Could Walmart double the pay of all retail workers and mimic Ford 100 years later? On Jan 5, 1914, almost 100 years ago, Henry Ford called reporters to his huge auto plant in Highland Park, Michigan to announce that he was doubling the minimum pay for his factory workers from $2.50 per day for an eight-hour workday to $5.00 per day. When the word got out, thousands of job seekers gathered outside the Ford employment office and braved the freezing cold in hopes of getting a good paying job. Imagine if Walmart did the same on Jan 5, 2014, exactly 100 years later?
What prompted Henry Ford to make such a drastic generous change? Was it business related? Did it have something to do with the competition? Did he just feel like being nice? Maybe he had high turn-over and could not keep workers? The answer is a combination of things. This was a day an age where there was a distinct difference between skilled and unskilled labor. Skilled labor or craftsmanship usually resulted in something of a higher value because it required a special skill to produce. Unskilled labor was simply that – unskilled. It required no special skills or training and was usually part of labor intensive process that required many people to create something of relative low value like picking cotton to make clothes. Well, along with many other things in society, the automobile changed all that. Mostly unskilled repetitious work was required on the assembly like to make the high value high profit margin cars, but the work was monotonous and boring and resulted in a high turn-over (lots of people quit.) Henry Ford had to constantly keep hiring people and although not much required, retrain workers. Did this turnover really affect his profit margin? Not really. He was making plenty of money and the worker turnover was more of an unnecessary nuisance. Additionally, Ford was simply beside himself in disbelief and happiness over how much money he was making. He had never dreamed making cars would bring him so much money, wealth and power. In 1913, Ford Motor Company’s net income was $27 million, and its seven stockholders split $11.2 million in dividends. That’s like billions today. Ford firmly believed the better pay would decrease the turn-over and that his important workers producing his cars and generating his wealth should share more of the wealth.
His critics, mostly selfish greedy people worried they would have to pay their workers more and make less, tried to argue that this would cause inflation and the price of everything to go up, but that simply did not happen because Ford did not increase the price of the car just because his labor cost was now double; he and the other shareholders just made less money! When inflation and the great depression hit, most experts agree, it had nothing to do with Ford doubling his worker’s pay. By doubling his factory workers’ pay; Henry Ford solved the turn-over problem, made his employees the richest factory workers in the country, and became kind of a folk hero. His profits continued to increase as his own workers could afford the cars they were producing and thousands of Americans bought Ford cars out of appreciation for his good will and knowing that the happy employees in his auto-plants were making quality cars.
Now fast forward 100 years later and there is a very similar company with a very similar situation. Both were started by great, decent, compassionate men of vision: Henry Ford and Sam Walton. Sam Walton opened his first Walmart store in Arkansas in 1962 with the visionary leadership of helping customers and communities save money and live better lives.
As Walmart grew to the worldwide retail giant it is today, Sam Walton became incredibly wealthy, but he still drove his old pick-up truck until he died in 1992 at the age of 74. Since his death, the company has become taken over by sometimes ruthless corporate MBA types who might have lost sight of the second part of Sam’s original vision for the company; the part of helping people in communities live better lives. They are helping communities save money with inexpensive products but are they helping people live better lives at $10 – 15 per hour or a measly $400 – $600 per week? $500 per week is only $26,000 per year – basically poverty level in the United States – no matter where you live. For the past three years, Walmart has had approximately $16 billion in net income and two million employees.
Now, we all realize retail products don’t have the same profit margin and mark-up as Ford’s cars did 100 years ago, but Walmart could double the pay for every retail associate in every store world-wide, keeping all other management salaries the same, and still make billions. If they increased every single retail employee’s pay by 25%, their employee expense would increase by about $10 billion and they would still be left with $6 billion net income. Isn’t that enough? Sam Walton would probably think so. Instead of an employee making $500 per week or about $26,000 a year, they would make 25% more or about $31,000 a year; an extra $5000 per year or about $400 a month. An extra $400 a month could go a long way. It could pay for the electric bill, cell bill or car insurance; and maybe there would even some money left over to buy something from Walmart! Walmart would get so much goodwill from increasing their employee pay without increasing prices that their total sales would increase and they would recover much of the increased pay expense with more total sales revenue. Any decrease in dividends would be recovered when the stock price goes up when the gross revenue goes up from increased total sales. This is a “win” situation for everyone! This will not cause inflation because Walmart is not going to raise prices to maintain net income; they are just going to make less net income.
When the local retail people and support people make more money, people in these communities can buy more Walmart products and the company would be closer to fulfilling Sam Walton’s original vision of helping communities save money with inexpensive products and live better lives by having more money.
The sad part of all this is that a regular guy has to be the one to figure it out and make the case for Walmart to do the right thing. Please, do not believe one word of any fancy schmancy high powered MBA nonsense that some greedy executives at Walmart might say. It’s not complicated and not hard. They can and should do it – just like Henry Ford did. Walmart is a 50 year old company and Ford is over 100 years old. The increased pay did not cause Ford’s demise. In fact, it might have helped them become the company they are today – still strong after 100 years. The same will hold true for Walmart. They should just share the wealth, have happy employees who can buy more of the stuff they’re selling, and make a little less money – exactly like Henry Ford and his shareholders did 100 years ago.
When they do this, and make their own big announcement just before black Friday that they intend to make a very significant employee pay increase effective Jan 5, 2014 (exactly 100 years after Ford,) Sam and Henry will be up there in heaven together looking down on us with big smiles on their faces and happiness in their hearts.
An Editorial By: Jake Holder