Hire good people and pay them well

Wal*Mart thought it could save money by shifting towards a higher percentage of part time temporary staff, who had to reapply every 180 days. They also increased the number of hours required to qualify for healthcare from 24 to 30. These to me were signs that senior management was lowering its commitment to putting customers first in order to chase short term profits.

The results were obvious, especially in retrospect – poor service resulting in poor sales.  Wal*Mart products were not getting stocked in stores, queues were long and sales suffered. Meanwhile their staff, as part timers, would not get the health care benefits that are so necessary in the USA.

Their competitor Costco paid staff 40% more and their profits lifted by 19% in Q2.

So the recent announcement that Wa*Mart will be moving 35,000 staff to full time status (with health-care benefits) is going to be well received by both staff and,  eventually shareholders.

The lesson is that doing the basics well, something that Wal*Mart used to do, is what makes for great businesses and great returns to shareholders. It also reinforces that shareholders maximise their return by making sure that all stakeholders are winning.

It reminded me that in New Zealand we have our own version of Wal*Mart – The Warehouse. And it also reminded me that the team there received little kudos for the introduction of a higher pay for a higher trained workforce. As investors and shoppers, if not staff, we should all be thanking The Warehouse and demanding more of the same.

Published by Lance Wiggs


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