A raise in the minimum wage has failed to register with Republicans – who have indicated that they will attempt to seek an injunction to block the president’s executive order.
The White House announced on Jan. 26 that President Barack Obama would sign an executive order mandating that the minimum wage of certain federal contractor employees be raised to $10.10 – a 39-percent increase from the current federal minimum mandated hourly wage of $7.25. This would be just shy of the highest inflation-adjusted federal mandated minimum wage — $1.60 in 1968, which would be $10.71 in today’s dollars – and would be the second-highest single year change in the minimum wage.
This, however, pales to the president’s vision of a universal hike in the minimum wage.
“Today the federal minimum wage is worth about 20-percent less than it was when Ronald Reagan first stood here,” said the president in the State of the Union address. “This will help families. It will give businesses customers with more money to spend. It does not involve any new bureaucratic program. So join the rest of the country. Say yes. Give America a raise.”
The notion of a raise in the minimum wage has failed to register with congressional Republicans – who have indicated that they will attempt to seek an injunction to block the president’s executive order. More tellingly, the nation’s largest low-wage employers have shown a reluctance to seriously broach the question of raising their corporate minimum wages. In July, Wal-Mart decided not to build three stores in the Washington D.C. market after the D.C. Council voted to mandate that “big-box” retailers pay a minimum hourly wage of $12.50.
According to Wal-Mart, the average salary for a full-time hourly Wal-Mart employee is $12.67 per hour. Per the Huffington Post, half of Wal-Mart’s hourly associates in the U.S. make less than $10 per hour, with most who make more having been noted for extraordinary service.
“I pay low wages. I can take advantage of that. We’re going to be successful, but the basis is a very low-wage, low-benefit model of employment,” Sam Walton, the founder of Wal-Mart once said.
The Wal-Mart Model – in which unskilled or undereducated workers can be quickly and cheaply trained to fill a continuously turned-over position – has created the notion of the “disposable worker.” While Wal-Mart must hire at a rate of a half-million employees per year to maintain its staffing levels, the relatively short tenures of the company’s part-time staff has created a rationale for not investing in high wages and adequate benefits.
While Wal-Mart does currently have one of the highest wage packages of any “big-box retail” store, this is only because the average industry wage is less than 25 percent above the minimum wage. However, the fact that Wal-Mart and other large employers pay near the minimum wage does not automatically suggest that they must pay more. Without a critical examination of the companies themselves, it is impossible to ascertain if increasing the minimum wage is feasible, recommended or beneficial.
MintPress conducted a study in an attempt to find evidence that would support a base increase in salary for the nation’s largest retailers. The study focused on Wal-Mart, Target and Sears Holdings – the parent company of K-Mart and Sears. As a control, the study also included Costco – which is known for paying its employees above industry standards. Reviewing Securities and Exchange Commission filings, court records and investors’ statements, MintPress attempted to ascertain in definitive terms if these retailers can pay higher wages, and if they can, what may be the reason not to.
The study concluded that while the major employers can raise the minimum wages of their employees, there are business decisions in play, mostly concerning the companies’ stock market position, that make concessions to employees’ needs and demands unfeasible, undesirable or of low priority.
It is easy to point at Wal-Mart and see the perceived injustices of half of the company’s associates making less than $10 per hour. Wal-Mart – the largest private employer in the U.S. – earned nearly $500 billion in sales worldwide in 2013. The company posted an estimated five-dollar increase in its common share value and reported approximately $15 billion in net profit last year, according to the company’s 10-Q filing.
Despite this, Wal-Mart – in at least 21 states – has the largest number of employees on publicly-funded health insurance than any other company, per Making Change at Wal-Mart, a pro-Wal-Mart employee advocacy group. It is estimated that Wal-Mart employees cost taxpayers nationwide more than $1 billion per year in subsidized benefits.
Wal-Mart and Target both also offer the highest CEO compensation of any Fortune 500 companies. Target CEO Gregg W. Steinhafel currently has a compensation package of $19 million, with a base salary of $1.5 million, while Wal-Mart’s Michael Duke – who will be replaced by C. Douglas McMillion on Feb. 1 – has a compensation package exceeding $20 million.
In contrast, Costco’s W. Craig Jelinek has a compensation package of $2.2 million, based on a salary of $350,000, and Sears Holdings’ Edward Lampert has an annual salary of one dollar, with an incentive package that can reach as much as $6.5 million.
Looking deeper at Wal-Mart and the other “big-box” retailers, however, reveals interesting facts. In order to compare the four companies – which use different accounting measures – more simply, MintPress used a per-week average calculation of the companies’ October/November SEC reporting in its analysis. Wal-Mart, with a per-week revenue of $9.64 billion, has operational costs of 94.5 percent – similar to Target’s 95.9 percent on $1.438 billion and Costco’s 97.3 percent.
Sears is currently in consolidation, with operations cost at 103.2 percent of its revenue. It is currently closing both K-Mart and Sears stores.
Looking at the ratio between these companies’ administrative costs – the total receipts minus the cost of goods – to the companies’ revenue and net profit, differences emerge. For example, Wal-Mart has administrative costs to revenue ratio of 20 percent and administrative costs to net profit of 607 percent. Target has administrative costs to revenue ratio of 22 percent and administrative costs to net profit of 1,130 percent.
Costco, however, has administrative costs to revenue of only 10 percent and administrative costs to net profit of 314 percent. In other words, Costco – the nation’s second-largest retailer – manages to run its business with an efficiency at least twice that of Wal-Mart or Target – the third-largest retailer. It is in this efficiency that the minimum wage question will be answered.
The cost of image
Costco – by just about every measure – is atypical from other “big-box” stores. During a time where “big-box” sales were stagnant or in decline, Costco saw 39 percent growth and a doubling of its stock price over the last year. During a time where the major retailers are increasingly seeing strikes and labor shortages, Costco has never experienced a significant labor issue. While the average sales associate hourly wage for Wal-Mart and Target is $8.88 and $8.37, respectively, it’s $12.08 for Costco.
Despite this, a look at Walmart’s and Target’s stock price histories does not reflect a significant reflection of these realities. While Wal-Mart’s total receipts only increased 1.5 percent from 2012 to 2013, the company’s common stock price grew 6.5 percent. In fact, Wal-Mart’s stock price has been bullish since 2010 – despite the fact that revenue dropped in 2011.
A large part of this discrepancy is the fact that Wal-Mart is aggressively manipulating its stock price. In June, Wal-Mart authorized a new $15 billion share buyback program, which is the latest in a string of buybacks that saw the company buying roughly $36 billion of its own stock over the last four years. Doing this has lent the company the image of health at a time where online companies such as Amazon.com are stealing away formerly faithful Walmart customers daily, and where the company is floundering in setting roots in the emerging markets.
While Target did not participate in a significant stock buyback in 2013, the company did complete a $10 billion buyback that started in 2007 and represented roughly 23 percent of the company’s outstanding stock, as of November 2007.
In July 2013, consumer advocate and former presidential candidate Ralph Nader wrote a letter to Wal-Mart’s Michael Duke in regards to the announced new buyback.
“Assuming Wal-Mart buys back its stock at a similar pace as what it has done over the past four years, you will have bought back a total of $51 billion in 5 years and 8 months,” wrote Nader. “That is an average of $9 billion of stock bought back per year. By the time the current buyback plan is completed, will this really have been the best use of about $51 billion?
“Wal-Mart employs about 1.3 million ‘associates’ in the U.S. alone. Instead of spending this huge amount of money on buying back stock, had you chosen to use this money to pay your low-wage hourly workers a more respectable wage, you could have given each one of your 1.3 million U.S. associates an annual raise of nearly $7,000. Assuming, conservatively, that each of these associates work 52 40-hour work weeks per year, this would amount to a raise of over $3.30 per hour. This would give each and every one of your employees a raise to the minimum wage floor of $10.50 per hour,” continued Nader.
Nader pointed out that Wal-Mart has managed to operate satisfactorily in countries that demand higher wages and greater benefits than the U.S. For example, in Canada, in every province but Alberta, Wal-Mart must meet a minimum wage of $10 per hour or more. While not offering a buyback may tarnish investors’ confidence, the investment into the companies’ employees would lower employee turnover. With a retail industry average of 24-percent turnover for full-time employees and 67 percent for part-time employees, a reduction can lead to happier, more productive workers and a healthier bottom-line. As a point-of-reference, Costco has a full-time turnover rate of 6 percent and a part-time turnover rate of 22 percent.
Judging the market
Of course, Wal-Mart and Target have no reason to concede to any of this.
“To rely on ethics to bring about a living wage is, I believe, highly unrealistic,” David George, professor of economics at La Salle University told MintPress. “Years ago, when employers were more likely to have personal connections with their employees, norms and the risk of social censure may have may have worked in keeping wages livable. With globalization and growing size of corporations, ‘being nice’ has become something of a luxury according to many hyper free markets.
“Paying more, goes the argument, will do more harm than good as the generous company can’t compete with those who pay less,” George, a recipient of the Thomas F. Divine Award from the Association for Social Economics, added. “The facts do not offer much support for this claim, and if they did, any ‘race to the bottom’ phenomenon calls for collective action to counter it.”
While it is attractive to think that the four members of the Walton family top Forbes’ 400 Richest People in America list – with a combined wealth totaling more than $136 billion – are obligated to taking care of the people responsible for their wealth, in reality, Wal-Mart is only obliged to meet market demands. If a company can advertise a job at a certain rate and have applicants knowingly apply and accept the job at that wage, there is no ethical requirement towards offering a higher rate. Many business theorists would argue that the offering of a higher rate would — itself be the unethical action, as it would reduce the return on investment.
Costco’s example is a reflection of its guiding philosophy.
“At Costco, we know good wages are good business,” said Jeff Long, senior vice president. “Our employees are a big reason why our sales per square foot is almost double that of our nearest competitor. Instead of minimizing wages, we know it’s a lot more profitable for the long term to minimize employee turnover and maximize productivity and commitment, product value, customer service and company reputation.”
While most would agree that Costco’s philosophy is more attractive than Wal-Mart’s “affordable prices at the cost of high wages,” it is no less valid. This is where Obama’s push to increase the minimum wage comes in.
“Even with the tax relief we’ve put in place, a family with two kids that earns the minimum wage still lives below the poverty line. That’s wrong,” the president said in his State of the Union address. “Let’s declare that in the wealthiest nation on earth, no one who works full time should have to live in poverty.”
Ultimately, while no one can compel a business to act outside of its interest, a business can be forced to obey the law. “This single step would raise the incomes of millions of working families. It could mean the difference between groceries or the food bank, rent or eviction, scraping by or finally getting ahead. For businesses across the country, it would mean customers with more money in their pockets. In fact, working folks shouldn’t have to wait year after year for the minimum wage to go up while CEO pay has never been higher.”