Target won't budge on employee pay

Downtown Minneapolis Target
Target in downtown Minneapolis, Jan. 15, 2015.
Jeffrey Thompson | MPR News

Target is not raising the wages of its lowest-paid hourly workers despite similar moves by two main competitors.

Last week, Walmart — the nation's largest retailer — said its lowest-paid workers would see their pay bumped up to at least $9 an hour by April. Their pay will rise to $10 an hour by early next year.

This week the parent company of TJ Maxx and Marshalls said it would do the same.

In a conference call with investors on Wednesday, Target CEO Brian Cornell would not make a similar promise.

"Our goal is to make sure we have the very best team in retail," Cornell said. "And we're going to continue to invest in their development and make sure from a marketplace standpoint we're very competitive with the wages we provide."

Chief Financial Officer John Mulligan would not say how much Target employees are paid but he said all receive more than the minimum wage. Decisions by the retailer's competitors, he said, won't change anything.

"We're all the time assessing the marketplace to determine competitive wages and making adjustments and we feel very confident they we'll be paying the teams appropriately," Mulligan said.

Financial news reports took note of Target's stance in the face of two big competitors hiking wages, and speculation abounds about whether Target will be forced to fall in line.

Dave Brennan, co-director of the Institute for Retailing Excellence at the University of St. Thomas, said a tighter labor market and higher wages at competitors may force Target's hand.

"If you look at companies like Costco as an example — you look at Chipotle, you look at Starbucks, Whole Foods — they pay their people pretty well," Brennan said. "And I think there is going to be an increasing pressure for retailers in particular to increase the minimum wage."

Zeynep Ton, a professor at the MIT Sloan School of Management, cautions companies against treating worker pay as just another expense to be held in check. Low pay, she said, often means unhappy and unmotivated workers, poor customer service — and lousy sales.

"When companies see labor as just a cost to be minimized, what ends up happening is they find themselves in a vicious cycle," she said.

Ton, who has studied Costco, Trader Joe's, QuikTrip and a Spanish grocery chain, found that higher pay and a more engaged workforce resulted in stronger sales figures. Costco, for example, has much tighter profit margins than Target, but its sales and stock performance dwarf Target's.

But the success of those retailers, she said, is not solely the result of greater compensation. They also train their workers well and have highly efficient operations that make the most of employees' time and skills.

Ton said the raises at Walmart are a step in the right direction, and the company will likely get its money's worth.

"A company like Walmart will combine that investment with some smart choices that will enable their employees to be more productive," she said. "And when Walmart does something, oftentimes others tend to follow."