On October 2, Amazon unilaterally announced that all its US-based employees – 250,000 full-time and part-time, 100,000 seasonal and temporary agency staff will earn a minimum wage of $15 an hour effective November. This will also apply to workers at its many subsidiaries, including Whole foods, Audible.com and Zappos.com. As reported by David Meyer in his Fortune article, in 2017 Amazon’s median pay was approximately $14 an hour, while Walmart’s minimum wage is $11 an hour and Target’s aim of $15 an hour by 2020.
Further, as the second-largest private employer in the US, Amazon is “encouraging” large companies to follow suit and is lobbying the federal government to increase the federally-mandated minimum wage of $7.25 an hour set nine years ago.
Many, including David Meyer at Fortune, have observed this may be in response to political pressure Amazon CEO, Jeff Bezos was facing as the world’s richest man while dealing with “The Stop Bad Employers by Zeroing Out Subsidies – Stop BEZOS —Act” introduced by Senator Bernie Sanders. The proposed legislation would require companies that don’t pay a living wage reimburse the tax authorities for federal benefits paid out to their low-wage workers. Several other retailers including Walmart and McDonald’s have faced similar calls but have yet to respond.
Others, including Neil Saunders in his Chain Store Age commentary, suggests Amazon’s unilateral move was an economic and strategic imperative as Amazon’s growth engine is reliant on a robust workforce in a tight labor market, especially during the holiday season. Amazon will better able to tolerate the impact on its profitability, through cost-savings.
This view is supported by Prof. Zeynep Ton at MIT and author of “The Good Jobs Strategy: How the Smartest Companies Invest in Employees to Lower Costs and Boost Profits.” In his Fortune Leadership Forum article, he argues that even in low-cost retail, the logical trade-off between low prices and good pay is false. Studies of four retail chains Costco, Trader Joe’s, QuikTrip, and Spain’s Mercadona, offer better pay and benefits to their employees compared to their competitors. They are able to keep prices low and deliver excellent financial returns to their investors through higher labor productivity, great customer service, innovative practices, and healthy growth. They consider workforce, including front-line employees to be a strategic asset in a complex environment, as an imperative for long-term competitive advantage.
Amazon did a big thing badly.
Many long-time employees were negatively impacted by these changes. It was not just a raise in the base wage, it was cutting incentives to pay for the difference. Amazon is actually paying out less money to its employees affected by this change.
So they effectively lower wages of employees at a time when retention is most important. Amazon can afford to maintain its incentive structure while also raising wages.
It was a short-sighted cost-cutting measure made to look like a pay increase. It will backfire on them and is already doing so in the present.