Wal-Mart Stores Inc. said it would raise starting pay to $11 per hour for all its U.S. employees and hand out one-time bonuses as competition for low-wage workers intensifies and new tax legislation will add billions to the retailer's profits.
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The giant retailer is the largest private employer in the world with 2.3 million employees, including around 1.5 million in the U.S. Its current starting salary in the U.S. is $10 an hour after workers take a training course. The new wage increase will take effect in February.
This is the third U.S.-wide minimum wage increase at the company since 2015 as it works to improve its 4,700 U.S. stores while investing heavily to compete with Amazon.com Inc. online.
The company said the salary change would add $300 million to its annual expenses and it expects to take a $400 million charge in the current quarter for the one-time bonus. The amount of the bonus will vary based on length of service, reaching up to $1,000 for an individual with 20 years of service.
The retailer, which had nearly $500 billion in global revenue last year, is expected to get billions in savings from the tax overhaul, which lowers the U.S. corporate rate to 21% from 35%. Retailers have had one of the highest average effective tax rates because much of their operations are U.S.-based. Also, their industry has done little manufacturing or research and development so they don't benefit from deductions on those activities.
"We are early in the stages of assessing the opportunities tax reform creates for us to invest in our customers and associates and to further strengthen our business," said Wal-Mart Chief Executive Doug McMillon in a release.
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With the additional expected profit, Wal-Mart is considering investments in "lower prices for customers, better wages and training for associates and investments in the future of our company, including in technology," he said.
The wage increase comes at a time when competition for low-wage workers is rising among retailers, e-commerce warehouse and other industries that require a large, unskilled employee base. The monthly U.S. unemployment rate has held at a 17-year low since October. Retail trade workers in the U.S. earned an average hourly wage of $15.51 in December, an increase of about 11% versus five years ago, according to the Bureau of Labor Statistics.
When Wal-Mart increased wages and added training through 2015 and 2016 the moves cost the retailer $2.7 billion, an expense that put pressure on the company's stock price.
This increase will cost less because Wal-Mart already has a "sizeable" group of stores paying employees at least $11 an hour and already had plans to increase wages in some stores during the coming fiscal year, which starts Feb. 1, said spokesman Kory Lundberg.
Still, the "vast majority" of store employees will see an increase with the change, Mr. Lundberg said.
Several other large U.S. employers have announced plans to raise wages or pay bonuses in the wake of the tax overhaul. The day the legislation was signed by President Donald Trump, AT&T Inc. and Comcast Corp. said they would pay a $1,000 bonus to most of their U.S. employees, or more than 300,000 people. Wells Fargo & Co. said it would raise its starting pay to $15 an hour.
The federal minimum wage has remained $7.25 an hour since 2009, but dozens of states and municipalities have implemented higher levels in recent years. An $11 hourly wage is the minimum required in Massachusetts and Washington state. Retailers, restaurants and other employers of hourly workers have also raised wages to compete for talent, economists say.
Wal-Mart's average hourly wage for full-time U.S. store employees is expected to rise to around $14.50 an hour after the latest change, up from $13.85 an hour currently, said Mr. Lundberg.
In 2015 the company kicked off a round of increases in its industry by lifting store workers' starting wages to $9 an hour, later increasing that to $10 an hour for employees who completed a training course. Others including Gap Inc. and Costco Wholesale Corp. also raised their minimum pay levels.
Late last year Target Corp., which employs more than 300,000 people, raised its starting pay to $11 an hour and pledged to increase it to $15 within three years.
Retailers have "a broad, long-term problem because the labor market is tight and it's going to get tighter," said Mark Zandi, chief economist at Moody's Analytics in the wake of the Target move.
The latest increase comes at a time of relative strength for Wal-Mart, despite the woes of some smaller and mall-based chains. The company, which is one of the biggest sellers of groceries, has reported strong sales over the last year as it ramped up its online business to fend off Amazon and benefited from the troubles at store closings by smaller retailers. Wal-Mart shares surged more than 40% last year, hitting record highs. The share price inched higher in premarket trading to $100.20.
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(END) Dow Jones Newswires
January 11, 2018 09:31 ET (14:31 GMT)