IKEA's U.S. division is raising the minimum wage for thousands of its retail workers, pegging it to the cost of living in each location, instead of its competition.
The 17 per cent average raise, expected to be announced Thursday, is the Swedish ready-to-assemble furniture chain's biggest in 10 years in the U.S.
The pay increase will take effect Jan. 1. It will translate to an average wage of $10.76 an hour, a $1.59 increase from the previous $9.17.
About half of IKEA's 11,000 hourly store workers will get a raise. How much will vary based on the cost of living in each store location.
IKEA, which has cultivated a reputation for fair treatment of its workers, evaluates its benefits plans every year and had always adjusted wages based on its competition. But Rob Olson, IKEA's acting U.S. president, says the latest move shifts its approach.
"Now, we decided to focus less on the competition and more about the co-workers," Olson told The Associated Press in an interview this week. He says he was guided by its vision of "creating a better life" for its workers. That will improve the company's relationship with employees and reduce worker turnover, which he says is already well below the retail industry's average. About 19 per cent of full-time retail workers leave their jobs annually, according to the National Retail Federation.
IKEA's raises come when a push to raise wages for hourly workers has made headlines.
Fast-food workers asking for higher pay in cities have staged protests across the country. Union groups have also held protests at Wal-Mart Stores Inc., the nation's largest private employer. And President Barack Obama is endorsing a bill that would raise the federal minimum wage to $10.10 an hour by 2016.
Many business groups have opposed the measure, saying it would hurt the economy and lead to job losses.
Still, some are making public splashes with across-the-board raises. Gap Inc. said in February that it will set the minimum wage for workers at $9 an hour this year and $10 an hour in 2015. Most retail workers already make more than the federal minimum wage of $7.25 an hour, though not necessarily much more.
Olson emphasized that the pay increase will not lead to higher prices, reduced work hours or job losses. Rather, the raises are being offset by such cost-cutting measures as using national purchase programs for such items as cleaning services or printer paper. In the past, each store would use individual suppliers.
Olson said IKEA is basing its wage increase on the MIT Living Wage Calculator, which takes into consideration housing, food, medical and transportation costs plus annual taxes. IKEA says it's a significant departure from the retail industry standard, which sets wages according to the local employment market.
All 38 U.S. locations as well new locations planned for Merriam, Kansas; Miami; and St. Louis will use the new wage structure. It doesn't affect the remaining 2,615 salaried and hourly employees at five distribution centres, two service centres and a manufacturing plant. Those employees who have hourly jobs are already paid above the local living wage, IKEA said.
IKEA has recently expanded other employee benefits. In the past year, it has introduced an employee loyalty program, which makes contributions to a new retirement fund, and has increased the employer match to workers' 401(k) plans. It also launched a unified bonus program.
Olson said IKEA's wage structure varies by country based on different parameters. IKEA noted that if there's an increase in the federal minimum wage increase, it would welcome that.
Meanwhile, Wal-Mart has remained neutral on whether the federal minimum wage increase should be increased. The nation's largest private employer, with 1.3 million workers in the U.S., has said less than 1 per cent of its workforce is paid minimum wage. It has said its average wage for both full– and part-time hourly workers is nearly $12 an hour.