Watch CBS News

Good Question: Why Do Companies Give Raises?

MINNEAPOLIS (WCCO) -- On Thursday, Walmart announced it's giving raises to 500,000 of its lowest-paid workers.

Starting in April, employees will make $9 per hour, which is $1.75 more per hour than the federal minimum wage.

By next February, that wage will increase to $10 per hour for people who are on the current payroll.

The company, which has been under pressure to pay its workers more, says the move will cost them $1 billion.

Wal-Mart follows in the footstep of Ikea, Aetna and the Gap, each of which have raised wages to $10 per hour or more over the past year.

None of these companies were required to give raises, so why did they?

Doug McMillon, Wal-Mart's CEO, told CNBC Thursday morning that the idea behind the move is aimed at running a really good business. He says more engaged employees would improve customer service.

"We want to provide a great customer experience and we want our associates to know how much we value them," McMillon said.

Experts have speculated there's a corporate image element to the decision, and the company is making a good public relations move in light of recent criticism about its wages.

"Sounds generous at first, but I think they're just trying to get ahead of the curve," University of St. Thomas Department of Finance Professor Dave Vang said. "The minimum wage is going to go up eventually one way or another. And so if they can be there ahead of time, it gives them good PR. It also gives them a little bit of more, I suppose, political leverage because frequently they have a history of individuals wanting them to unionize."

As the economy continues to improve, the job market has been tightening, making competition for workers fiercer, especially in the retail market.

"They kind of compete for the same labor pool as some smaller retailers, and so this kind of gives them an edge against them," Vang said.

He says the move will ultimately help reduce turnover. After Gap first announced its wage increase, the company said its Old Navy job applications jumped 20 percent.

In June, Gap CEO Glenn Murphy told CBS This Morning, "Our instincts are that when it's all said and done, this is a race for talent."

In 1914, Henry Ford raised wages to $5 per day. He later said he did it to increase his employees' buying power, which would in turn make them better Ford customers.

"He was a brilliant business mind, but he wasn't necessarily always truthful," Vang said. "The math isn't going to work out, but it was a nice way to keep unions from entering into his industry at that point in time and it was a way to cut down on the turnover."

Professor Vang says the higher pay at Walmart could force other companies to also give raises.

View CBS News In
CBS News App Open
Chrome Safari Continue
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.