Is low pay at Wal-Mart Stores Inc. (WMT ) driving down wages and benefits nationwide? That's what critics contend -- one reason pay scales at the nation's largest private employer have become part of the national political debate. Now, BusinessWeek has learned, the retail behemoth is preparing to introduce significant changes to its pay system in coming weeks. And that should ensure the debate gets even livelier.
According to some Wal-Mart workers, as well as union organizers and a lawyer who have talked to Wal-Mart workers in different parts of the country, big adjustments are coming. The changes they describe could mean raises for newer workers but penalties for higher-paid veterans. They could also limit the discretion of front-line managers to make decisions about pay rates and merit raises, a move that could help Wal-Mart battle charges of sexual discrimination. "Obviously they [Wal-Mart] have a bad reputation in terms of pay for the rank and file, and they need to improve that," says retail analyst Robert F. Buchanan at A.G. Edwards & Sons Inc.
Wal-Mart refuses to discuss or even acknowledge the new pay plan, which workers say they've been told will show up in paychecks starting in June. In explaining the change, Kathleen MacDonald, a 14-year Wal-Mart veteran at a supercenter in Aiken, S.C., says her bosses alluded to the bad publicity over Wal-Mart's pay and negative comments from politicians. Some managers have also told workers that the changes were a response to the massive sex-discrimination case filed three years ago against Wal-Mart, says Joseph M. Sellers, a lawyer for the plaintiffs in that suit. Workers have reported raises ranging from 8 cents an hour to $3 an hour under the new plan, he adds.
According to MacDonald and others, the new plan -- whose details remain sketchy -- divides workers into seven classes, at least in the supercenters. Starting wages would be clearly defined, as would progress from class to class. While Wal-Mart's pay system has some similar features now, those familiar with it say it has been loosely followed, with managers having wide discretion.
Under the plan, workers have been told, no one's pay would be reduced. But labor activists are fretting all the same. United Food & Commercial Workers organizer Stan Fortune says the new system, described to him by numerous workers, would include a pay cap for each class -- a possible disadvantage for longtime associates, as Wal-Mart calls its 1.2 million U.S. workers. And merit raises would be limited to about 5% of store employees.
What's more, workers say, annual raises would be set at a flat rate, not a percentage of salary. That would be another blow to veterans. Those with a "standard" annual evaluation would get 40 cents more an hour. Those "above standard" would get 55 cents. Wal-Mart says its current full-time hourly workers average $9.64 an hour in its discount stores and supercenters. The old system usually gave even higher-paid workers at least a 4% raise. "If you're making double digits, this hurts you," says sales clerk MacDonald, who now earns $11.03 an hour. She doesn't yet know how she will fare.
EXPECTING THE WORST
Nor is it clear how the changes will affect Wal-Mart's overall labor costs. Not surprisingly, union organizers expect the worst. "In the long term, it will cost [Wal-Mart] less" by driving up the turnover of senior workers, predicts Fortune, a former Wal-Mart store co-manager who left in 2001. He says Wal-Mart experimented with a similar plan at some of its Sam's Club warehouse stores last summer.
Despite grumblings from senior workers over the plan, Wal-Mart may be hoping to use it as "shark repellent against the unions," says analyst Buchanan. Indeed, Jon M. Lehman, another UFCW organizer and former Wal-Mart store manager, says some workers were told that their new pay plan was "just like a union contract" so there was no point in pursuing unionization. The UFCW has so far failed to organize a single U.S. store.
Faced with intense criticism, Wal-Mart seems to be shaking up its pay structure. But like nearly everything this giant does, that's sure to spark new firestorms.
By Wendy Zellner in Dallas