Tar Heel Tattler - July 2005
A penny saved is a penny earned. And even at a $285 billion business such as Bentonville, Ark.-based Wal-Mart Stores, pennies add up. The retail giant, whose approximately 47,000 Tar Heel workers make it the state’s largest for-profit employer, revised its pay plan in June 2004 to ensure consistency in store wages while allowing for regional differences in cost of living. “The idea was to level the playing field for all associates,” spokesman Marty Heires says.
It kept labor costs in check, too. When the plan was revised, the company told BusinessWeek its average hourly wage for store employees was $9.64. It’s now $9.68. The plan boosted the pay of some employees, but others have seen their pay cut. In March, for example, about 70 of approximately 250 employees at a Wal-Mart store in south Raleigh had their wages trimmed — some by $1 or more an hour. The company’s average hourly wage in North Carolina is $9.85.
Their pay was cut, Heires says, because they were being overpaid. When they were hired earlier this year, the pay plan’s criteria hadn’t been applied correctly. The error was discovered during a quarterly payroll audit. “They were paid more than people doing comparable work,” Heires says. “So they were dollars ahead on the deal.”
Maybe so, but competitors could use the cuts to their advantage. “I would look at whatever stores are not too far away from Wal-Mart and expect to see them running ads: ‘We treat our employees fairly. Come on over here and get a better job,’” says James F. Smith, a finance professor and economist at UNC Chapel Hill’s Kenan-Flagler Business School. “Unless a company is about to go broke, it’s very difficult to think of how you make palatable the notion that, ‘Hey, for doing the same work tomorrow that you’re doing today, I’m going to pay you X percent less.’”
If companies find out employees make more than they’re supposed to, managers often reclassify them into jobs worth the wage or freeze their pay until their peers catch up, Smith says. Cutting pay might rein in labor costs, but it demoralizes employees and boosts turnover and training costs. “At best, it’s penny-wise and pound-foolish.”