What’s Driving the Pay Increases, and What It Means to Recruiters

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May 6, 2015

Screen Shot 2015-04-30 at 3.39.05 PMIn mid-February, the CEO of Walmart announced that the company, long pilloried for its low wages, would be raising its starting pay to at least $9 per hour and increase it to $10 per hour next year. This move followed on the heels of an announcement the prior day that retailer Gap, Inc. was raising its minimum starting wage to $10 per hour. A month prior, the CEO of health insurer Aetna announced that it would be raising its minimum starting wage to a whopping $16 per hour resulting in an average of an 11 percent raise, and as much as a 33 percent increase for some.

What could possibly be driving this seeming flood of generosity from some of America’s largest and most successful companies?

For Walmart, the higher starting wage is projected to increase labor costs to the tune of $1 billion annually, so the decision could not have been made lightly. For Gap, Inc. with more than 130,000 employees worldwide, the impact will be smaller, but still significant. In all three cases cited above, the announcement of these pay increases mention the desire to attract and retain better staff and to invest more in workers which is an optimistic turnaround for the employee workforce.

There is no doubt that voluntarily paying above the prevailing minimum wage is a good message to send to prospective employees and can raise employee morale. By voluntarily increasing their starting salaries Walmart and Gap both send the message to prospective employees and new hires that they value talent and are willing to pay for it.

However, some critics have posited that the companies may be raising their wages to get ahead of both state and local trends that are likely to increase minimum wage by statute in the coming year. But I think that is a hollow argument. It’s more likely that they have looked at the success many companies have since enjoyed by raising wages, reaping the improved productivity and employee retention that follows. Companies like Costco, Whole Foods, Ben & Jerry’s, and others all pay well above the minimum wage and have built strong service reputations, for employee satisfaction, and most critically for strong profitability.

Interestingly, the Aetna announcement was widely applauded based on the context of the announcement. CEO Mark Bertolini has been outspoken about employee enrichment and has brought a number of innovative programs to Aetna designed to improve employee well-being and satisfaction. From reducing employee healthcare premiums to rolling out programs on mindfulness and even the practice of yoga, he has taken a multi-disciplinary approach to improving employee satisfaction, and ostensibly quality, retention, and customer service. Bertolini has spoken passionately about the transformation in the healthcare industry and the need to better connect with customers. His desire to attract and retain better quality individuals is a requirement for ongoing success in his industry and by significantly raising wages, he is putting his money where his mouth is.

What does all this mean for the recruitment industry? A few trends are clearly at play here. First of all, the long-rumored economic recovery seems to finally be finding its way to the lowest-paid workforce. Raising wages at the entry level are a clear sign of improving conditions ahead and increased confidence in the leaders of these large companies that the recovery will continue for some time. Second, it means that the days of competition for talent are likely to return. The same pressures that are driving entry-level wage increases are likely to hit the professional ranks in the near future — and in many cases already have. Third, and I think most importantly, it points to a push towards employee retention in line-level, hourly staff. By finally putting a stake in the ground around entry-level pay and directly tying the increased pay to a desire to attract and retain staff, we may finally see the beginnings of a true focus on employee development and retention at the entry level which is good for everyone.

As companies focus more on retaining and developing their entry level staff, these jobs become a stepping stone to more highly paid roles. This ultimately may help individuals climb the career ladder in the long-term. This newly found focus will enhance the individual and in turn, their companies and the economy as a whole. I, for one, am looking forward to a new cycle of growth and the benefits it brings to all involved.