Does Wal-Mart Really Underpay Its Employees?

There is a lot of talk lately about Wal-Mart Stores lately, but what are the facts and do they actually underpay their employees compared to competitors Costco Wholesale and Target Corp.?

Jan 17, 2014 at 7:30PM

Wal-Mart Stores (NYSE:WMT) has received a lot of negative press for the way it treats its employees for years. And the U.S. government just charged Wal-Mart with the violation of the rights of workers. This primarily stems from accusations that Wal-Mart intimidated employees who threatened to strike against the company.

OUR Walmart has been protesting Wal-Mart since 2012, demanding higher pay. Wal-Mart has fired at least 19 people who took part in protests, despite these workers being protected under the National Labor Relations Act. As in most cases, there will be three sides to this story, OUR Walmart's side, Wal-Mart's side, and the truth, which is somewhere in the middle.

While it's impossible to know all the cold-hard facts related to this dispute, it is possible to know if Wal-Mart underpays its employees compared to its peers. This is possible thanks to Glassdoor.com, where employees anonymously leave information about salaries, their experiences, and more.

Moral or immoral?
According to Glassdoor, the average Wal-Mart sales associate makes $8.89 per hour, and the average cashier earns $8.64 per hour.

Wal-Mart is the largest retailer in the world, and it consistently delivers large profits. For example, its 2012 profit totaled $15.7 billion. That's a big number. However, it was a 4.6% decline from 2011. Due to waning demand, Wal-Mart had to cut prices in order to drive more traffic to its stores. This was an effective maneuver, which led to a 6% increase in revenue to $447 billion. We don't yet know the results of 2013.

What we do know is that any company that has been forced to slash its prices isn't going to rush to increase employee pay. That's Business 101. If you have a dislike for Wal-Mart for moral reasons, that's understandable. If you're looking at Wal-Mart as a potential investment, then despite recent negative news, you might want to keep in mind that Wal-Mart is the epitome of capitalism. 

Pay comparisons
Take another quick glance at the employee pay numbers above for Wal-Mart. Now consider the average pay for some Target (NYSE:TGT) employees. According to Glassdoor, the average pay for someone on the sales floor is $8.36 per hour. And the average pay for a cashier is $8.14 per hour. This is lower than Wal-Mart. The big difference is culture. 

Target employees appear to be happier than Wal-Mart employees. Wal-Mart employees have rated their employer a 2.9 of 5, and only 47% of employees would recommend the company to a friend. Furthermore, only 49% of employees approve of CEO Michael Duke. This should be expected since he earned $19.3 million in 2012.

Target employees have rated their employer a 3.3 of 5, and 62% of employees would recommend the company to a friend. A solid 72% of employees approve of CEO Gregg W. Steinhafel.

Then there's Costco Wholesale (NASDAQ:COST). The average pay for a cashier at Costco is $15.06 per hour, the average sales assistant earns $11.59 per hour, the average food-court worker makes $11.75 per hour, and the average stocker brings in $12.82 per hour. These are much higher numbers than both Wal-Mart and Target. 

Costco employees have rated their employer a 3.8 of 5, and an impressive 83% of employees would recommend the company to a friend. Furthermore, 93% of employees approve of CEO Craig Jelinek. Needless to say, the company culture at Costco is excellent. The turnover rate for employees working at Costco more than one year is less than 6%, and for executives, it's less than 1%. As if that's not impressive enough, 70% of warehouse managers are hired internally.

The bottom line
Costco treats its employees better than its peers. Therefore, if you're looking for a moral investment -- without sacrificing growth potential -- you might want to consider Costco. As far as Target goes, it has other concerns to deal with at the moment, and it might be a while before the stock can find some solid footing.

When it comes to Wal-Mart, one former employee on Glassdoor put it best, stating that "It's a good entry-level job that teaches fundamental skills." There is no reason for Wal-Mart to increase pay for its employees unless those employees possess a specific skill. Recent headlines might lead to negative public sentiment for Wal-Mart, but that already exists. Those who dislike Wal-Mart will continue to dislike Wal-Mart. Others will continue to shop there.

In other words, recent headlines regarding the intimidation of workers threatening to strike, and low pay, should have no significant impact on the underlying business or stock price. Wal-Mart should remain a quality long-term value investment. 

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Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale. The Motley Fool owns shares of Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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