Commentary: Walmart pays store managers as much as US$500,000 – it’s just good business (2024)

LONDON: After being on the frontline of the pandemic, then grappling with an edgy public and a spikein shoplifting, it’s been a tough few years to work retail. But for Walmart managers, at least, things are looking up.

In January, the American companyannounced that it would significantly boost store managers’ pay. They will now receive annual stock grants of as much as US$20,000. Average base salaries were raised to US$128,000 a year, from US$117,000.

The retailer has also changed the way it calculatesbonuses: It will continue to evaluate sales, but the profit generated by a manager’s store will play a bigger role, motivating the leaders to improve performance. If a manager hits all targets, they could earn a bonus of up to 200 per cent of base salary.

All told, asuccessful manager of a high-performing store could now pass the US$500,000 mark,according to Bloomberg News.

That’s far more thanthe typical pay of a US store manager, which is around US$100,000 per year (though those running complex locations are frequentlypaidmore).

A SMART MOVE THAT RAISED EYEBROWS

Although the announcementraised analyst eyebrows,it’sa smart move for Walmart–and given that the company’s influenceasthe world’s biggest retailer, could be good for society too.

It made the change to hold onto key managers, who are especially important at Walmart’s Supercenters, which can be as bigto 200,000 sq ftand stock more than100,000product lines.

But the pay bumpcan help in other ways, too. Walmart has been attracting more higher-income consumers as middle-class families have seen their incomes squeezed by inflation. One of the simplest ways to keep them coming back is to getthe retail basics right: Keepthe fresh produce appealing, shelves stocked and aisles clean. Motivated managers can make a difference.

Unsurprisingly, better paid workers tend to behappier workers, according to human resources analytics company Revelio Labs.

There’s evidence this contentmentcan boost company and stock performance. In a 2012 study,Alex Edmans, Professor of Finance at the London Business School (then at Wharton School), found that firms on Fortune’s list of 100 Best Companies to Work for in America, which have superior employee satisfaction scores onfactors including pay and benefits, outperformed peers by 2.3 per cent to 3.8 per cent per year from 1984 through 2011.

A follow-up by Hamid Boustanifar, associate professor at the EDHEC Business School, and Young Dae Kang of the Bank of Koreafound that the relationship still held: Companies on thepublication’s listearned an excess return of 2 per cent to 2.7 per cent per year through 2020, with particular outperformance during tough times.

In the case of Walmart, shares are up almost 30 per centthis year. Of course, the changes to mangers’ remuneration happened only six months ago. But there is a good chance that they contributed to its better-than-expected first quarter.

Costco Wholesale is also known for paying wages above the industry averageand offering generous benefits.Twenty years ago, someWall Street analyststook issue with this approach. That now looks short sighted: The shares are at a record high.

To be sure, the relationship between high worker remuneration and market success is not universal.

For example, Target has long paidbonuses and awards stock to store managers –although it hasn’t disclosed how much. The retailer also offers benefitsincluding free access to further education. Yetit* shares have been overshadowed by a slump in demandfor non-essentialitems, languishing at close to half of their 2021 high.

WORKING THE WAY UP TO MANAGEMENT

But to really understand the power of a pay scheme like Walmart’s, you need to look beyond the financial markets.

While everyone deserves a living wage, a job that delivers alarge sum can be life-changing, helping a familyget on the housing ladder or achieve a new level ofeducation. And opening that pathway to employees who may not have a college degree is particularly transformative.

To provide those opportunities –and to do so in a way that motivates an entire workforce –requires companies to put mindful policies in place.

Employees throughout the organisation must be able to work their way up to store managers and above. Walmart says about 75 per cent of its store, warehouse club and supply chain managers started as hourly employees.

Typically, aperson can join a retailer as, for example, a shelf-stackeror cashier, perhaps part-time. They can go on to takeresponsibility for different sections within the store, before joining the management ranks. Across the industry, career moves happen every 14.5 months on average, and generate a 15.2 per cent pay uplift, according to the National Retail Federation.

Indeed, some CEOs have moved from entry-level jobs to the C-suite. For example, Costco’s new CEO Ron Vachris started as a fork lift driver at age 17 in 1982 at Price Club, which later merged with Costco.

IT PAYS OFF TO PAY WORKERS MORE

Without such a pathway, high wagesfor store managers can create a feeling ofus-versus-themamong employees. For the same reason, some element of the greater management rewards must be shared throughout the store.

Indeed, Walmart also recently announceda new bonus program for full- and part-time store staff, whereby, for example,a long-serving full-timeemployee could earn a bonus of up to US$1,000 a year. This means that every level within the store can earn remuneration above an hourly wage.

Stock may also bepart of these compensation plans –though that requires employees totake the rough with the smooth.

AtStarbucks,full- and part-time employees may be rewardedwith “Bean Stock,” which turns into Starbucks shares over two years, as long as they remain with the company. It has paid out about US$2 billion-worth since 1991. However, Starbucks shares fell to their lowest level intwo years last month, which can be demoralising for holders (on the plus side, as new grants are based on a specified dollar amount, rather than number of shares, this means current awardees get more stock).

Yes, companies take a risk by offering workers more compensation –but the rewardis worth it. When criticisedin 2004 for being too generous, then CEO of Costco Jim Sinegal said: “I happen to believe that in order to reward the shareholder in the long-term, you have to please your customers and workers.”

Two decades later, that thinking is paying off. It’s heartening to see more retailers following in his footsteps.