February 20, 2015

Employees are People, not Expenses

Yesterday an impressive thing happened. Walmart (WMT), widely known for its competitive prices, and widely attacked by advocates for low wage workers amongst which Walmart’s million plus headcounts has the widest gap, changed its policy on those wages. This was suggested in the announcement that 500,000 full and part time  workers would receive increases in their base salaries by over 24% on April 1st, including the promise of an additional 10% for all “existing associates” on the following February 1st.

You might be asking why I think this act is impressive. Well notwithstanding the accusations prevailed that Walmart rolled over from staunch and relentless political pressure. But I think such negative perspective undermines the fact that this has happened. And it follows hot on the heels of Whole Foods (WFM) and Aetna (AET)*, two companies we are currently invested in, the latter a healthcare company who recently announced an average 11% increase for employees and for some as high as 33% to $16/hour. So why all the cynicism, and what can be gained from 2 companies out of over 8,000?

One thing worth considering is the benefits of putting more money into the pockets of hourly workers can only have a positive effect on the economy. Much like the recent declines in oil and the effect on the price of gasoline, the increase in spending for the retail sectors of the economy are already evident in the behavior of that sector of the stock market. There are also the broad implications of what I hope will be a reverse politicization of the issue of wages away from the idealized concept of a living wage and into the encouraging and affirming implications of “navigating a raise” (think, hard work). And is it such a stretch to suggest that there looms some human nature to think we’re underpaid or such that no raise has ever been enough? Or if it is possible that one outcome of increased wages could be simply influenced by such attitudes and assumptions.

Also worth noting is that 8,000 companies might have no such complementary plans in the pipeline is illogical. Disney (DIS), and Costco (COST), and the well-publicized Wells Fargo shift under employee pressures are three other firms that have announced changes in their wage scales and as more companies see the value in such moves, regardless of the motivation, the result could just be the first signs of inflation pressures that have been hiding from a Federal Reserve Board eager to normalize (as in raise) interest rates, which would be especially good for all income dependent investors.

Lastly, in all the years that I’ve been managing equities I admit to balking at the notion that wage increases, and other company expenditures take money away from the bottom line leaving the stock prices of said companies reeling from shareholder revolt. Yesterday, it happened with Walmart, but employees are people, not expenses on the balance sheet, and the cynicism that follows the leader in politics and capitalism is showing hopeful signs of fading (call it disruption if you must) into the future. And with history on the side of domestic corporations doing the right thing by their workers, their communities and their shareholders, I hope we continue to see the changes gain momentum. Just don’t count on me going out to buy a hoodie.