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Why Wal-Mart decided to finally pay its workers more

The company needed its employees to do more, and wanted to show it was willing to compensate accordingly.

Wal-Mart employees: Prepare to be trained. (Photo by Joe Raedle/Getty Images)

In the wake of Wal-Mart’s announcement last week that it would be raising its entry-level wage to $10 an hour by next year, there’s been lots of speculation about why the company did it: Is the labor market really tightening? Or did activist pressure force it to yield?

The answer, of course, is both — but that’s not all. Most importantly, a Wal-Mart executive tells Wonkblog, the company is planning to ask more of its employees, in a sign that Wal-Mart’s low prices are no longer enough to stay ahead.

“With the changing retail landscape, with the different options that customers have, competition on prices is tougher than we’ve seen it in a long time, and with that comes an increased premium on experience in the store,” says Dan Bartlett, the company’s executive vice president of corporate affairs. “We felt like if we’re going to make structural changes in all or our stores, we needed to link some of those expectations to a clear sign of what the compensation would be.”

Bartlett, a former communications director for President George W. Bush, started at Wal-Mart about a year and a half ago. Virtually the first week on the job, he says, he started having meetings about a plan to revamp training, scheduling, pay and benefits. Soon after, the company appointed a new CEO and a new head of U.S. operations, Doug McMillon and Greg Foran, who wanted to put their stamp on operations as well.

And Wal-Mart did need to make some operational changes. After years of depending on “zone managers” to watch over large areas of the store, the company wanted to give lower-level managers more responsibility for their individual departments. Now, it’s looking at awarding incentives for higher sales in those micro-units, rather than just on a store-wide basis.

At the same time, the company wanted to motivate the rank-and-file employees, whom it would be asking to undergo more basic training in various aspects of Wal-Mart’s business. After meeting with White House staff and experts at think tanks such as the Center for American Progress, Bartlett says the company came up with something akin to apprenticeship programs, which are all the rage among labor wonks these days. Employees would undergo basic retail training for six months and then decide if they wanted to specialize in a particular area, such as groceries or apparel or HR.

“It would almost be like certificates or badges that you literally wear on your jacket,” Bartlett says. “We wanted to be much more purposeful, and make it more transparent to employees, 'here are the steps you need to take, here are the rungs on the ladder.'”

To ask for that level of commitment, though, Bartlett says the company wanted to communicate that the extra effort would be rewarded.

"If we were looking at this as just an entry-level wage issue, we would have done it in an incremental, market-by-market way. But we were looking at it in a much larger sense,” Bartlett says. "And we felt that if we were going to really break through with our associates, and say that this is a step change difference in investment and commitment, that doing it across the board would be helpful.”

One thing the new invest-in-employees strategy won’t likely involve: An increase in the proportion of full-time to part-time employees, which activists have called for. It now stands at about 50-50, which Bartlett says is necessary to adjust to a 24-hour schedule. “We’re constantly trying to strike the balance between having the full-time workforce here with steady, predictable hours, against the nature of our business, which is episodic as far as when customers surge into our stores,” Bartlett says. (Of course, it also means the company has to pay less in health-care costs, since part-time employees can't buy the company's plan.)

Wal-Mart’s stock took a hit following the announcement, and analysts haven’t been totally convinced that spending an extra billion dollars on wages will be enough to make a difference. “Honestly I think they’re just playing catch-up,” said Meredith Adler, of Barclay’s. That’s true — Wal-Mart gets credit for raising wages now, because it’s successfully kept them so low for so long.

Still, raising them substantially all at once, along with its tweaked training regimen and allowing for more freedom in scheduling, could be a proof-of-concept for the idea that paying people more yields dividends down the road. Reducing turnover alone, Bartlett says, would make no small difference.

“If we had to retrain or train 25,000 less people per year, it could have meaningful impact on our bottom line,” he says.