation time. The federal poverty level for a family of four is about $24,600, according to the U.S. Census Bureau.

Wal-Mart’s hike follows Target’s October decision to increase its minimum hourly wage to $11, which it will further boost to $15 by the end of 2020. Costco Wholesale Corp. and other retail chains like TJX Cos. have also raised wages in recent years.

The moves by Wal-Mart and others could help move the needle on stubbornly stagnant wage growth during the current economic expansion -- if an increasing number of companies follow with their own pay hikes. Average hourly earnings for production and non-supervisory workers were up 2.3 percent in December from a year earlier, according to Labor Department figures. In the previous economic uptick, wage growth peaked in December 2006 at 4.2 percent on a year-over-year basis.

Publicity Wave

Wal-Mart’s decision makes it the latest corporate titan to plow expected tax savings into employee payouts. Boeing Co., AT&T Inc. and Wells Fargo & Co. have all made similar announcements in recent weeks. Wal-Mart said it’s “early in the process of assessing potential additional investments” it could make.

“Tax reform gives us the opportunity to be more competitive globally and to accelerate plans for the U.S.,” Chief Executive Officer Doug McMillon said in Thursday’s statement.

The retailer is also coming off a resurgence in same-store sales in recent years, giving it more of a cushion to boost pay. Last quarter, the Bentonville, Arkansas-based company posted its strongest U.S. sales gain in more than eight years.

“We think this is a prudent use of tax reform proceeds, as it reinforces the company’s commitment to improving in-store service levels and will pressure other retailers to invest more heavily into wages and prices,” Ben Bienvenu, an analyst at Stephens, said in a note.

Wal-Mart Raises Hourly Wage to $11 in Wake of Tax Overhaul

The one-time bonuses will range from $200 to $1,000, depending on how long workers have been with Wal-Mart. The idea is to reward employees who won’t benefit from the new starting wage.

The company also will provide full-time hourly workers with 10 weeks of paid maternity leave and six weeks of paternal leave. Parents who adopt kids will get the same benefit, along with $5,000 to help cover the costs.

While companies and states have increased salaries in recent years, the $7.25 federal minimum wage has not budged since 2009. That irks some economists, who say the federal level has failed to keep up with inflation and productivity.

“A better solution would be to raise the federal minimum wage and not leave it up to corporations,” Gould said.

©2018 Bloomberg L.P.