CEOs Struggle With Whether to Raise Pay for Minimum Wage Employees

Are they doing so out of some dawning sense of social responsibility, as a response to the increasing drumbeat on the left in favor of higher minimum wages, or as an inevitable response to the tightening of the labor marketplace? The answer is: Probably some of all three, to varying degrees.

McDonald’s is the latest company to make such a move, joining earlier high-profile announcements by retailers Walmart, Target and TJX and health insurer Aetna that they would raise their minimum pay. In the case of the fast-food giant, company employees will get a bump of at least a dollar an hour, along with a small amount of paid vacation time and the offer of financial assistance for education along with all other workers in the system. Franchisees, of course, aren’t covered by the company’s move.

New McDonald’s CEO Steve Easterbrook may have felt compelled to make such a move because his company’s brand image has taken grave hits lately over several developments, including becoming a focus by protesters demanding that the chain compensate its lowest-paid employees to the tune of a $15-an-hour “living wage.”

But Aetna CEO Mark Bertolini recently said that he expects a “groundswell” of other minimum-wage increases to be announced by fellow chiefs of major companies in the coming months. Aetna announced in January it would raise wages for its lowest-paid employees to at least $16 an hour.

“I believe there are a number of CEOs that will come out in the next six months with wage increases that will matter,” he said at an event in early April, according to The Wall Street Journal. “Corporations can make the investment in their communities and their employees, and we can improve the middle class as a result.”

While Bertolini conceded that the extra costs of the higher wages seems out of sync at a company where managers are being pressed to cut other costs, he also maintained that the more attractive compensation levels would help reduce Aetna’s turnover and result in more productive employees.

This is the sort of calculus that more CEOs no doubt will be considering in the months ahead, especially if the U.S. economy is able to move past its first-quarter stumble in job creation and regain the vigor it demonstrated in late 2014.

Such moves also could undermine progress by the left toward mandating minimum-wage increases like those adopted last fall in the Bay Area cities of San Francisco and Oakland, as well as Seattle. “Restaurants are already shutting down” under the weight of the new costs, reported Michael Saltsman, research director at the Employment Policies Institute, in a Wall Street Journal op-ed piece.

The logic against imposed higher minimums has even crept into the mind of the famously liberal actor Tim Robbins, who recently opined in the Los Angeles Times that small theaters shouldn’t be forced to pay union rates for Actors’ Equity members who work in their modest productions. “Our congratulations … to Mr. Robbins for recognizing Bastiat’s law of unseen economic consequences,” the Wall Street Journal editorialized.

Will business leaders pay more attention to the warnings of people like Robbins, or heed the case being made by peers such as Aetna’s Bertolini? Much will hinge on which way they lean in the coming months.