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Wal-Mart (WMT) made headlines with its Aug. 8 announcement of pay hikes for some employees. The company, one of the largest private employers in the country, said it is raising the starting pay for employees at 1,200 of its Wal-Mart and Sam's Club stores by 6% (see BusinessWeek.com, 8/9/06, "Wal-Mart's About-Face").
But the real story is more complex. Interviews with workers and officials at the company as well as outside experts reveal that many employees will see their pay capped because of the retailer's new compensation plan.
The company is instituting new pay ranges for each job category and limiting wages in each category. Once employees hit the top of their pay range, their hourly rate will be frozen, with no cost-of-living adjustments. "There's no talk here about any raises, and no one here has gotten a raise. All they've talked about are the caps," says Rosetta Brown, who works at Sam's Club, the warehouse club division of Wal-Mart Stores, in Cicero, Ill.
NOT MUCH ROOM. Wal-Mart acknowledges that more than 30,000 of its employees are already at or above the cap for their job category. The company says that associates who want to move beyond their pay maximum may apply for a new job within the company.
No associate's salary will be reduced as long as the associate remains in his or her current job. "The wage caps give current associates an incentive to move up to higher positions if they want to make more money," says John Simley, spokesman for Wal-Mart. The retailer is the largest in the country, ahead of rivals Target (TGT) and Costco Wholesale (COST).
Brown is not happy with the new compensation plan. She has worked at Sam's Club for eight years and is now a store clerk, checking shoppers' purchases at the door. She makes $12.24 an hour and says that she's probably has not hit the cap for her job description.
Still, she doesn't believe there's lots of room for advancement. The store she works at has fewer managers today, 8, than the 13 it had a few years ago, she says. "There are people who have worked here for 13 or 14 years and haven't been promoted," she says.
Wal-Mart is not releasing the details of what the new salary bands are. Brown doesn't know the specifics for her job category. She says her manager is at a gathering in Kansas City, and she expects to find out more on Aug. 19.
BUS TOUR. Chris Kofinis, spokesman for WakeUpWalMart.com, an activist group started last year by the United Food & Commercial Workers Union, points out that despite the positive headlines, Wal-Mart workers don't benefit from the pay hikes because they're only for new employees. "Not a single Wal-Mart employee has received a raise," he says. In fact, the number of new employees who benefit from the pay raise may very well be smaller than the number who see their pay capped under the company's new plan.
Wal-Mart's announcement of pay hikes comes as it faces pressure to improve wages and health benefits. The city of Chicago recently passed an ordinance to raise the minimum wage at big-box retailers such as Wal-Mart, Target, and Costco to $10 an hour. On Aug. 1, WakeUpWalMart.com kicked off a nationwide 35-city bus tour from New York to Seattle, aimed at pressuring Wal-Mart to increase wages and provide better health care to its employees (see BusinessWeek.com, 8/2/06, "Wal-Mart Foes Hop A Bandwagon").
Kofinis says Wal-Mart may end up lowering compensation overall because its new pay plan could frustrate more experienced employees, who tend to earn higher pay. "Wal-Mart is creating conditions that will push out loyal workers who have worked there full-time for many years," says Kofinis. "I say why doesn't [Wal-Mart Chief Executive] Lee Scott have a salary cap?"
Wal-Mart's Simley counters that executives at Wal-Mart do have a salary cap. "Two years ago, Wal-Mart established pay ranges for all management and salaried positions," he says. Simley didn't provide any details on what the salary caps for top executives are. Scott's compensation in Wal-Mart's fiscal year ended January, 2006, was $10.6 million, up 23% from the previous year. In the same period, Wal-Mart's stock fell 13%.
Simley also notes that there are many openings for assistant manger positions around the country and says that Wal-Mart has added middle-management positions. However, when pressed for the total number of managers that Wal-Mart has today, vs. three to five years ago, Simley declined to provide details.
Gogoi is a reporter for BusinessWeek Online in New York
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