By Sarah Nassauer

Bentonville, Ark. -- A decade ago, the largest private employer in the U.S., Walmart, increased its starting wage to $9 an hour. Raising the salaries of nearly half of its more than a million U.S. hourly workers made it the biggest pay raise in history. Investors reacted by sending Walmart shares down 10%, destroying $21.5 billion in market value in hours.

This fall, Walmart's experience will be published as a Harvard Business School case study- -- as a success. Hundreds of executives from Blackstone, Bank of America and other firms traveled to Bentonville, Ark., recently to learn about Walmart's future workforce management and hear the story of the 2015 wage increase from Walmart's chief executive. The move, he says, launched its current sales tear and online advance.

When Walmart decided to raise pay for the hourly workers in its stores and warehouses, who now number 1.5 million, it wasn't trying to be benevolent. Walmart was in the crosshairs of labor activists. Turnover was high, many workers were miserable and shopping at Walmart was often a bad customer experience.

On top of all that, the world's largest retailer was facing a dire business situation: it had grown so big that its own executives doubted that it could keep growing, and it faced a rival who wouldn't stop growing, Amazon.

Because supercenters blanketed much of America, many Walmart executives had been asking, ' "are we too big to grow?," said Chief Executive Doug McMillon in an interview, looking back on discussions he had before taking the top job in 2014. "Some people developed a feeling that it was just too hard,' he said. As a result, the company had been focusing on improving profits by keeping down costs -- including wages -- while sales stagnated.

But as McMillon started his new job and talked to workers he heard that they needed higher wages, steady schedules, less inventory clutter in backrooms, consistent low prices and more middle managers in the stores, he said.

He crafted a plan to raise wages. He brought in a new crop of Walmart leaders including new U.S. chief executive and chief operating officers. Their proposal would reduce employee turnover, which would improve operations in the stores and warehouses. They could invest in more training to get workers to stick around with promotions. Stores would be more organized . Sales would increase, and Walmart would be better positioned for e-commerce, the argument went. The board approved -- and said they needed to move faster than proposed.

After Walmart announced in February 2015 that it would raise wages above the then-federal minimum wage of $7.25 an hour, other retailers quickly followed including Target and TJX, owner of TJ Maxx. A week later, President Obama called to congratulate McMillon from Air Force One.

That fall, at an investor meeting at the New York Stock Exchange, then-Chief Financial Officer Charles Holley clicked through his slide presentation for analysts and quantified the change. It would be a $2.7 billion cost over two years, plus more later to lower prices, improve stores and grow online. Earnings per share would drop by 6% to 12% the following year due to the investments. As the slides lingered on the screen, Walmart shares began to tumble.

"You clean up your house before you invite people over," McMillon told the room to explain that he planned to focus on improving the efficiency and appearance of Walmart stores, and then on lowering prices to attract more shoppers.

Walmart shares continued their free fall, and executives made an unplanned exit from the stage to regroup before returning to take questions.

As they headed to the airport to take the corporate plane back to Bentonville, CNBC host Jim Cramer called, angry that McMillon hadn't shared the news earlier in the day during a more routine investor day interview. They turned the car around to do a last-minute segment on CNBC "to try and put a floor on what was happening with the share price that day," said McMillon.

Walmart shares more than doubled over the past five years. Its U.S. sales have grown each year since 2015 and global sales hit $681 billion last year, helping it maintain its spot as the country's largest retailer by revenue.

Hubert Joly, a senior lecturer at Harvard Business School and a former chief executive of electronics retailer Best Buy, studies the role of front-line workers in business success. He liked that the market initially hated a plan that would turn into the foundation for Walmart's biggest strategy shift and recent success.

Last summer he approached Walmart executives to see if they would talk to him for a Harvard Business School case study and they agreed.

Joly hopes students use the case he authored with two other Harvard faculty to better understand the return on investments in workers. "My goal is to encourage more business leaders to have the courage, but also the tools, to be able to make that decision," he said.

Last month, Walmart hosted a workforce-planning conference in its shiny new Bentonville headquarters for hundreds of human-resource executives from across the country. Joly and McMillon presented the Harvard findings. "The big number today and back then the even bigger number was the Walmart U.S. sales," said McMillon. "You have to get that right so you have the oxygen and bandwidth to go do the rest."

Walmart didn't make a big jump in pay all at once and it didn't try to be a leader. It moved from the bottom rung of hourly pay to just above the middle compared with competitors. Average hourly pay for U.S. Walmart workers has risen from around $12 an hour in 2015 to over $18.25 an hour as of July for its 1.5 million U.S. hourly employees. It has also added other benefits such as parental leave, more job training and free college and technical education. Walmart has improved its hourly staff retention rate by over 10% since 2015, the company said.

Stores needed stability and better-organized inventory to work as e-commerce hubs, said Greg Foran, CEO of Walmart U.S. from 2014 to 2019. "We were paying one of the lowest rates in retail and while that wasn't the only reason for significant turnover, it was a big one," he said in an interview.

Before 2015 Walmart executives were tasked with a different mission, said Bill Simon, Walmart U.S. chief executive from 2010 to 2014. They were asked to deliver cash to grow digitally to compete with Amazon while keeping prices low, he said in an interview. "Every meeting I was ever in was about how do you provide more to customers for less."

The structure of top executives' bonuses reflected this. Through 2014, cash bonuses were based primarily on operating profit performance, not sales growth. Since 2015 cash bonuses have been based on both.

Walmart kept raising wages, but not as fast as some competitors. In 2018 Walmart said it would pay workers at least $11 per hour and would offer full-time store workers the same paid family leave as corporate employees for the first time. The labor market tightened and by the following year Amazon and Costco said their minimum wage would be $15. Walmart built out a network of hundreds of regional academies that prepare workers for promotions.

Rissa Pittman, then a store manager in Ponca City, Okla., said it was easier to staff her store after 2015 as wages improved and it became easier to train workers for promotions. "I could really emphasize that there's more to Walmart," said Pittman, who started as a cashier in 2003 and is now vice president of Walmart's Pacific Northwest region overseeing 30,000 workers.

Today, the company is adding automation to its warehouses that will cut the number of workers inside, and executives say artificial intelligence will remake its labor force in the coming years. Walmart expects its 2.1 million global workforce will stay steady over the next three years even as revenue grows. To manage costs, it's also shrunk starting wages so more people come into stores at $14.

Perks such as family leave benefits, bonuses and a clear route to a promotion keep workers engaged and around long term, the company's ultimate goal, said McMillon. "Hourly wage matters, and we want to be a little north of average on that number," he said. "It's a system. It's not one metric."

Write to Sarah Nassauer at Sarah.Nassauer@wsj.com

(END) Dow Jones Newswires

October 17, 2025 05:30 ET (09:30 GMT)

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