Last week, the CEO of a little company in Seattle called Gravity Payments got a lot of attention with a bold move in his human resources strategy: He would boost the minimum annual salary for his 120 employees to $70,000, and pay for it by cutting his own million-dollar compensation down to the same level, as well as directing most of the firm's profits back into his staff. He chose $70,000 because it's the level at which money buys the most happiness, which he thought would in turn lead to more productive employees.
Of course, it was also a demonstration of what's possible if workers can share in the gains from their labor, rather than having it flow almost exclusively to shareholders or executives. At a time when CEO pay packages are nearing historic highs, and companies are rapidly buying back stock and paying out healthy dividends, many of them could certainly make a big difference to their employees' lives by reorienting their priorities. But could all companies pay that happiness-optimizing wage simply by waving a magic wand?
After the New York Times story ran, I tweeted that while lots of companies could go the Gravity Payments route, the economics were different for a huge company like Walmart. I got some angry responses, suggesting that of course Walmart could pay for similar wage increase, it's the biggest retailer in the world!
The thing is, though, the very size of Walmart's workforce -- and the low wages it already pays -- is what makes raising salaries that much for everybody likely impossible.
Let's just run an extremely rough calculation, based on Walmart's U.S. operations. Walmart says it has about 1.3 million employees who make an average of $12.96 per hour. That's only the wage for full-time employees -- part-timers can be paid less on average. And about half of the rank and file is part-time.
But just to be super generous, because we don't know precisely, let's say the average worker makes $12.96 an hour and works 40 hours a week, all year round. That comes out to about $26,957 per year. Boosting that employee up to $70,000 would cost $43,043 per year. Boosting all 1.3 million up that much would cost $55.96 billion per year.
Could Walmart afford it?
Well, the company took in $482.2 billion last year in revenue, of which its U.S. operations made up $288.1 billion. It had a profit of $16.18 billion, returned $7.2 billion to shareholders, and paid CEO Doug McMillon $25.6 million. So raising everybody's salaries that much would definitely leave it without enough cash to cover expenses. Raising everybody up to the U.S. annual mean wage of $47,230 would cost about $26.4 billion. Potentially doable, if you hiked prices. But still, not pocket change.
Raising the average wage to $15 an hour and making them full time, as activists have demanded -- an annual salary of $31,200 -- would cost about $5.2 billion. Obviously the accounting would be a lot more complicated -- making everyone full time would likely lead to some part-timers losing their jobs, for example, and full-time workers also carry higher health care costs. But from a very rough sketch, that seems within the realm of possibility.
Of course, there are many companies that are more cash-rich than Walmart, and could redistribute their liquid assets. But those are companies like Apple, Google, Microsoft, Verizon and Pfizer -- Internet and pharmaceutical giants that make most of their money on intellectual property, rather than large, low-paid workforces. So while a small tech company might be able to redistribute its income equitably to workers, in the real world, the companies with the most workers to benefit are actually the least well-equipped to do so.