GO
Loading...

How feel-good companies are navigating the minimum-wage fray

Getty Images

The national debate over whether to raise minimum wages has stirred interest in where American companies stand on the issue. That curiosity perhaps is most intensely targeted at feel-good companies, which pride themselves on progressive practices. Do those companies match their upbeat branding with living wages?

Whether it's because wages underscore values or boost staff retention and productivity, more big companies are dipping into the wage debate. Farmer-friendly Chipotle Mexican Grill says a hike to $10 an hour could be absorbed. Starbucks, committed to greener stores and ethical sourcing of coffee and tea, says it would support efforts to raise wages, but hasn't taken a stance on any specific proposal. And Gap—which has been stressing its corporate citizenship—said it would set $9 as the minimum hourly rate for U.S. workers, and raise the minimum to $10 next year.

It's tempting to measure larger businesses against their values, given many of them are publicly traded and proclaim their responsible actions in marketing campaigns. Collectively they employ tens of thousands of Americans. And they offer leadership on wages, and the broader flash point of American prosperity.

"Because of their visibility, these larger companies are under more scrutiny about their practices than less visible companies," said Steven Currall, an ethics expert and dean at the University of California Davis Graduate School of Management.

Read MoreWhat the minimum wage fight says about the economy

Chipotle

A scene from “The Scarecrow,” one of Chipotle's animated shorts.
Source: Chipotle
A scene from “The Scarecrow,” one of Chipotle's animated shorts.

Particularly for younger consumers, including millennials, purchasing decisions are about more than cheap prices. Shoppers are buying based on a company's values, which can include domestic manufacturing, environmentalism and ethically sourced raw materials, ranging from cocoa to cotton fibers.

Call it feel-good capitalism. And Mexican food chain Chipotle has been especially effective at crafting its messaging.

Chipotle's animated shorts, which feature a cartoon farmer fighting pushing back against industrialized farming, has millions of YouTube views. And last week, the Denver-based company launched a series of curated original essays that will be printed on take-out bags and cups. Writers will include Toni Morrison and Michael Lewis.

Such marketing may be most effective with millennials, sometimes known as Generation Y, who admire companies with integrity and profits. "They're most in tune among the chains that I cover in terms of reaching Generation Y," said Stephen Anderson, a restaurant analyst for research firm Miller Tabak & Co.

But what about the wages of employees, who run the more than 1,500 Chipotle restaurants?

During an investor call with Wall Street analysts in January, Chipotle co-CEO Monty Moran said average wages are at $9 an hour, and that a move to $10 would have an effect, "but not too significant." That wage range already is higher than $7.25, the current, hourly federal minimum wage. Recent efforts to raise the federal minimum to $10.10 an hour have been stymied.

A Chipotle spokesman declined to offer further wage details beyond the investor call.

Restaurant analyst Anderson said a wage increase to the $10 to $12 level would likely start to have a ripple effect on Chipotle's business. Over time, Chipotle may consider self-service kiosks to offset labor costs, he said.

Other businesses, big and small, which object to wage increases, say higher pay will mean higher prices, and less work for fewer workers.

"When you're talking about a $10 and $15 minimum wage, that has the potential to increase our labor costs 10 to 20 percent," says Don Davey, a representative for Firehouse Subs. The Jacksonville, Florida-based chain, which includes 760 locations in 41 states, operates a foundation to support first responders.

And higher prices and less work drags down the economy and hurts the very people higher wages were designed to lift, some argue.

"Raising the minimum wage will only hurt those it was intended to help and will lead to higher prices for consumers, less sales for franchisees and ultimately lost jobs," Steve Caldeira, president and chief executive of the International Franchise Association told CNBC last week.

Minimum wage increases are opposed by the large industry lobbying groups, including the National Retail Federation and the National Restaurant Association.

Wages and more broadly the income equity debate have no easy answers for small and larger employers.

Last week, Chipotle shareholders voted overwhelmingly to reject the way it compensates senior executives, though the vote was advisory and nonbinding. Chipotle's two co-chief executives each earned more than $24 million in total compensation last year.

Read MoreIn liberal cities, minimum wage puts businesses in a bind

Starbucks

Workers fill orders inside a Starbucks in New York, U.S.
Robert Caplin | Bloomberg | Getty Images
Workers fill orders inside a Starbucks in New York, U.S.

But other big companies are rolling the dice on making conscious consumerism more appealing. And that strategy includes a nod to the minimum wage.

Starbucks commitment to being a responsible company is displayed on its website. The Seattle coffee maker tracks its global responsibility progress in an annual report. Among factors measured in the annual responsibility report include reducing the company's environmental impact and better access to loans for farmers.

And what about wages?

Starbucks, which operates some 20,000 stores, has said it would support efforts to raise the minimum wage. They haven't taken a detailed stance, but the company regularly highlights its benefits for baristas—including health-care and stock benefits. Starbucks also has been a staunch supporter of plans to create more U.S. jobs.

Gap and Wal-Mart

In February, apparel retailer Gap said it would raise hourly pay for American workers, ultimately to support the bottom line. Amid growing competition from foreign companies, including H&M, Zara and Uniqlo (owned by parent Fast Retailing), Gap is working to show consumers and investors it's doing more than selling clothes. Their investment in higher wages is displayed proudly on its website.

Then there's Wal-Mart Stores, which has been buying more "Made in USA" goods and promoting corporate citizenship amid same-store sales pressures. The company last month signed a pact with large food companies to promote an affordable and sustainable food supply. Its 2014 global responsibility report highlights corporate principles including sustainability, volunteerism and a commitment to veterans.

On the minimum wage debate, "we're staying neutral on the issue," said Brooke Buchanan, a spokeswoman for Wal-Mart, America's largest private employer.

Less than one percent of the retailer's staff excluding managers—or about 5,000 workers—make minimum wage. The average hourly pay for part-time and full-time associates combined is around $11.81 an hour, and around $12.83 hourly for full-time associates. "We're not a minimum wage payer," Buchanan said.

Roughly 75 percent of Walmart store managers started as hourly workers, and store managers earn about $150,000 annually. "At Walmart we believe it's not where you start, it's the opportunity of where you can go," she said.

But while big companies may be able to absorb wage shifts, it's a different decision-making process for smaller employers—even if those Main Street businesses were founded on admirable principles.

Small with values

Mitch Cahn is president of Unionwear, an apparel and accessories maker based in Newark, New Jersey.
Source: Unionwear
Mitch Cahn is president of Unionwear, an apparel and accessories maker based in Newark, New Jersey.

Firehouse Subs was founded in 1994 and through its foundation supports public safety organizations. Davey said many of his minimum-wage staff are young students entering the workforce.

Those who want to make the food industry a career work hard and climb the wage ladder. "The free market works," Davey said. The franchise's profit margins range from four percent to 15 percent annually. "At the end of the day, we need to have a business model that makes sense across the board," he said.

Other entrepreneurs disagree.

Most of the 100 employees at apparel and accessories maker Unionwear earn more than $10 an hour. Toss in pension and medical benefits, and "the lowest we pay someone off the street is $14 an hour total," says Mitch Cahn, president of Unionwear, based in Newark, New Jersey.

Cahn has been in business for more than 22 years, with an annual profit margin ranging from 15 percent to 35 percent. Their longevity is more remarkable given they exclusively make "Made in USA" apparel and accessories.

"Manufacturing domestically is about people paying a living wage, and making goods using the same labor and environmental standards that customers benefit from," Cahn said.

Conscious consumerism

Regardless of any company's stance on wages, consumers always can vote with their pocketbook. And maybe that partly explains why more businesses are promoting socially-conscious messaging. How consumers spend their money is shifting.

"Companies that wish to project a progressive image for their brands for being environmentally friendly or supporting organic farming represent an equally important social barometer for pay equity," says Michael Santoro, professor of business ethics at Rutgers University.

"Can brands that cater to conscious consumerism extend their value proposition to help workers earn a living wage?" asks Santoro, who wrote about the widening disconnect between Main Street and Wall Street in his book, "Wall Street Values." He added, "The days of grooving to your iPhone and not caring that a worker manufactured that phone in a substandard factory are over."

Read More The problem with Wall Street greed 5 years after the crash

By CNBC's Heesun Wee. Additional reporting by CNBC's Allison Linn.

Contact US Economy

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More*