September 12, 2006
Big Box Wage Battle Far From Over
Mayor Richard Daley’s veto of the so-called “living wage” ordinance in Chicago yesterday represents nothing more than a short respite in the fight going on in that city and elsewhere between those looking to force big box retailers to pay higher wages to employees and those who feel such a requirement would do significant damage to the very people and communities it is intended to benefit.
In vetoing the ordinance, which passed the Chicago city council in a vote of 35 to 14 in July, Mayor Daley said, “I understand and share a desire to ensure that everyone who works in the city of Chicago earns a decent wage. But I do not believe that this ordinance, well-intentioned as it may be, would achieve that end. Rather, I believe it would drive jobs and businesses from our city, penalizing neighborhoods that need additional economic activity the most.”
Chicago’s Mayor joins many retailers and business groups in opposing laws that would require companies such as Wal-Mart and Target to pay employees predetermined wages and benefits. According to the Illinois Retail Merchants Association, there are 42 stores in Chicago that would fall under the ordinance if the city council were to override Mr. Daley’s veto.
In the Chicago case, retailers covered under the law would have to pay a starting salary of $9.25 an hour, compared to the federal minimum wage of $5.15. Stores would also be required to pay for benefits at the equivalent of $1.50 an hour.
Discussion Question: Most in retailing oppose “living
wage” laws, but do large national retailers have the ability to better provide
for store employees than they are currently without compromising their competitive
position?
We don’t know the answer to the question we’ve posed.
We have wondered from time-to-time, however, if the amount
of money going to executive compensation, as well as areas such as charitable
giving and political lobbying, wouldn’t be better spent on employees who make
such a large contribution to the success of large retail companies, such as
Target, Wal-Mart, etc.
Sam Walton, during his lifetime, seemed to be of like
mind on the idea of spending company money outside of the business. Mr. Walton
wrote in his 1992 autobiography, Made in America, “We feel very strongly
that Wal-Mart really is not, and should not be, in the charity
business.”
BrainTrust
Recent Discussions
Discussion Questions
Poll
The concept of a living wage is commendable. The devil is in the details. No doubt that many of the Big Box Retailers can pay more; the auto industry could and did. Now the legacy costs are about to put them out of business.
To the UAW, I’m sure the Toyota workers are not getting a living wage, but they are working and Toyota is growing and prospering. I guess those who opt for the so-called “sub-living wage” rather than the living wage and no hours are in fact getting a living wage.
Shouldn’t a “living wage” be part and parcel of the concept of “minimum wage?” Perhaps our politcal will should be directed at that concept and not singling out certain types of businesses.
It’s all a choice in business models. In that light, retailers do have the ability if they choose to do so. It’s that simple. If this were not true, there would not be such a disparity between wages, benefits and employee loyalty between those that do, and those that don’t. Also, it’s worth noting that ‘compensation’ should be considered in the ‘whole’ not simply an hourly rate. This would include certainly ‘hourly rate’ but also bonuses, stock, profit sharing, pension (et al, including 401K, profit sharing and others) benefits, etc.
Taking a look at the retailers listed yearly as ‘the best places to work’ from Forbes clearly proves that it is possible. That simply leaves it to choice. Isn’t it also true that executive compensation is also the same – a choice?
Of course they have the ability; the question should be, do they have the will.
There is much capital to be made from paying more than minimum wage, perhaps even more capital than there is from endorsing selected politicians or giving the highest up executives massive bonuses and share options. If worse came to worse, most people recognise that prices would be raised to get customers to pay the cost of employees. But if paying that little bit extra produced a higher level of customer service from employees who came to feel that they were valued and important, even recognised, then even those hikes might not affect competitiveness negatively. As for those that Camille mentions who only shop the cheapest stores perhaps they should follow David’s advice and go get better paying jobs so they can pay more for what they buy.
Ben Ball is correct. The big box retailers are already leading the way with some of the highest wages in retail. It really makes no sense to pay someone worth only $7 an hour $13 an hour so they can have a living wage. Good, high paying jobs are more than plentiful in this country due to massive labor shortages. We should not subsidize the unmotivated because they choose not to join a higher paying labor force.
I’m all for paying people a $13 an hour living wage so long as the wage is subsidized by the local government and does not have to be paid for by the retailer. If local governments can provide corporate welfare to build roads, water lines, tax breaks, etc, then they should also provide the same corporate welfare to subsidize wages.
Consumers determine the store formats that suit their lifestyles and situational needs, and store formats should determine wages.
Is the person facing merchandise at the low-cost leader adding the same value as the more knowledgeable, more engaging employee at a more upscale big-box store or club store?
Not necessarily. Therefore, a one-size-fits-all mandate on wages constitutes a dangerous level of government interference.
Manufacturers, retailers and employees all should be compensated at levels commensurate with the value they add, as determined by the consumer.
As long as consumers with low income go to Wal-Mart for the low prices, as long as there are thousands of people lining up for jobs at Wal-Mart, and as long as the people complaining about Wal-Mart’s policies continue to purchase products at Wal-Mart, this is a moot question in a free market economy.
“There must be two sides to every story…” Willie Nelson to Diane Dylan in “Honeysuckle Rose” (I think).
The untold side of this story is that the “big box retailers” are often paying more already than the independents and small chains who cry foul when Wal-mart comes to town. The Chicago ordinance can be viewed as having more to do with protecting the business owners in the Alderman’s ward than with protecting the workers. The “protect the worker’s” cry is a familiar shill in Chicago.
Our studies of Wal-Mart show that it is one of the most efficient operations in retail. In 2005, we found Wal-Mart to be operating at around a 32% inefficiency. This means that of its approximately $10 billion operating revenue, approximately $3 billion is wasted. It is easy to drift into thinking that Wal-Mart, with their enormous focus on supply chain management, are probably as efficient as it is possible to be. They appear to be more efficient than anyone else, but this isn’t the same thing. Supply chain is actually only a small piece of the efficiency puzzle.
Operating inefficiency is often overlooked, not least by the organizations themselves. We have found that most organizations just can’t seem to imagine that they are so wasteful. They aren’t foolish or inept; organizational inefficiency is one of the information topics that organizations’ Master Systems typically block.
Reducing inefficiency by even only half a percent could, in WM’s case, free as much as $50 million that could be put into wages (NOT into shareholder pockets, for a change). This would not have zero effect on competitiveness: it would improve it. Any retailer could do the same thing and see similar results. This is not difficult to do.
I have no idea whether Wal-Mart, Target and others can pay employees more and continue gaining market share.
If I were a full-time Wal-Mart employee making less than $20,000 a year in Whittier, California, I would wonder why my employer was contributing $200,000 to keeping two local politicians in office (http://www.whittierdailynews.com/news/ci_4322372) rather than spending that and other similar contributions on associates working in company stores across the country.
It is well documented that Wal-Mart and other big box stores pay more than local and regional retail businesses. The question is, however, do large national retailers have the ability to better provide for store employees than they are currently without compromising their competitive position?
Getting back to the issue at hand, do large national retailers have the ability to better provide for store employees than they are currently without compromising their competitive position?
Mayor Daley is showing leadership with his veto. A living wage is desired by everyone and is certainly a vote-getter for any politician, so the Mayor is certainly using some of his equity on this one. The problem with the bill as it stands in Chicago is that it only applies to “big-box” retailers and excludes everyone else.
Second issue is it only applies to stores in the city of Chicago. The bill will not keep Wal-Mart and others out of the Chicago area; they will merely move their larger stores to cities just beyond the city limits of Chicago and, inside of Chicago, they’ll open up alternative format stores.
The biggest losers are the citizens of Chicago who do not get to benefit from the economic development resulting from the building of the bigger stores and will suffer from the subsequent loss of tax revenue. Greater Chicago has always been a metro area that has done an excellent job of working together and this bill certainly works against this pattern or cooperation. Should be interesting to see if the council has enough votes to stop the veto and if they do look for a number of other large cities to start moving down this path. If this spreads, look for it to be a key issue in the presidential election in two years.
Once again the industry leads with its chin. What retailer in their right mind wants to go on record as opposing a “living wage” for its employees? What’s the alternative? This whole debate highlights a basic problem: In retailing, employees (why call them associates when you treat them as chattel?) are seen as cost items on a balance sheet, not as allies in the battle to win the hearts and minds of the consumer.
As long as we keep treating human beings as bad debt carried forward, we shouldn’t be surprised when they perform up (or down) to expectations. Who’s in a better position to pay well? The company that’s doing best — which very well may be the one that looks at employees as assets to be protected and grown rather than deficits to be cut.
In response to David Livingston’s comment, wage increases cannot and should not be subsidised by local or any government – that money would have to have been taken first in the form of higher taxes, most likely from businesses who inevitably pass the cost on to consumers via higher prices. That ‘living wage’ becomes moot when those same employees have to pay even more for groceries and food.
Chicago’s mayor is adhering to the simple fact that any minimum wage only creates unemployment by pricing people out of work; he should be applauded.
Your lead-in to this the “living wage” compares the $9.25/hr wage required by now-vetoed ordinance in Chicago to the federal minimum wage of $5.15/hr. However, in Illinois, the state minimum wage is $6.50/hr [and when this state minimum was raised a couple years ago, I don’t remember that all the big boxes were screaming they would no longer build in Illinois.] Many retail chains start employees at $7 to $7.50/hr already (like Kmart and White Castle). For anyone supporting a family with a full-time job, this amounts to about $15,000/year. Hardly a living wage.
If my business were in Chicago, I would be somewhat concerned about the proposed wage, but over time, it would probably meant that I would have less employee turnover, more interested and hard-working employees, and better customer relations. Consider also that both Target and Wal-Mart are, or were, to be receiving generous tax incentives/rebates (in the tens of millions) from the city. Is it not fair to ask them for something for their employees in return? So if the veto is upheld by the city council, I say rescind the tax incentives (or TIF subsidies). If Chicago is a great market as both the Mayor and the retailers claim, then why are the incentives needed?
George Anderson, the answer to your question: yes. The proof? Costco pays a “living wage,” it’s a national retailer in a very low margin business, and it’s reasonably profitable. Costco isn’t the only profitable national retailer that pays a living wage, but it’s among the minority. Sometimes, being in the minority is a great competitive advantage.
Costco and anyone else who pays better than “the competition,” can be choosier about whom they hire and retain. You can’t easily manage what you don’t measure. Labor productivity, including the cost of turnover, isn’t usually measured in retailing. What’s measured: the accounting cost of labor, which isn’t the same.
Chicago retailers who pay living wages gain regardless of what the law becomes, veto or not. They get lower turnover and a better choice of the best job candidates. It’s up to management to use that gain properly. If the store pays better but doesn’t motivate or train or screen people better, they’re not getting the most for their human investment.
Sam Walton’s compensation system wasn’t based on competitive wages. For many years, Wal-Mart’s people were paid 2 ways: their salary and their stock options. Without those stock options, Wal-Mart would’ve been crippled. The cost of the options was not shown in Wal-Mart’s accounting statements because, in those days, the law didn’t require it. So the true compensation cost was vastly understated. One reason (not the only reason) Wal-Mart has labor troubles these days: even if the company granted options to everyone, the multi-year stock price performance would show those options to have almost no value.
A better question it seems to me is, can most large retailers afford to keep paying workers as they are now without compromising their competitive position?
More Discussions
Is Five Below Poised For Even Greater Growth?
Five Below is hitting serious growth numbers. Can this trend continue?Should IKEA Be Flattening Management?
Should IKEA be trimming down its management headcount?Is Legislation the Answer on Visa, Mastercard Swipe Fees as ~$200 Billion Record Is Set?
Is lawmaking the way forward on swipe fees?
The concept of a living wage is commendable. The devil is in the details. No doubt that many of the Big Box Retailers can pay more; the auto industry could and did. Now the legacy costs are about to put them out of business.
To the UAW, I’m sure the Toyota workers are not getting a living wage, but they are working and Toyota is growing and prospering. I guess those who opt for the so-called “sub-living wage” rather than the living wage and no hours are in fact getting a living wage.
Shouldn’t a “living wage” be part and parcel of the concept of “minimum wage?” Perhaps our politcal will should be directed at that concept and not singling out certain types of businesses.
It’s all a choice in business models. In that light, retailers do have the ability if they choose to do so. It’s that simple. If this were not true, there would not be such a disparity between wages, benefits and employee loyalty between those that do, and those that don’t. Also, it’s worth noting that ‘compensation’ should be considered in the ‘whole’ not simply an hourly rate. This would include certainly ‘hourly rate’ but also bonuses, stock, profit sharing, pension (et al, including 401K, profit sharing and others) benefits, etc.
Taking a look at the retailers listed yearly as ‘the best places to work’ from Forbes clearly proves that it is possible. That simply leaves it to choice. Isn’t it also true that executive compensation is also the same – a choice?
Of course they have the ability; the question should be, do they have the will.
There is much capital to be made from paying more than minimum wage, perhaps even more capital than there is from endorsing selected politicians or giving the highest up executives massive bonuses and share options. If worse came to worse, most people recognise that prices would be raised to get customers to pay the cost of employees. But if paying that little bit extra produced a higher level of customer service from employees who came to feel that they were valued and important, even recognised, then even those hikes might not affect competitiveness negatively. As for those that Camille mentions who only shop the cheapest stores perhaps they should follow David’s advice and go get better paying jobs so they can pay more for what they buy.
Ben Ball is correct. The big box retailers are already leading the way with some of the highest wages in retail. It really makes no sense to pay someone worth only $7 an hour $13 an hour so they can have a living wage. Good, high paying jobs are more than plentiful in this country due to massive labor shortages. We should not subsidize the unmotivated because they choose not to join a higher paying labor force.
I’m all for paying people a $13 an hour living wage so long as the wage is subsidized by the local government and does not have to be paid for by the retailer. If local governments can provide corporate welfare to build roads, water lines, tax breaks, etc, then they should also provide the same corporate welfare to subsidize wages.
Consumers determine the store formats that suit their lifestyles and situational needs, and store formats should determine wages.
Is the person facing merchandise at the low-cost leader adding the same value as the more knowledgeable, more engaging employee at a more upscale big-box store or club store?
Not necessarily. Therefore, a one-size-fits-all mandate on wages constitutes a dangerous level of government interference.
Manufacturers, retailers and employees all should be compensated at levels commensurate with the value they add, as determined by the consumer.
As long as consumers with low income go to Wal-Mart for the low prices, as long as there are thousands of people lining up for jobs at Wal-Mart, and as long as the people complaining about Wal-Mart’s policies continue to purchase products at Wal-Mart, this is a moot question in a free market economy.
“There must be two sides to every story…” Willie Nelson to Diane Dylan in “Honeysuckle Rose” (I think).
The untold side of this story is that the “big box retailers” are often paying more already than the independents and small chains who cry foul when Wal-mart comes to town. The Chicago ordinance can be viewed as having more to do with protecting the business owners in the Alderman’s ward than with protecting the workers. The “protect the worker’s” cry is a familiar shill in Chicago.
Our studies of Wal-Mart show that it is one of the most efficient operations in retail. In 2005, we found Wal-Mart to be operating at around a 32% inefficiency. This means that of its approximately $10 billion operating revenue, approximately $3 billion is wasted. It is easy to drift into thinking that Wal-Mart, with their enormous focus on supply chain management, are probably as efficient as it is possible to be. They appear to be more efficient than anyone else, but this isn’t the same thing. Supply chain is actually only a small piece of the efficiency puzzle.
Operating inefficiency is often overlooked, not least by the organizations themselves. We have found that most organizations just can’t seem to imagine that they are so wasteful. They aren’t foolish or inept; organizational inefficiency is one of the information topics that organizations’ Master Systems typically block.
Reducing inefficiency by even only half a percent could, in WM’s case, free as much as $50 million that could be put into wages (NOT into shareholder pockets, for a change). This would not have zero effect on competitiveness: it would improve it. Any retailer could do the same thing and see similar results. This is not difficult to do.
I have no idea whether Wal-Mart, Target and others can pay employees more and continue gaining market share.
If I were a full-time Wal-Mart employee making less than $20,000 a year in Whittier, California, I would wonder why my employer was contributing $200,000 to keeping two local politicians in office (http://www.whittierdailynews.com/news/ci_4322372) rather than spending that and other similar contributions on associates working in company stores across the country.
It is well documented that Wal-Mart and other big box stores pay more than local and regional retail businesses. The question is, however, do large national retailers have the ability to better provide for store employees than they are currently without compromising their competitive position?
Getting back to the issue at hand, do large national retailers have the ability to better provide for store employees than they are currently without compromising their competitive position?
Mayor Daley is showing leadership with his veto. A living wage is desired by everyone and is certainly a vote-getter for any politician, so the Mayor is certainly using some of his equity on this one. The problem with the bill as it stands in Chicago is that it only applies to “big-box” retailers and excludes everyone else.
Second issue is it only applies to stores in the city of Chicago. The bill will not keep Wal-Mart and others out of the Chicago area; they will merely move their larger stores to cities just beyond the city limits of Chicago and, inside of Chicago, they’ll open up alternative format stores.
The biggest losers are the citizens of Chicago who do not get to benefit from the economic development resulting from the building of the bigger stores and will suffer from the subsequent loss of tax revenue. Greater Chicago has always been a metro area that has done an excellent job of working together and this bill certainly works against this pattern or cooperation. Should be interesting to see if the council has enough votes to stop the veto and if they do look for a number of other large cities to start moving down this path. If this spreads, look for it to be a key issue in the presidential election in two years.
Once again the industry leads with its chin. What retailer in their right mind wants to go on record as opposing a “living wage” for its employees? What’s the alternative? This whole debate highlights a basic problem: In retailing, employees (why call them associates when you treat them as chattel?) are seen as cost items on a balance sheet, not as allies in the battle to win the hearts and minds of the consumer.
As long as we keep treating human beings as bad debt carried forward, we shouldn’t be surprised when they perform up (or down) to expectations. Who’s in a better position to pay well? The company that’s doing best — which very well may be the one that looks at employees as assets to be protected and grown rather than deficits to be cut.
In response to David Livingston’s comment, wage increases cannot and should not be subsidised by local or any government – that money would have to have been taken first in the form of higher taxes, most likely from businesses who inevitably pass the cost on to consumers via higher prices. That ‘living wage’ becomes moot when those same employees have to pay even more for groceries and food.
Chicago’s mayor is adhering to the simple fact that any minimum wage only creates unemployment by pricing people out of work; he should be applauded.
Your lead-in to this the “living wage” compares the $9.25/hr wage required by now-vetoed ordinance in Chicago to the federal minimum wage of $5.15/hr. However, in Illinois, the state minimum wage is $6.50/hr [and when this state minimum was raised a couple years ago, I don’t remember that all the big boxes were screaming they would no longer build in Illinois.] Many retail chains start employees at $7 to $7.50/hr already (like Kmart and White Castle). For anyone supporting a family with a full-time job, this amounts to about $15,000/year. Hardly a living wage.
If my business were in Chicago, I would be somewhat concerned about the proposed wage, but over time, it would probably meant that I would have less employee turnover, more interested and hard-working employees, and better customer relations. Consider also that both Target and Wal-Mart are, or were, to be receiving generous tax incentives/rebates (in the tens of millions) from the city. Is it not fair to ask them for something for their employees in return? So if the veto is upheld by the city council, I say rescind the tax incentives (or TIF subsidies). If Chicago is a great market as both the Mayor and the retailers claim, then why are the incentives needed?
George Anderson, the answer to your question: yes. The proof? Costco pays a “living wage,” it’s a national retailer in a very low margin business, and it’s reasonably profitable. Costco isn’t the only profitable national retailer that pays a living wage, but it’s among the minority. Sometimes, being in the minority is a great competitive advantage.
Costco and anyone else who pays better than “the competition,” can be choosier about whom they hire and retain. You can’t easily manage what you don’t measure. Labor productivity, including the cost of turnover, isn’t usually measured in retailing. What’s measured: the accounting cost of labor, which isn’t the same.
Chicago retailers who pay living wages gain regardless of what the law becomes, veto or not. They get lower turnover and a better choice of the best job candidates. It’s up to management to use that gain properly. If the store pays better but doesn’t motivate or train or screen people better, they’re not getting the most for their human investment.
Sam Walton’s compensation system wasn’t based on competitive wages. For many years, Wal-Mart’s people were paid 2 ways: their salary and their stock options. Without those stock options, Wal-Mart would’ve been crippled. The cost of the options was not shown in Wal-Mart’s accounting statements because, in those days, the law didn’t require it. So the true compensation cost was vastly understated. One reason (not the only reason) Wal-Mart has labor troubles these days: even if the company granted options to everyone, the multi-year stock price performance would show those options to have almost no value.
A better question it seems to me is, can most large retailers afford to keep paying workers as they are now without compromising their competitive position?