Wal-Mart's Wage Hike Still Too Little Too Late (Demo)

On February 20, 2015, David Lazarus writes in the Los Angeles Times:

As Spider-Man so wisely put it, “With great power comes great responsibility.”

Wal-Mart announced Thursday that it will boost wages for about half a million workers to at least $9 an hour, or $1.75 above the federal minimum wage. This is a good thing.

But it’s not enough.

Wal-Mart is the nation’s largest private-sector employer, with about 1.3 million people on its domestic payroll. The company is uniquely positioned to influence other employers and set benchmarks for U.S. businesses.

The fact that it took this long for Wal-Mart to recognize that many of its workers weren’t making a living wage demonstrates a reluctance on management’s part to act responsibly, as if the executive suite had to be dragged kicking and screaming toward the right decision.

Wal-Mart’s decision probably was influenced by the fact that many states already are raising minimum wages to levels at or above Wal-Mart’s new level, said Lee Ohanian, an economist at UCLA.

California has passed legislation gradually raising the minimum wage for workers to $10 an hour by next January. It hit $9 last summer.

“By doing this earlier, Wal-Mart is getting kudos and a lot of good publicity,” Ohanian said. “But they didn’t get to be one of the biggest companies in America by giving out goodies.”

Doug McMillon, Wal-Mart’s chief executive, patted himself on the back Thursday for implementing changes that “give our U.S. associates the opportunity to earn higher pay and advance in their careers” and for shelling out more than $1 billion to make this happen.

What he didn’t say was that working the floor at Wal-Mart isn’t easy. These are big stores with a lot of customers, and there’s a lot to do.

McMillon also left unmentioned the fact that the national unemployment rate was 5.7% last month, compared with nearly 10% five years ago. It’s not as easy as it once was to get people to work at minimum wage.

And Wal-Mart’s self-congratulation completely ignored America’s rising income inequality. The rich, to put it mildly, are getting a lot richer while everyone else is struggling to stay afloat.

A report issued Thursday by the Economic Policy Institute found that most income brackets saw wages decline last year, relative to inflation.

The sharpest drop of 2.2% was among workers with advanced degrees, indicating that “poor wage performance cannot be blamed on workers lacking adequate education or skills,” the report found.

“Only those at the top of the wage distribution have real wages [that are] higher today than before the recession began,” it concluded.

So Wal-Mart shareholders should be encouraged that the company’s leaders are prudent enough to act out of self-interest. Management wants to make sure the stores can attract good workers.

Even so, Wal-Mart deserves little credit for recognizing that for-profit companies also bear the weight of social responsibility, and the biggest companies must, by definition, shoulder the greater share of the load.

Christine L. Owens, executive director of the National Employment Law Project, said that Wal-Mart workers “have helped make the company one of the largest and most profitable corporations on Earth, building untold wealth for the Walton family.”

That would be the kin of Wal-Mart founder Sam Walton. They own about half of the company’s shares and are collectively estimated to be worth about $140 billion.

“The changes in company policy announced by Wal-Mart are inadequate for the hundreds of thousands of employees who struggle to support themselves and their families,” Owens said.

There will be some who say it’s unfair to impose a moral imperative on a private company. Wal-Mart isn’t a charity. It’s not in the business of improving people’s lives. It’s sole purpose is to sell stuff, and the more it can sell, the better for shareholders.

Still, “businesses have an obligation to the public good,” said Chris Faricy, an assistant professor of political science and public policy at Syracuse University.

This doesn’t just mean following laws and being philanthropic, he said. It means being committed to the well-being of employees and their families.

Wal-Mart merits no praise for enlightened thinking, Faricy said. With the public’s awareness of income inequality growing, he said, “they’re just trying to keep people from grabbing pitchforks.”

“Wal-Mart saw which way the wind was blowing, both economically and politically,” Faricy said. “This is an opportunity to get good press.”

Cynicism comes easy — a trap I can easily fall into myself. Wal-Mart does deserve credit for being nimble enough to do the right thing when doing the right thing makes good financial sense.

And now that Wal-Mart has taken the plunge, it seems inevitable that other large employers will follow suit or risk a hit to their bottom lines by hiring less-qualified workers.

Wal-Mart, though, shouldn’t kid itself. Empowering workers, either through higher wages or improved benefits, always has been within the company’s power.

The fact that it waited this long to take action on the wage front speaks more to the company’s parsimony than to its economic courage.

Spider-Man wouldn’t be impressed.

http://www.latimes.com/business/la-fi-lazarus-20150220-column.html

Unfortunately, David Lazarus and his colleagues at the Los Angeles Times (in a related article) demonstrates that the media focus is ALWAYS on boosting wages, without a single mention or suggestion that companies transform to employee-owned companies. Even a wage boost to $15 per hour is a pittance in today’s reality of creeping inflation. But it appears that advocates believe that $15 per hour should be the target. And then what, mission accomplished,  economic injustice solved, retreat?

The better solution to wage boosts, which inevitably are passed on in the form of higher consumer prices for products and services (inflationary spiral) is to institute an Employee Stock Ownership Plan (ESOP) to enable working people without savings to buy stock in their employer company and pay for it out of its future dividend yield––on the promise of the capital investment’s future income.

The ESOP provides access by employees to capital credit to buy company stock and pay for it in pre-tax dollars out of what the assets underneath that stock yield. Bank loans are made to the ESOP trust that represents employees, instead of to the company (current owners). The trust gives the lender a note and with the borrowed monies makes the investment in the company stock. The company then issues stock to the ESOP trust. The company now has the money, which otherwise could have been borrowed directly without the ESOP (benefiting current owners), to make the planned investment and repay the loan from pre-tax forecasted future capital earnings. The company promises the bank to make pre-tax full-dividend payments to the ESOP trust to enable the trust to replay the lender. Assuming that it would take five years for that capital investment to pay for itself, at the end of five years the employees now own the full stock value in the expanded company.

Companies can use the ESOP as the credit mechanism to create employee ownership in ratios up to a 100 percent leverage buyout. Nothing has been taken away from the existing owners. However, using the ESOP, the existing owners will surrender the exclusive right to acquire more ownership in the company and have a smaller percentage of ownership in the total company, but they have not been prevented from making a fair rate of return on their thus-far accumulated ownership shares because the company earns a rate of return throughout the process. After the loan has been paid off with pre-tax earnings, the employees will have more earnings from capital and they will have more consumer power to purchase products and services. Multiply this by tens of thousands of employee-owned companies and the economy revs up to grow dramatically.

ESOPs work as designed and optimized when the workers receive the full property rights as owners, including full voting rights, not simply treated as beneficial owners with power concentrated at the top of the company, without any accountability or transparency. Unfortunately, some ESOPs have been structured so that the rights, powers, and benefits of ownership remain concentrated in a small non-accountable elite controlling corporate and financial governance. When the employees are owners, dependent on their income from the company’s bottom line rather than through ordinary labor wages and benefits, the workers’ economic interests are more invested to see that their company succeeds. In this way, each person in the company is empowered as a labor worker and as a capital worker (owner) and inspired to work together as a team to make better operational decisions to serve and maximize value to their customers.