Walmart (WMT 99.65, -0.02, -0.02%) is known for its low prices, but today it is in the news for raising its cost of doing business.
To be exact, Walmart announced plans to raise the starting wage rate for hourly employees in the U.S. to $11.00, expand maternity and parental leave benefits, and provide a one-time cash bonus for eligible employees of up to $1,000. The retailer also introduced a new adoption expense benefit of $5,000 per child for full-time hourly and salaried associates.
The new plan is an extension of a plan announced in February 2015 to invest more in the company's employees and its technology. That original plan called for an increase in the starting wage rate for hourly associates to at least $9.00 beginning in April 2015 and for hourly associates to be making at least $10.00 an hour by February 2016.
The plan announced today is a byproduct of the tax reform legislation, which Walmart said allowed the company to accelerate its plans for its U.S. business.
The increase in wages will take effect in February and will create an approximately $300 million incremental cost to what Walmart had already budgeted for next year's fiscal plan.
According to Walmart, the one-time bonus will be scaled based on length of service. Employees with at least 20 years of service will receive $1,000 and it will be gradually reduced for other employees who have worked at Walmart for shorter periods. For instance, employees with 5-9 years of service will receive $300.
The company estimates the bonus payments will total approximately $400 million. Walmart will take a one-time discrete charge in the fourth quarter of the current fiscal year, which ends January 31.
Shares of WMT, which have soared 45% over the last 52 weeks, is little changed today.
Although it is reasonable that investors might be worried about profit margin pressures, the fact of the matter is that Walmart's operating results have greatly improved since it made the decision in 2015 to invest more in its employees and technology. Similarly, its stock price has greatly improved as well.
The new plan is a welcome piece of news for Walmart employees who undoubtedly shop at Walmart stores. Accordingly, Walmart should see a top-line return on its personnel investment that can be used to leverage higher employee expenses.
Beyond that company-specific consideration, the move by Walmart to increase its wage rate and employee benefits is an uplifting move for the overall economy. Walmart is the largest private sector employer in the U.S. Taking this leadership step with wages and benefits due to tax reform will presumably compel other companies to do the same.