Companies across America say they're under intense pressure to pay workers more

  • Executives at various US companies are confirming that there’s pressure to raise wages.
  • Wage growth has been sluggish since the recession but is finally on the rise.

There’s no two ways about it: Corporate America is under pressure to pay workers more.

That’s the impression that several executives gave during quarterly conference calls with analysts about their earnings.

The talk about higher wages came even before President Donald Trump signed the Tax Cuts and Jobs Act, which put more in the pockets of service workers across industries, from cashiers to cooks.

According to executives, pressure to raise wages came from all sides. Several states raised their minimum wages, necessitating action. In other instances, tight labour markets made it more expensive to hire skilled workers and retain the best talent.

This means that nine years after the financial crisis, the lowest-paid workers may finally start to see their paychecks increase. And the official data backs up these anecdotes: Wages have been rising faster for lower-paid workers. And in January, average hourly earnings rose year-on-year at their fastest pace since 2009.

The comments from executives also illustrate why wage growth has recently taken on more importance for Wall Street and policymakers in Washington.

As people earn more and their demand for goods and services increases, they could drive an increase in inflation. Like wage growth, a pickup in inflation has eluded the US economy since the recession, and it has fallen shy of the Federal Reserve’s 2% target.

Should inflation accelerate, the Fed may raise interest rates to prevent the economy from overheating. The risk here is that a policy misstep could end up hurting the economy.

Here’s just a sampling of what some companies said during fourth-quarter earnings calls (transcripts are via Seeking Alpha):

WalmartCFO Brett Biggs: “We made investment in wages.”

KrogerCEO Rodney McMullen: “Over time, as jobs became very plentiful, that starting wage became more important. So, we’ve meaningfully increased starting wages across the company.”

Abercrombie & Fitch CFO Scott Lipesky: “On the expense side for wage pressure, we have seen pressure in wages across our fleet and in our distribution centres. So we have these wage pressures baked into our 2018 outlook. This has kind of a multiyear trend.”

Burlington Stores CEO Thomas Kingsbury: “We are pleased to announce the following CapEx and incremental OpEx investments in 2018 to drive sales growth, improve our infrastructure, and give back to our associates … Number two, incremental hourly wages of $US30 million on top of three prior years of similar increases.

Dollar Tree CFO Kevin Wampler: “We expect continued pressure on store payroll based on states increasing minimum wages and general average hourly rate increases.”

TargetCFO Cathy Smith: “In 2018 we expect that our EPS from our core business will stabilise. This reflects several profit headwinds, including accelerated depreciation resulting from our remodel program, continued cost pressure from the rapid rollout of our new fulfillment options, ongoing wage investments in the face of a tight labour market across the country and the impact of last year’s price and value investments, which will annualize throughout 2018.”

Ross Stores CEO Barbara Rentler: “As noted in today’s release, we plan to make competitive wage and benefit related investments. These include raising our minimum wage to $US11 an hour, providing one-time bonuses for eligible hourly in-store associates and improving our paid leave programs.”

BojanglesCFO John Jordan: “Company-operated restaurant labour cost as percentage of company-operated restaurant revenues increased to 29.1% in the fourth fiscal quarter of 2017 from 27.1% in the same period last year. We delevered on the declining comparable restaurant sales but also incurred higher direct labour cost and medical cost, partially offset by lower incentive compensation.We expect our restaurant labour cost will continue to increase due to the tight labour market which results in higher wage inflation and employee turnover.

Del Frisco CFO Neil Thomson: “We are expecting on the labour cost line around about 6% to 7% labour inflation because of the location of our restaurants and we expect that to more than offset by the HotSchedules implementation as you’ve seen in the Q4 results that’s already getting traction.”

Foot Locker CEO Richard Johnson: “We will be making additional multimillion dollar investments in our compensation plans in 2018, especially for our system store managers, recognising how important these associates are in connecting with our customers and enhancing their experiences within our banners. And we will continue to make investments in our talents in the years ahead.”

J.C. Penney executive vice president of stores Joe McFarland: “We monitor very closely every individual market, the most competitive markets that we’re in and through the task reduction, through these simplification efforts, we feel very confident in our ability to take and reinvest in the wage in our growth areas.

Sotheby’sCFO Michael Goss: “Our adjusted expenses were higher than last year by 14%, driven primarily by two factors. One, higher incentive compensation after significant reductions in incentive compensation were made in 2016.”

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.