A Balancing Act

Wages and health care coverage commanded a greater share of retailers' attention in 2013, as the Affordable Care Act insurance marketplaces opened, spurring companies to rearrange staffing schedules and benefits.

At the same time, compensation also received a more thorough look, due in part to the Securities and Exchange Commission's new requirement that public companies disclose the annual total compensation of the CEO and the median employee, as well as the ratio of the two. At retail chains with the highest CEO compensation, the CEO earned about 874 times as much as the average worker earning an hourly wage, Nerdwallet.com said. At Dollar General, the CEO earned $7,720 per hour in 2012, compared with $7.67 for the average hourly wage workers, for a CEO pay multiple of 1,007. At Walmart, the CEO pay multiple was 779.

But some experts question whether the new requirement will have an impact on CEO compensation. "Great CEOs are going to be paid extremely well, as they should be," says Greg Moran, president and CEO of Chequed.com, a provider of predictive talent selection in Saratoga Springs, N.Y.

Still, it was the lower-wage worker who commanded most of the attention in 2013, as protests at Walmart and fast-food restaurants highlighted the wage gap, and led to calls for a higher minimum wage. President Barack Obama used his State of the Union address to announce plans to sign an executive order increasing the minimum wage to $10.10 an hour, from $7.25 currently, on new government contracts, and also asked Congress to approve a higher minimum wage for all workers. States also are taking action, with 13 hiking the minimum wage in 2013, and another 11 expected to consider a mandatory minimum wage increase this year. (See chart on p.26.)

As of Jan. 1, the minimum wage increased in 13 states to the following: Source: Society for Human Resource Management

Walmart in late February said it was prepared to absorb a higher minimum wage in Washington, D.C., and elsewhere if legislation requires it, according to The Wall Street Journal.

OPPOSITION GROWING

But opposition to a higher minimum wage also is growing. "If the minimum wage goes up, the number of jobs is going to go down because there's not a lot of flexibility" in retail budgets, says Brett Coburn, partner at Alston & Bird LLP in Atlanta. The National Retail Federation also opposes a government-imposed wage increase, and Matthew Shay, president and CEO, asserts that the minimum wage is intended to be a starting point for teenagers and others lacking work experience. Raising the minimum could discourage employers from taking a chance on entry-level workers, he says.

"Any retailer today has to be really looking at what they're doing from a compensation standpoint, and overall HR standpoints," Moran says. "Companies are spending more time worrying about benefits because it's in the news today."

Still, with margins under pressure due to heavy competition, many retailers feel they can't afford to increase wages. But it's only a matter of time before the minimum wage is increased, says Maryam Morse, senior principal and retail practice leader with the Hay Group in Philadelphia.

"I think we are fooling ourselves if we think the $7.25 is going to stick around. If it's not $10.10, it's going to be similar," she says.

ADJUSTMENTS NEEDED

How will retailers adjust to higher wages? Experts say companies will have to do more work with less labor, and that will entail changing their strategy to move to higher margins or decreasing service levels to cut costs.

All of the controversy surrounding the wage gap has led some large companies to determine what message to send to employees about compensation and benefits, Morse says. For example, some are adding technology and eliminating lower-level positions entirely, she says.

Others paying above-market wages often have more productive workers and better retention, Morse says. At Costco, for example, with the company's streamlined approach to stocking product on pallets and optimizing the use of labor throughout the store, workers are paid $21 per hour on average, according to the HuffingtonPost. "All the savings they get from having to screen fewer people, train fewer people, do all the paperwork for fewer people, it has a multiplier effect on the degree to what they're able to pay," Morse says.

Target Corp. is among the latest in a string of prominent retailers to announce it will stop offering health insurance benefits to part-time workers. The retailer said it will give $500 to affected workers to help them purchase insurance and also provide consultations with Towers Watson, a benefits manager, to help them with the transition.

In a Q&A posted on the company website, Target's executive vice president of human resources Jodee Kozlak said workers would gain access to new options through the marketplaces that wouldn't be available to them if the company offered them insurance. As a result, some workers could end up paying less after subsidies and tax credits. The company will continue to offer health care coverage to workers who average 32 hours or more per week after the change takes effect on April 1.

Trader Joe's and Wegmans had announced similar changes for their part-time workers last fall, according to media reports, while many other retailers are expected to cap part-timers' hours at 29 per week. The ACA defines workers as full-time if they clock 30 hours a week, a level that has drawn protests from the Food Marketing Institute among others.

SERVICE IMPACT

At the same time, many retailers don't want to negatively impact the customer service levels at their stores. "There's always been this question of tradeoff, with full-time workers being more loyal, contributing workers and part-timers turning over and not delivering the experience retailers want," Morse says. Increasingly, companies are evaluating more thoroughly where they should add or subtract higher-level employees who will command a higher wage.

With companies looking for ways to save on labor by rearranging workers' hours or job titles, legal problems can arise, such as worker misclassification. For example, companies may misclassify hourly workers as exempt to skirt having to pay overtime. "There are cases after cases where people who were classified, particularly, as assistant managers...do the work of other people who stock the shelves or put up advertising displays," says Howard Knee, partner, benefits and labor group, Blank Rome LLP in Los Angeles. "Litigation-wise, it is a big issue."

ILL-FITTING CAPS

Misclassification and wage-hour litigation could become more prevalent as more companies cap workers' hours at 29 to avoid having to offer health insurance, experts say. And if a number of large corporations publicly announce plans to cut workers' hours to fewer than 30 per week, that could spur a change in government policy, Knee says. "If I were a policymaker, I would want to make policy to avoid turning full-time workers into part-time workers," Knee says.

The debate over unions also got a fresh look in 2013 with Kroger's $2.4 billion acquisition of Harris Teeter, a privately held retail chain that doesn't have a union and doesn't want one. About 208,000 out of 343,000 total Kroger employees are represented by the United Food and Commercial Workers Union. Kroger has said it will allow Harris Teeter to manage its workforce without the union.

While changes in the health insurance system might suggest unions have lost one of their critical lures, the trend toward a reduction in hours could breathe new energy into efforts to organize labor. "There are a lot of collective bargaining agreements that provide for 40-hour workweeks. Employers have to bargain with unions over how they deploy the workforce," Knee says.

"I don't think we want the type of economy where people have two or three part-time jobs and they're forced into those part-time jobs because employers are trying to avoid paying health care," Knee says, noting that the trend could give unions a new reason for being. "Unions generally welcome a higher minimum wage and mandatory health care."

Over time, higher wages can pay for themselves in higher margins for the company, experts say.

"If you increase the performance and you can hire more effectively, wage and benefit starts to take care of itself," says Moran of Chequed.com. "Whether or not they're in a union environment probably doesn't matter as much per se as an organization that really invests in its organization and invests in its people."

Ann Meyer, who is CEO of media services firm L3C Chicago, is a frequent contributor to Retail Leader.