Walgreens Increasing Hourly Employee Pay By $100 Million Every Year
Many of the largest retailers in the United States have started voluntarily raising the wages of their hourly employees, which historically have the lowest pay rates in the economy. Most of them have either pledged to raise their internal minimum wage, or to use a single large budget to add to the existing wage budget for those employees.
One company that made a similar move in the recent months is Walgreens. They have pledged to add $100 million per year to their hourly employee wage budget. The announcement was made on Wednesday, March 28th, and they included that they will implement the new pay scale this year.
Walgreens is based in Deerfield, and they are one of the largest pharmacies and convenience stores in the United States. In an earnings call that was held on March 28th for Walgreens, the co-chief operating offer for Walgreens Boots Alliance, Alex Gourlay, made the announcement that the new pay would go into effect at some point in 2018.
However, a spokesman for Walgreens named Michael Polzin was unable to offer details about the specific changes to employee pay rates. Walgreens employs more than 235,000 people, but not all of them are hourly. That should equate to a few hundred dollars more per employee per year, which isn't insignificant.
Many other store chains have decided to boost their hourly employee paychecks over the last few months. In January, Walmart announced they were raising employee starting pay for hourly employees to $11 per hour. They announced the move would cost them $300 million.
Target made a similar announcement at the end of 2017. They reached the same $11 per hour minimum pay for new employees, and they pledged that by 2020 their minimum pay for new employees would be $15 per hour.
Another company to pledge an increase to hourly employee pay is CVS Health. They landed on the same minimum $11 per hour for hourly employees as the other major retailers, and they pledged to add more than $425 million every year moving forward for both employee benefits and base pay.
One of the reasons that CVS gave for the move involves the changes to the federal commercial tax code that was put in place by the Trump administration. The new tax law reduced the corporate tax rate from its old rate of 35 percent to a highly competitive 21 percent. This has caused many international brands centered in the United States to boost their investments within the borders.
Some companies, like Walgreens, will implement the new changes before the Trump tax plan goes into effect, but that will make little to no difference for the company in the long run. If anything, the positive publicity and increased employee happiness could benefit the company far more than the cost of the wage increase.
In fact, Walgreens estimates that they will save over $350 million because of these new payment rates in just this year alone, and the new policy will save even more money in the coming years. The company planned to do this long before the tax changes from the government, so the changes are only going to be more effective in light of the alterations to tax law.
One of the reasons that Polzin gave for the pay increase is to make sure Walgreens has a competitive edge in their niche. Since so many other retailers are making similar changes, it wouldn't be possible for Walgreens to remain competitive if they didn't make a similar move.
Walgreens is more than capable of affording the move. The first quarter of the year for the company was quite profitable. In the second quarter, the company achieved earnings of $1.73 per share after adjustment for dilution, which far surpassed expectations from market analysts. It was only estimated that the company would reach earnings of $1.55 per share.
Another way that the company has been financially bolstered in the recent years is by collaborating with pharmacy benefit managers. These managers help insurance companies and pharmacies communicate easily and efficiently, which boosts the drugs sales of the pharmacies.
Rite Aid, one of Walgreen's largest competitors, was recently purchased by Walgreens, which only boosted their sales even more. The tax reform has sparked a trend in rising pay rates across many industries.
The new corporate tax rate is the lowest it has been in many years in the United States, and that has given a lot of freedom to many companies that will suddenly have a surplus in their tax budget that can be used in other areas of their business. While some businesses are using it to pay their employees more, others are using it for other improvements. Some are even bringing earnings that have been kept out of the United States back in exchange for a much smaller repatriation fee.