Trickel up…

It’s interesting that the discussion is all about lifting the bottom vs. the overall impact of a dramatic wage increase driving all wages up. Very few, myself included, would argue against lifting people out of poverty.

However; the economics and impact on front-line management must be fully understood and planned for.

My experience in retail and hospitality is very clear on this point, in fact exactly what Doug McMillon, CEO of Walmart suggests here is what happens.

While CEO of Barnes and Noble our store leadership team launched an initiative to raise entry-level hourly rates, ironically to compete with Walmart and Target, as well as continue the Barnes and Nobile long-standing tradition of offering good wages and excellent benefits. The analysis showed that the cost to raise entry-level salaries would result in roughly a $1.50 - $3.00 increase in total hourly compensation rates (when calculated by total hourly pay / total hours worked for the company) for every $1.00 increase in entry-level pay. The reason for this is very simple if an employee has been at a store for six months and is making $13.50/hour and someone may have just started is given a $1.00/hour increase say from $12 to $13/hour, what is the longer-tenured employee going to say and do? Exactly what you would expect and what is right, as for a commensurate pay increase. And so it goes.

While we ultimately made the decision to increase pay it was far more costly than initially calculated by the human resources department. This compression of the “ladder effect” is very real and puts very real stress on the management team operating the business. While I can't give specific numbers, it became clear that store managers and regional managers quickly became much more hesitant to add staff and much quicker to cut hours. This is exactly what the Congressional Budget Office is forecasting in their report.

For help working through your strategic transformation process, contact us at the Upland Group!