Will others follow Walmart’s lead on manager pay?
Photo: Walmart

Will others follow Walmart’s lead on manager pay?

Walmart announced earlier this week that it has raised the starting wage it pays entry-level store managers from to $48,500 from $47,476 a year. The move was widely seen as the retailer seeking to get around new federal labor regulations that go into effect on Dec. 1, which will require companies to pay overtime to salaried workers earning less than $47,500 annually.

Earlier this year, Walmart increased its starting wage for hourly employees to $10 as part of a plan to invest $2.7 billion in worker pay and training over the next two years. The retailer, which had increased it starting wage to $9 a year before, has previously credited higher pay for reductions in employee turnover and shrink.

Under current regulations, employers only need to pay overtime to salaried workers making less than $23,660 a year. In 1975, 62 percent of salaried workers were eligible for overtime pay. Under current rules adopted in 2004, only seven percent are eligible, Reuters reports.

The new rules are expected to affect more than four million workers, many in lower wage industries such as retail. Speculation is that companies may transition some salaried workers to hourly positions or set hard cutoffs to avoid paying overtime.

Earlier this year, the National Retail Federation called the new rules “a career killer” for retail workers as retailers operating in small towns across the U.S. will be expected to match wages paid in markets with higher expenses, such as the New York metro area.

BrainTrust

"The profit motive is not going away and, apparently, neither are more labor laws. Where the two meet is called the optimal intersection."

Bob Amster

Principal, Retail Technology Group


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Adrian Weidmann

Managing Director, StoreStream Metrics, LLC


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Adrian Weidmann

Managing Director, StoreStream Metrics, LLC


Discussion Questions

DISCUSSION QUESTIONS: How do you think new rules affecting overtime pay for salaried workers will affect companies operating in the retail industry? Will Walmart and other companies paying salaries above $47.5K per year to store managers gain any recruiting advantage as a result?

Poll

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Robert DiPietro
Robert DiPietro
7 years ago

Labor cost is the biggest controllable in retail. Retailers manage this by the full time/part time mix of employees and controlling overtime. This new rule will not end up helping workers in retail. Retailers will figure out whether it’s cheaper to pay overtime or increase the base wage. Walmart may not gain an advantage because most folks can do the math and calculate what the hourly wage will be on salary and working 50-plus hours per week.

Max Goldberg
7 years ago

Retail will complain about the new rules and issue dire warnings about how they will affect business, but in the end will find a variety of ways to successfully function within them. Walmart is a prime example of how this will happen. By increasing managers’ pay above $47,500, they get a PR boost and hiring benefit while reducing overtime pay.

Bob Amster
Trusted Member
7 years ago

This is the confluence of two rivers: profit motive and labor regulations. The profit motive is not going away and, apparently, neither are more labor laws. Where the two meet is called the optimal intersection.

Steve Montgomery
Steve Montgomery
Member
7 years ago

Smaller-format retailers may not have the luxury to raise all their managers’ salaries to $47,500 to avoid the new overtime rules. As Robert stated they then are forced to change their manager compensation model to hourly, plus overtime to arrive at the same pay.

The increase for Walmart was slightly more than 2 percent for a new manager running a large format store. Not exactly earth shattering. Especially when a Time news story in July, 2014 stated “the National Bureau of Economic Research found, Walmart store managers make an average salary of $92,462 per year.” Great publicly for Walmart at a negligible cost.

What is lost is the status that comes from being salaried. This may be simply internal in the manager’s mind, but it does exist.

Warren Thayer
7 years ago

I agree totally with Robert, Max and Bob. Ultimately this will hurt standards of living for the typical low-wage earner. All retailers can do the same simple math and act in lock-step. That old African expression comes to mind: When elephants fight, only the grass gets hurt.

David Livingston
7 years ago

Well of course retailers will spend a few hundred dollars to save thousands in overtime. Aldi has pretty much just eliminated the assistant manager job and put it on the backs of the part-time shift managers. Every time the government sets new labor standards we have to come up with clever loopholes to undermine the government. When full-timers were defined at 30 hours, we had to cut them to 29.

Walmart raising their minimum wage sort of backfired. Workers like getting a raise but in return they wanted fewer hours so they don’t make too much. Otherwise it reduces their government entitlements and they lose more than what a $1 a hour raise is worth.

I don’t see any recruiting advantage for a petty $1,000 a year. Retail assistant manager jobs are hard. Long hours, low pay, working nights, weekends, holidays and often seven days a week during the holidays.

Mel Kleiman
Member
7 years ago

Yes others are going to raise the wages of managers if it will keep them out of having to pay overtime.

Item two has more impact. If Walmart continues to raise wages of the hourly workforce they are going to need to get more work out of the workers they have. They will have to follow the airline model and figure out how to get the customers to do a lot of work.

Just look at one number: net profit per employee. In Walmart’s case it is about $6,500 per full-time employee. If you raise each of those 40-hour workers $1 an hour that costs $2,000 a year, per employee. Figure out the math that cuts profit by one-third.

David Livingston
Reply to  Mel Kleiman
7 years ago

Walmart is trying to phase out less productive employees. Paying those who are otherwise unemployable $10 a hour makes no sense. If minimum wage increases go into affect, Walmart will have no choice but to change their labor model and find more productive employees.