What Sam Walton Would Say About Walmart's New Minimum Wage

By Markets Fool.com

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Sam Walton might not have agreed with Walmart's latest wage increase, Credit: Wal-Mart Stores,

Last month, Wal-Mart Stores made waves around the retail world when it announced a "bold new initiative on pay and training for U.S. associates."

Specifically, on the former, Walmart CEO Doug McMillon promised by the end of April, all hourly associates will earn at least $1.75 per hour above the federal minimum wage, or $9.00 per hour -- that's roughly 500,000 people getting significant raises. Then by February 1, 2016, current associates will earn at least $10.00 per hour.

McMillon added,

"Sam Walton knew that an inspired, dedicated team of associates was the way to exceed our customers' expectations. He often said 'Our people make the difference.' I feel a big responsibility to carry on what that phrase represents: the care and commitment Sam had for Walmart associates."

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That begs the question: Would Sam Walton really endorse this as the best course of action?

Well, yes and no.

Higher wages? No way
On one hand, as Walton himself wrote in his 1992 autobiography,Sam Walton, Made in America, "See, no matter how you slice it in the retail business,payroll is one of the most crucial things you have to fight to maintain your profit margin. That was true then, and it is still true today."

What's more, according to ProfessorNelson Lichtenstein, author ofThe Retail Revolution: How Wal-MartCreated a Brave New World of Business,"Sam Walton always said [...] 'I pay low wages, I can take advantage of that. We're going to be successful, but the basis is a very low-wage, low-benefit model of employment.'"

In short, Sam Walton firmly believed one of the most crucial aspects of maintaining Walmart's low prices was to keep wages -- at least for entry-level employees -- as low as possible.

Lichtenstein also noted while Walmart's competitors like Sears and Costco "had a sense that they couldn't really get away with a minimum wage workforce, which had a 50% or 75% turnover [and] was thought to be inefficient," Walmart proved it could go against this train of thought with highly efficient hiring and training processes. To be sure, the hundreds of thousands of employees Walmart typically turns over each year often require little or no training to effectively perform their jobs.

Partnership? Absolutely
On the other hand, that doesn't mean Sam Walton didn't understand the need to keep the right employees happy. From Walmart's very earliest days, he offered managers profit-sharing agreements to effectively make them partners in the business and align their financial incentives with his own.

Walton also admitted for the entirety of his retail career, he would regularly "nose around other people's stores searching for good talent." And over the years, Walton wrote, "that lure of partnership helped us attract a lot of good managers."

But make no mistake: These weren't the majority of entry-level employees we're talking about now.

That's why industry watchers have come up with a variety of possible ulterior motives for the retailer's wage increase. Some theorize Walmart might have been looking for a PR boost ahead of what many view as an inevitable minimum wage hike by the federal government. Others assert Walmart is using the increases to circumvent potential conflict with workers' unions -- the need for which, by the way, Sam Walton regularly argued against by leveraging the benefits of his "partnership" model.

A clearer path
To Walmart's credit, we also can't ignore the second "training" aspect of its new initiative, through which McMillon promised "comprehensive changes to our hiring, training, compensation, and scheduling programs, as well as to our management structure." He elaborated that following these changes, U.S. associates "can enjoy a closer relationship with their supervisors [and] more control over their schedules," which, in turn, should afford them "the opportunity to earn higher pay and advance in their careers."

Seems fair enough. If Walmart was bound to pay entry-level associates more money, anyway, perhaps the resulting diminished value proposition of incurring such high employee turnover compelled it to work harder to identify more promising talent from its lower ranks. In that context, this move would make perfect sense for both Walmart's employees, who receive higher pay and a clearer career path going forward, and the company itself, which could potentially reduce labor costs and look good in the process for making the changes ahead of the retail curve.

In that case, that Sam Walton adamantly disagreed with increasing minimum wages seems irrelevant. Walmart might not be doing this out of the goodness of its heart, but it would be crazy not to take advantage of a situation in which everyone wins.

The article What Sam Walton Would Say About Walmart's New Minimum Wage originally appeared on Fool.com.

Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale. The Motley Fool owns shares of Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.