Inside the Walmart board room when they finally raised wages—and how Wall Street rebelled

On February 6, 2015, Walmart’s board of directors met in San Bruno, California. Doug McMillon, who’d become CEO the year before; Greg Foran, the head of U.S. operations; Chief Financial Officer Charles Holley; and Susan Chambers, the chief human resources officer, were finally ready to recommend an increase in the company’s minimum wage.

But even now—with all of the homework they’d done, with the great sense of urgency that they felt to rejuvenate store operations—McMillon and his team proceeded gingerly. “We were trying to balance everything,” McMillon said, “including earnings growth and the pressures of that.” Dan Bartlett, the company’s executive vice president for corporate affairs, would liken the calculus of attending to both workers’ needs and Wall Street’s expectations to “five-dimensional chess.”

Their proposition: nobody at Walmart should be paid less than $8.25 an hour.

Getting there would move the needle some. Although only a tiny fraction of Walmart workers—about 6,000 of them—earned the national minimum wage of $7.25 an hour, there were many others who didn’t make much more than that. The company’s average starting pay was $7.65, about 8% less than what management had brought to the board.

The 14 directors went over the plan and, for a moment, it looked like $8.25 would be it. The discussion appeared to be wrapping up. “It was almost like it had already peaked,” said Kristin Oliver, who ran Walmart’s HR department in the United States and was staffing the meeting. “It was quiet.” But then Jim Cash, an emeritus professor at Harvard Business School who’d joined the board in 2006, spoke up. The company, he said, should go higher. “Jim was very passionate about it,” said Linda Wolf, the former CEO of the global advertising agency Leo Burnett Worldwide and a Walmart director since 2005.

More than anyone on the board, perhaps, Cash knew just how much every dollar counted for many of those working at Walmart. He grew up in the 1950s in a segregated Black section of Fort Worth, Texas. His mom was a teacher. His dad was a mechanic for the railroad but always did something else, like fixing mufflers, so he could scratch out a living. “He’d come home from the night shift, get some sleep, then begin his second job,” said Cash, who took on his own first job, in a hotel boiler room, when he was 11 years old. “Any time I started to feel like I was working too hard, I’d think about my father.”

Cash, who was 6‑foot‑6, got a basketball scholarship to Texas Christian University, where he was a star player and became a math major. He would eventually earn a PhD in management information systems from Purdue, before joining the faculty at Harvard Business School. In 1985, he became the first Black faculty member at HBS to receive tenure.

By the time a search firm contacted him about possibly being a director at Walmart, Cash was already serving on the boards of other large corporations, including General Electric and Microsoft. He was chary, however, about getting mixed up with Walmart, having read so many articles on how little the retailer seemed to care about its frontline workers (including, he would tell me pointedly, the Los Angeles Times series that I had edited). “I was really quite negative on the company,” he said. Yet rather than just say no, Cash did what professors are disposed to do: research. Back in the Fort Worth area for a visit, he interviewed Walmart workers. A couple of them were relatives who Cash knew would “give me a really honest opinion of what their experiences were.” Others were picked at random from three different Walmarts that Cash went into.

“The first thing that grabbed me was how different what I was hearing from these associates was from the impression that I had,” Cash said. “And that really bothered me because I like to think I have a pretty high threshold for truth and that I don’t get sucked into inappropriate perceptions easily. But I was so wrong, based on what I was hearing, that it really piqued my interest.”

He wasn’t the only one whose assumptions about Walmart had been upended. After joining the board, Cash met Dennis Archer, the former mayor of Detroit, who was a member of the workforce advisory panel that former CEO Lee Scott had assembled years earlier. As he and the others on the committee met alone with hourly employees around the country, the picture they painted didn’t match what Archer was seeing in the media. “I would have thought if Walmart was this bad … we’d have people falling all over themselves: ‘Let me tell you about this, let me tell you about that,’” he said. “That was not there at all. These were very proud Walmart employees.”

The reality was, even back when Walmart was being spoken of in the same breath as Enron and the Triangle Shirtwaist Factory, there were still many workers who were grateful to the company for the opportunities it gave them. Trying to make sense of it all was a bit like parachuting into a big city and asking, “Is this a good place to live?” Well, what neighborhood are you in? Who are you talking to? With more than a million workers and constant turnover, Walmart was always going to be a corporate Rashomon.

As much as Cash came to admire the company, he was well aware that it was far from flawless. By 2015, there was no hiding quarter after quarter of sagging sales. But Cash, who was now the lead independent director, was hopeful that Walmart had hit bottom. “There is a scripture—Romans, chapter five, verses one through five—that you should celebrate in tribulations,” he said. “So I am one of those people who thinks that when things are going really bad … I am being set up for something better in the future.” That’s how Cash now felt about Walmart. “As I saw these challenges develop,” he said, “my experience told me that’s when this company could really step up.”

At Harvard, Cash was one of a group of scholars who had spent years analyzing what was called the “service-profit chain”—a set of relationships between profitability, customer loyalty, and employee satisfaction, retention, and productivity. Now, as he addressed his fellow board members, “it really did lay the foundation,” Cash said. “And candidly, in my view, the starting piece was the context in which our associates work. A lot of companies call it ‘engagement.’ My label is ‘belonging.’ And belonging, to me, is what strongly drives the behaviors that I like to see in a service business because it’s not just that I’m doing a job that I like; it’s that I understand how I’m contributing to the success of this organization.”

Before he was done, Cash made note of one other thing. “There was an expense bucket that just jumped off the financial statements to me as being way out of balance,” he said. “And I framed this in terms of we could pay for this wage increase just by doing a better job of managing that.” The area he had identified was controlling inventory. This can be a big deal because, when levels get too high, stores are forced to sell goods for less than they’d like as they try to move merchandise. “You’re just not selling through at full price,” McMillon said.

But better-compensated employees are less likely to quit, and the longer they stay on, the more they learn to do their jobs well, including managing inventory. Shrinkage—losses from shoplifting but also from employees mishandling items or, less innocently, stealing things themselves—goes down.

Cash had won the room. The $8.25 no longer seemed adequate. “Given everything that had been presented, it made more sense to do something more significant,” Linda Wolf said.

Steve Reinemund, the former CEO of PepsiCo and dean of Wake Forest University’s School of Business, was aligned with Cash from the start. In addition to Walmart’s floundering sales performance, he was also conscious of how much of the nation—starting with the president— had homed in on low wages as a hot button. “You take the operational issues, the profitability issues, and the social noise, and you put it all together,” said Reinemund, a Walmart director since 2010.

The three members of the Walton family who were on the board of directors—Rob Walton, the chairman; Jim Walton; and Greg Penner, Rob Walton’s son‑in‑law—lined up in the same direction. McMillon recalled that before he got on the plane to go back to Walmart’s headquarters in Bentonville, Arkansas, Rob Walton instructed him to “stretch yourself to see how much more we should do and how fast.” They’d meet again, by telephone, a week later. 

McMillon and his team were suddenly scrambling. “We didn’t have that much time to figure out” the right number, he said.

On February 13, the board met again on a conference call to seal everything. Six days later, the news was rolled out: Walmart would increase its minimum wage to $9 an hour by April and $10 by early 2016. It would also elevate the compensation range for each position within its stores, resulting in additional raises. All told, half a million workers would see their pay go up in 2015. They’d get a raise again the next year, along with more than half a million others.

It all felt momentous—and it was. Although Walmart periodically revised compensation in different locations to remain competitive in the retail market and comply with city and state minimum wage laws, it had never in its 53‑year history implemented this kind of across-the- board increase. Doing so now, said Bartlett, was “strategically important—important for the business—but we also felt it was important from the standpoint of putting a stake in the ground and saying, ‘This is a pivot for this company.’”

Newly hired employees would be brought in at $9 an hour and upon completion of a training program called Pathways earn $10. The company would also give frontline employees “more control over and ownership of their schedules,” including the choice to “work the same hours each week and have a more predictable … paycheck.” And, finally, Walmart said its foundation would donate $100 million over the next five years to support nonprofits helping retail workers advance their careers.

McMillon shared the news with his workforce by video, sitting at his desk wearing a dark sweater and a big smile. He would later call it “the best day of my career.”

If only Wall Street had concurred.

When Walmart announced that it was increasing its workers’ pay, investors were not enthused. The company’s stock price fell about 3% for the day. As it turned out, however, those with misgivings about the added labor costs that the retailer was taking on only knew the half of it—or less than half of it.

In October, the Walmart executive team went to the New York Stock Exchange for their annual briefing with financial analysts. Back in February, the company had said that its pay raise for 2015 would cost about $1 billion in total. What hadn’t been conveyed, somehow, was that the second year of the wage increase was going to cost Walmart another $1.5 billion. “Maybe we didn’t give you enough information to do the math on the $10 jump,” McMillon conceded during the question-and-answer session. The clarification hit the Street like a thunderbolt: for the first time, investors comprehended that, alongside other hefty expenditures Walmart was making in e‑commerce, the higher wages would drag down the company’s earnings by 6% to 12% the next year. Analysts had been forecasting a 4% rise in profits. It would take at least two years to see earnings pick back up.

Greg Foran, the U.S. operations chief, tried to assure everyone that early returns on Walmart’s investments in its workers were already being detected. In February, he said, only 16% of Walmart’s 4,500-plus stores were meeting their internal metrics for providing clean, fast, and friendly service. Now, 67% were. “I want to be clear,” Foran said. “We’ve still got lots of room to improve, and we have already put another line in the sand, and we have raised the bar higher for where we now expect them to get to.”

But these “green shoots,” as Foran called them, were primed to bloom. “As I get around the stores,” he said, “I am seeing associates taking more ownership of their jobs … There’s a sense of momentum starting to occur within the business, a changing attitude across those on the front lines serving our customers.”

Walmart was mindful that shareholders were looking for more than soothing words. That day, the company also informed them that the board had authorized a $20 billion stock repurchase program.

Nonetheless, as soon as Charles Holley, the chief financial officer, put up a slide showing the projected downturn in profits, investors began to clobber the stock—and they didn’t stop.

As the closing bell sounded, Walmart shares were off a full 10%, the largest single-day decline that the company had endured in 25 years. Twenty billion dollars in market value had gone poof just like that.

As McMillon got in the car to leave for the airport, Dan Bartlett was waiting for him, his cell phone glued to his ear. Jim Cramer, the clamorous host of Mad Money, the CNBC show for investors, was screaming at him. Walmart, he said, should have been more forthcoming about its earnings before the analysts’ meeting.

McMillon took the phone and tried to assuage Cramer, but it was no use. As he hung up, he told the driver to forget the airport; they were diverting to CNBC’s studio in New Jersey so he could go on the air and try to explain himself.

“Walmart got taken to the woodshed today,” Cramer told viewers. The retailer’s earnings guidance was “so negative that even the announcement of a humongous $20 billion buyback couldn’t give the stock any traction.” After a little more of a prologue, Cramer invited McMillon to sit next to him and give “the other side of the story.”

For the next nine minutes, with Cramer asking tough questions, McMillon gamely walked him through the whys and wherefores of what the company was doing, including the pay increase. “The real issue is,” he said, “are we doing the right things to position Walmart for the future? Are we investing in the business to strengthen it?”

For any frontline Walmart employees who happened to be watching Mad Money, the brouhaha must have seemed bizarre. Tens of billions of dollars in stock value had evaporated, and mostly because wages had been raised to $10 an hour. “Ten dollars is pocket change,” said Sanders Mosley, a Walmart worker in Los Angeles. When all was said and done, the average fulltime hourly employee at the company was still going to be making less than $26,000 a year.

The uproar said a lot about Walmart. It said a lot about Wall Street. It said even more, however, about America.

Adapted from Still Broke: Walmart’s Remarkable Transformation and the Limits of Socially Conscious Capitalism, by Rick Wartzman, published by PublicAffairs in November 2022. Copyright © 2022 by Rick Wartzman.