Why can’t big companies pay workers more even when they can afford it?
So a major U.S. retail chain generated around $20.5 billion in revenue in 2024. It employs roughly 36,000 people across its stores, warehouses, and corporate offices.
Average annual pay for employees ranges widely. Part time workers might make $25-30k, full-time store associates $40-45k and managers $70-110k.
Estimating GENEROUSLY, the company likely spends about $3-4 billion per year on total wages. That leaves $16-17 billion for everything else (like cost of goods sold, rent, logistics, marketing etc)
In 2024, this company reported a net income of about $600 million profit after everything is paid. After learning this what I’m trying to understand is what would it cost to give every employee a $2/hour raise? I mean 36,000 employees x $2 times 40 hours/week x 52 weeks/year = ~$150 million/year (Even less if not all employees are full-time, which they aren't.)"
So a $2/hour raise would cost roughly 25% of the company's net income, That's not nothing but it's also not catastrophic considering how much money they still made.
The company would still be profitable. It would still be growing. And thousands of its workers would see a meaningful improvement in their financial stability. So why doesn't it happen?
I’m not too familiar on how investors and shareholders work all I know is from what I’ve “learned” that’s part of a reason why these companies care so much about making as much money as possible and I get that even a modest reduction in profit (say from $600M to $450M) can be seen as a negative. Share prices might drop.
But the way I’m taking that is even if the company can afford to pay more the incentive is to prioritize protecting margins and making shareholders happy over improving employee pay and overall quality of life???
That's the part I'm trying to wrap my head around. How the system is set up so that paying workers a bit more even when it's clearly affordable is treated as a threat to the business rather than a positive in its workers.
I would imagine the general public wouldn’t bat an eye if they knew a company they shopped at was paying its workers somewhat better all while the company is still thriving with how much money it makes net per year. Who cares about the investors? Unless I’m missing something.
I know it was long so If you read this far I appreciate it. I’m really not familiar with economics or how this works so forgive me if I sound naive, that’s why I’m asking. All I know is I’m trying to figure out who and why we are being screwed over with pay.
Jobadvisor
That's an insightful question that gets to the heart of corporate economics and the pressures companies face. The primary reasons a profitable company might not raise wages, even when it seems affordable, revolve around shareholder expectations, competitive pressures, and the perceived long-term value of the business. You're not naive at all; your intuition about the incentives is correct.
Shareholder Primacy
The core of the issue you've identified is the concept of shareholder primacy, which is the idea that a company's primary responsibility is to maximize profits and returns for its shareholders.
Valuation, not just profit: Shareholders and investors don't just care about the company's annual profit; they care about its valuation—its total value on the stock market. This valuation is often based on future growth projections, not just current earnings. A company that reports a lower profit, even a $150 million reduction from $600 million to $450 million, can be seen as having a less promising future.
The domino effect: A drop in share price isn't just a minor inconvenience; it's a major event. It can make it harder for the company to raise capital in the future, decrease the value of stock options for executives and employees, and even make the company a target for a hostile takeover.
The fear of precedent: If a company gives a raise that significantly cuts into its profit margin, it sets a precedent. Investors might worry that the company will do this again in the future, eroding their long-term returns. This can make them sell off their shares, further driving down the stock price.
The Nature of Competition
Even for a massive company, the pressure from competitors is relentless. The retail market is highly competitive, and any increase in operating costs can put a company at a disadvantage.
Cost of goods: If one company raises its wages, and its competitors don't, the company with the higher wages will likely have to raise prices on its goods or accept lower profits. Both of these outcomes can lead to a loss of market share to cheaper competitors.
A "race to the bottom": In many industries, especially retail and hospitality, there's a constant pressure to keep labor costs low to offer the most competitive prices. This creates a system where no single company wants to be the first to break ranks and raise wages significantly, for fear of losing its competitive edge.
The "Who Cares About Investors?" Dilemma
You've hit on the central ethical and economic conflict. The general public might support a company that pays its workers well, but the current financial system is structured to prioritize the interests of those who own the company—the shareholders.
Legal framework: In the U.S., corporate law historically and legally has been interpreted to prioritize shareholder interests. While this is changing with the rise of ESG (Environmental, Social, and Governance) investing, it's still the dominant model.
Institutional investors: The majority of shares aren't owned by average people; they're owned by large institutional investors like pension funds, hedge funds, and mutual funds. These institutions have a legal and financial duty to their own clients (who are the real owners) to seek the highest possible return on their investments. If a company's leadership chooses to prioritize worker pay over shareholder returns, they could be seen as failing in their duty and potentially face legal action or removal by the board.
In short, while a company might be able to afford a raise, the system is designed to penalize them for it. The immediate financial hit, the risk to their stock price, and the pressure from a financial system that prioritizes shareholder returns over all else make it a move most companies are unwilling to make without significant external pressure. The "why" is rooted in the structure of modern capitalism itself.