Paying people fairly is a core requirement to address ongoing economic and racial inequality. And, as the largest US employer with nearly 1.6 million workers, Walmart is a central actor in effectively setting wages and approaches in the country.
For most of its existence, the giant retailer actively resisted any pressure by workers, organized labor, politicians, or other critics to significantly raise pay. The result is that a portion of its employees have lived with financial precarity, having to rely on government support—in the form of Medicaid, food stamps, and other poverty-reduction programs—to make ends meet.
While the company made swift progress on surprisingly ambitious environmental goals starting around 2004, it didn’t acknowledge the urgency to improve worker compensation. “Some well-meaning critics contend that Walmart should be setting the pace for wages and benefits for the entire economy, just as a unionized General Motors was said to have done in the postwar period, helping usher in the great American middle class that this country is so proud of,” former CEO Lee Scott once said. “The facts are that retailing doesn’t perform that same function in the economy as GM does or did. Retailing has never occupied the top tier of wages in this country, or in any country.” (p. 103)
But beginning around 2015, Walmart changed its tune, making a major shift to start raising wages.
Why did it finally come around? How far has the retailer truly progressed on the question? A new book called Still Broke by Rick Wartzman sets out to answer those questions, providing an important case study in corporate change, worker rights, and fair pay at a singularly powerful US company. Wartzman, a journalist who is now head of the KH Moon Center for a Functioning Society at the Drucker Institute, has long followed Walmart, including for a 2004 Pulitzer-winning Los Angeles Times series critical of the company that he shaped.
Key takeaways from Wartzman’s new book:
- Low wages contributed to business problems. Turnover was extreme, with poor compensation the number one reason people cited for leaving the company. And internal research begun around 2011 showed that staff were unhappy. Higher wages ultimately helped improve its business performance. Customer satisfaction scores, sales, and staff retention all increased.
- Walmart’s board played a critical role in significantly raising wages. During a February 2015 board meeting, a management plan to set the minimum at $8.25 appeared to be sailing through when director Jim Cash, an emeritus professor at Harvard Business School, argued that it should go higher. He also noted that Walmart could finance a more generous increase by saving money through better inventory management. The board eventually approved a hike to $9 soon after, and an increase to $10 per hour by early the next year.
- Investors punished Walmart for paying employees better. Its shares fell about 3% when it announced the wage increases in 2015, and plunged 10% the day its chief financial officer presented to investors about the related near-term decline in profits that the expense involved.
- Campaigns by unions helped lay the groundwork for Walmart’s finally agreeing to improve worker pay. The retailer has successfully blocked attempts by employees to organize. But unions in 2004 intensified their focus on tarnishing the company’s image, creating initiatives such as Walmart Watch and Wake Up Walmart based on the belief that if the country’s biggest employer raised wages and working conditions other companies would have to follow.
- Walmart did significantly raise wages. Worker pay averaged $17.06 an hour by earlier this year, the result of five rounds of wage increases that started in 2015. It also increased the ranks of full-timers as a portion of its employee base to two-thirds from half six years ago, and gives workers more advance notice of their schedules.
- A reorganization of workers into small teams in 2020 boosted wages and created new opportunities for advancement. Walmart cross-trained employees to perform a range of tasks and gave them fuller responsibility for their work, hiking about 15% of the hourly workforce’s wages and creating new higher-paying “team lead” positions at its Supercenters.
- Its current pay is still not enough. Wartzman estimates that at least half of Walmart’s US workers make less than $29,000 per year. “Its transformation has been real,” Wartzman writes. “But this is also real: if you work at Walmart, even after everything it has done to improve your job, there’s more than a fair chance that you’ll still be poor. Just because things are better doesn’t mean they’re good.” (p. 223)
- Companies need to be required to pay workers enough to live on. “As big a leap as it would take, a federal minimum wage of $20 is where we need to get—and as swiftly as possible—if we want Americans who work hard to not merely eke out an existence,” Wartzman contends. (p. 228) (The federal minimum wage has been stuck at $7.25 since 2009.) A $20 per-hour wage represents under $42,000 for a full-time worker. About 80% of Americans live in a location where they need to earn at least that to support a four-person family with two adults working.
To be sure:
- Wartzman acknowledges that Walmart has funded the Drucker Institute, which he helps lead, and agreed to cooperate with his reporting. But Still Broke is thorough and critical, showing little evidence of favoritism toward the company.
- While highly readable and well reported, the book is an uneven mix of Walmart history, profiles of its top executives, and analysis of compensation in the US. Wartzman’s conclusions in the final chapter of the book arrive abruptly, overly disconnected from the narrative to that point.
Memorable facts and anecdotes:
- Walmart founder Sam Walton was among the first US retailers to put cash registers in the front of a store, departing from the usual practice of counters with clerks scattered around.
- Walmart sales climbed from $16 billion to $165 billion, during the tenure of CEO David Glass from 1988 to 2000. Current CEO Doug McMillon has said Glass “may be the most under-appreciated CEO in the history of business.” (p. 28) But, shockingly, when asked in 1992 about evidence that Walmart products were made using child labor, Glass coldly said, “Yeah, there are tragic things that happen all over the world.” (p. 29)
- A landmark speech Scott delivered in Oct. 2005 committing the company to ambitious sustainability goals was actually written by Paul Hawken, an environmentalist and entrepreneur.
- Scott told the company’s general counsel to listen carefully during a meeting with a Walmart critic for “at least a nugget of feedback that she’s going to be absolutely right about.” “Most of the criticism you’re going to hear you’re going to know is unfounded either because she doesn’t know the facts or for some other reason,” Scott said. “And so, for most people it becomes easy to treat this as an exercise in futility and go in there and smile and tune her out. But there’s going to be something we can learn from this meeting. So that’s your job.” (p. 50)
The bottom line is that Still Broke provides readers with an understanding of how Walmart and many other big US companies have resisted paying humane compensation, making a clear case for a dramatic increase in the federal minimum wage. It’s also a well-told behind-the-scenes narrative of how change does—and doesn’t—happen at a big corporation, and how such businesses can go significantly astray.
The handbook for this new era of business doesn’t exist. We’re all drafting our own as we go along—and now we’d like to start doing so together. You can sign up here to receive this briefing by email.