An ongoing commitment to raise wages for U.S. employees figures to be both an official and unofficial topic of conversation during this week's Wal-Mart Stores Inc. shareholder week.
Company executives view recent pay increases as a component of an overall plan to boost morale and, ultimately, increase sales.
Until any additional revenue materializes, investors see the wage increase as a drain on earnings. Wal-Mart announced during its recent first-quarter update that the company expects to lose earnings of 20 cents per share this year as a result of a $1 billion flow to employees that began in April.
Critics of Wal-Mart, who have been pushing for a $15 per hour minimum wage, view the pay increases as simply not enough. They continue to use even the $9-per-hour starting pay as a rallying cry in attempts to unionize workers.
For the approximately 500,000 employees who are actually seeing additional money in their paychecks -- in some cases no more than 2 percent -- the raises may represent none of the above. Instead, employees could see the chance to extend the deck behind a house, a car payment for a teenager about to receive a driver's license or an opportunity to purchase additional stock.
Those on the lower end of the pay scale, but subject to the biggest percentage increase, are that much closer to making ends meet. Wherever the money is going, store employees made available by Wal-Mart to be interviewed spoke of the importance of the wage increase in their own lives and those of co-workers.
"I was capped out, so I hadn't had a raise in a while," said Gary Kealy, a 34-year employee now at the Martin Luther King Boulevard store in Fayetteville, said. "It was great for me when they announced they were raising the minimum wage. I extended the deck on my house. That's what I'm doing with my raise. It meant something different to everybody."
At least in the short-term, the company's desire to improve morale appears to being paying off. Investing in employees who deal the most with customers seems like a smart move and one that is greatly appreciated, said Kay Fulfer , who has worked for Wal-Mart off and on since 1993.
"Hourly associates are the face of the company. That's who the customers see," said Fulfer, who works at the Elm Springs supercenter in Springdale. "They don't see the design team, the layout team, the buyers. They don't know those people, but they see who is on the floor. When you're investing in the face of your company, that's huge."
Thousands of those faces from around the world will be in Northwest Arkansas this week for Wal-Mart's annual shareholders festivities that culminate at Friday's shareholder meeting at Bud Walton Arena on the University of Arkansas campus. Wal-Mart employs 2.2 million worldwide and about 1.3 million in the U.S.
Employees were informed of the decision to raise wages on Feb. 19. For the 6,000 or so employees making the federal minimum wage, they saw pay increase to $9 per hour with the goal of raising starting pay to $10 per hour in February 2016. Average wages for part-time workers nationwide increased from $9.48 to $10 under the plan. Full-time employees saw an increase from $12.85 to $13.
Vickie Darnell, who works as a cashier at the Fayetteville Martin Luther King Drive location, celebrated her 35th anniversary with the company in January. All that experience afforded Darnell the opportunity to address those gathered for a "Saturday Morning Meeting" in February, including Wal-Mart CEO Doug McMillon, and helped her sell two 20-something grandchildren on the idea of working for Wal-Mart.
While Darnell has appreciated having extra money in her pocket, she's noticed a much more significant effect for her grandchildren and others just starting with the company.
"It's hard to make it on minimum wage. It really, really is," Darnell said.
Investors are still trying to evaluate the increase, and McMillon has urged shareholders to view the additional wages as a long-term investment. There is no timetable for when the investment will pay off, he has cautioned, but Wal-Mart recognizes the role that happy, engaged employees could have on getting customers back into stores.
"We'll make these investments in our people, we'll give them the opportunity to move up so that they're engaged in our business and happy to serve customers," McMillon said during the first-quarter earnings call on May 19. Wal-Mart reported $483 billion in revenue last year, and its U.S. division accounts for about 60 percent of annual sales.
Sales growth in the U.S. has been sluggish for Wal-Mart. Domestic same-store sales growth was 1.1 percent, the third-consecutive quarter of growth. How Wal-Mart can increase labor in stores and increase wages, while maintaining its commitment to "Every Day Low Prices" is the billion-dollar question for investors. Analysts who follow the company say it is no surprise that earnings took a hit in the first quarter and figure to be down throughout the year as Wal-Mart adjusts to the added expense.
"The wage increase doesn't translate into more revenues overnight, but it does add to the payroll overnight. I wouldn't think any long-term investor would be shocked by that," said Randy Koontz, first vice president of investments for Pinnacle Wealth Management of Raymond James & Associates Inc. in Rogers.
"I believe what long-term investors will be more concerned about is the growth of U.S. comps," he said, referring to comparable same-store sales. "Can you grow sales in the U.S.? That's what I would want to know as an investor."
Wal-Mart's plan for growing U.S. sales likely will be a topic during shareholders week. Executives have hinted at parts of their strategy but could outline additional plans in between celebrity-guest appearances and other employee-focused events during what amounts to a week-long pep rally.
Traditionally the week is used as a way to energize its employees, who are treated to entertainment and appearances by American Idol winners and stars like Tom Cruise, Harry Connick Jr. and Justin Timberlake. Time is set aside for some actual business.
Shareholders are considering nine proposals this year, including five opposed by the Wal-Mart board of directors.
Proposals opposed by the board include requests for an annual report on recouping executive pay, an opportunity for shareholders to nominate board members, a report on greenhouse-gas emissions generated through maritime shipping, executive pay based on return-on-investment figures and the election of an independent board chairman.
Proposals on the recoupment of pay and appointing an independent chairman were defeated at the 2014 annual meeting. Both received about 15 percent of the vote at the meeting. More than 50 percent of Wal-Mart's stock is controlled by the Walton family. Rob Walton, son of founder Sam Walton, is board chairman.
Outside shareholder proposals rarely stand a chance. Often, just getting on the agenda is viewed as a victory for activists looking to generate discussion about how the company is run.
Executive pay continues to be a focal point for outside groups, particularly in light of the February announcement that Wal-Mart would increase worker pay.
Mary Watkines, a Wal-Mart employee and shareholder, will read an OUR Wal-Mart-backed resolution related to executive pay. McMillon's compensation package last year was $19.07 million and, though down 24 percent from the previous year, is used by critics such as the United Food and Commercial Workers International Union to illustrate a larger pay increase is possible for workers.
"CEO pay at Wal-Mart is more than 1,000 times the average pay of a Wal-Mart store worker. Just as bad, that pay is divorced from performance," according to a recent email from the union. "Return on investment has fallen for eight straight years, but Wal-Mart has ratcheted down its ROI [return on investment] targets for incentive pay so executives can still receive huge stock-based payouts. ... So far [Wal-Mart] has ignored workers when they've raised this concern, now we'll see if they listen to shareholders."
While outsiders continue to question Wal-Mart's commitment to its employees, workers like Fulfer have a different view. Fulfer sees Wal-Mart as a viable career option and has talked a son and nephew into joining her on the retailer's massive payroll.
Critics don't understand Wal-Mart's place in the world and the effect it can have, she said. It isn't a job for everybody, but there is plenty of opportunity there.
"There are going got be people who don't understand the big picture," Fulfer said. "There is a reason doctors make the amount of money they make. Look at the amount of money they spend on going to school and getting an education. I wasn't able to go to college. Not having a college degree, this is a wonderful fit for me. ... And this pay increase is one of the best things I've seen Wal-Mart do since I've been with the company."
SundayMonday Business on 05/29/2015