Inflation has been increasing at a 6.8% annual rate, but wage increases are projected to be 3.9%. A survey of employers by Grant Thornton finds that 51% expect average merit increases of 5.1%. High performing employees will get more; lower performers, less. The survey also finds that 68% of employers have already increased the number of employees eligible for bonuses. According to Tim Giowa, a principal at Grant Thornton, “This isn’t just an HR problem anymore. It’s a C-suite problem.”
Interestingly, although Walmart is also making bonus-related changes, it is actually eliminating its decades-old quarterly bonus as it raises wages for the third time in the past year; this time, by $1/hour for 565,000 workers. Walmart says that “The overwhelming majority of our associates say their hourly wage is the most important part of their pay and by folding the bonus into the overall pay raise, associates receive consistent, predictable pay.”
Questions for Students
1. Why would Walmart be willing to incur higher fixed labor costs? [Hint: Do workers prefer certain income such as wages to uncertain income that depends on something like profits?]. What is the risk to Walmart?
2. Google told its employees that it will not give across-the-board pay increases because it varies pay increases based on individual performance. Why is Google following a different pay increase strategy than Walmart and other firms giving across the board increases?
3. Go to https://www.bls.gov/cpi/ and check under “News Releases” for an update on inflation (the Consumer Price Index for All Urban Consumers). Why might employers be reluctant to raise wages to match inflation?
Note to Instructors
Gasoline prices rose 58% and used car prices rose 31% year over year. Is that likely to happen again in the coming year? If wage and/or price pressures are temporary, an employer may wish to avoid increasing fixed costs like wages too much, as it may not be necessary to compete for workers in near future. Emphasize to students that bonuses are temporary and do not become part of permanent fixed labor costs. In the case of Walmart, they decided to offer an increase in wages because certain income is the best way to attract/retain workers (Ask students which option is more acceptable to them: a wage of $15.40 plus a possibility of earning another $1/hour in bonus or a wage of $16.40?). It is also important for students to recognize that to the degree inflation continues to be high, the wage increases given are less likely to result in Walmart’s fixed costs being higher than those its competitors.
Because Google competes more on the basis of valuable human capital, individual employees’ contributions to Google’s success can be quite different. As a result, Google rewards employees very differently based on their levels of contribution.
Sources: Michelle Fox. Many Employees Could be in for Pay Hikes of 5% or More in 2022. CNBC.com, January 7, 2022; Jennifer Elias. Google Execs Tell Employees They Won’t Raise Pay Companywide to Match Inflation. CNBC.com, December 10, 2021. Walmart to Scrap Quarterly Bonuses as it Raises Wages. Reuters.com, September 9, 2021.
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