Why You Need To Pay Employees More

Employee pay is rising and companies need to act before staffers evaluate their options. By Andy Cohen

There’s a rising tide when it comes to pay plans, and it’s something all companies should be paying attention to. In February, Wal-Mart announced that it would be increasing its pay to more than 500,000 of its employees to $9 per hour in April and to $10 per hour next year. That change alone will have a direct and immediate impact on the labor wage numbers that have lagged behind the job growth statistics of the past few years.

“Wal-Mart’s move to raise their employee pay base is a sign that the labor market has already tightened,” said Joel Naroff, chief economist at Naroff Economic Advisors. “Their action could create a floor under wages and others may need to follow in order to retain and attract workers.”

Employers are adding jobs at the best pace since the late 1990s. As a result, the unemployment rate fell to 5.5% last month from 6.6% a year earlier, a sign of diminishing slack in the labor market. And, it’s causing companies to take steps now that are aimed at retaining their workers. Pay is front and center of those tactics, and Wal-Mart is just the first domino to fall.

What Wal-Mart’s pay strategy shift will do is begin to create a war for talent in the retail industry – as well as other sectors, for sure. You can already see it happening. A few days after Wal-Mart’s announcement, TJX, the parent company of T.J. Maxx, Marshalls and HomeGoods, said that by next June it will pay all of its workers who have been employed for six months at least $10 an hour. This June, TJX plans to start paying all U.S. workers at least $9 an hour.

Wal-Mart knows they can’t continue to lowball staffers, otherwise those people will simply go across the street to a better-paying job.

“We think it’s absolutely imperative that we keep pace and that we have the best talent,” said Carol Meyrowitz, TJX’s CEO. What Meyrowitz and the company know is that if they don’t do this, they’ll be losing good workers to Wal-Mart. In fact, on a conference call with analysts in February, she said that TJX needs to invest right now in worker compensation to help retain the best of their 191,000 employees.

There are other signs that the impact of these moves is reaching multiple economic sectors. In the retail world, Target said it will be evaluating its pay plans and Macy’s echoed a similar sentiment. Also, Starbucks raised its starting pay for workers last month. And, in the health-care market, Aetna said last month that it would be raising the pay of its lowest-rung workers to $16 per hour by April of this year.

You can expect many similar announcements in the coming months from a variety of companies and economic sectors. It’s not enough right now to add new employees – you also have to pay them fairly. This isn’t just some touchy-feely management thing, either. You think Wal-Mart, the king of low prices that will do anything possible to ensure it keeps its costs down, is making a change because it sounds good? No, they’re doing it because they know they’re at a competitive disadvantage when it comes to labor right now.

Very simply, employees are a bit more in the driver’s seat than they have been in recent years, as the job market for good workers has tightened. This is now driving companies to reevaluate their pay strategies and increase compensation if they expect to retain and attract great workers. That’s what Wal-Mart knows: they can’t continue to lowball staffers, otherwise those people will simply go across the street to a better-paying job.

And, that’s a position that every good company knows it needs to avoid. The message? Get your pay plans in shape now – before the wandering eyes of any good employee can take a look at what else is available. Because, with the way the tide of salaries is heading upward, there will probably be something more attractive.
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