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How distribution center employers are addressing rising wages

By Marc Roloson , Melanie Sequeira and Megan Boyce | November 29, 2021

Even before the COVID-19 pandemic, the demand for distribution center and warehouse talent was growing. COVID-19 accelerated this trend, causing wages to spike further and faster.
Compensation Strategy & Design|Talent|Total Rewards
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About the 2021 Distribution Center Compensation Survey

Survey findings were collected from 45 employers with a total of 3.8 million employees and a median revenue size of $4.5 billion. Around half (51%) of these employers were retail (non-essential) and another quarter (27%) were retail (essential). The balance represented other industries with hourly distribution center workers (e.g. wholesalers, and logistics organizations).

Pay for hourly warehouse workers is going up fast. While many factors are at play, the overall trend represents a mismatch between supply and demand in the labor market.

Several pre-pandemic trends were already driving wages up, including the rise of e-commerce, evolving state and city minimum wages, and large retailers announcing above-market enterprise-wide minimum wages. However, COVID-19 accelerated pressure on the labor market by increasing the demand for online fulfillment, while reducing the supply of talent as many workers either chose to or were forced by circumstances to stay home.

Willis Towers Watson conducted multiple surveys throughout 2021 that shed light on how distribution centers are responding to this challenge.

Our recent Talent Attraction and Retention Survey found that compared with 2020, three times as many organizations are having difficulty attracting employees, and four times as many are having difficulties retaining employees. Two-thirds of organizations expect to have difficulty attracting and retaining employees in 2022 as well. Employers are especially feeling this circumstance in production, warehouse and distribution positions. Many employers cite the reason as individuals postponing a return to work, while others are finding that wage expectations for this population are higher than what employers are willing to pay.

Our 2021 Distribution Center Compensation Survey, available from your local Willis Towers Watson consultant, sheds further light on how organizations are responding. Some believe this is a short-term crunch and are taking temporary actions to attract workers (e.g. implementing sign-on and retention awards). Others are seeing a more fundamental shift in the market that requires a more significant investment in wages to compete. Key findings include:

Increasing starting wages: Many retailers and warehouse operators are making their wages more competitive. While start rates commonly increase 2% to 3% per year, our recent distribution center survey found the median increase over the past year was over 6%. Many of these organizations are making additional investments to stay competitive in the market so they can fully staff their buildings.

Compression adjustments: Of course, when start rates increase, there is a need to address pay for tenured employees as well. Most organizations are making so-called “compression adjustments” based on worker tenure and position in range. However, strategies for making these adjustments vary widely. In most of our client conversations, these compression adjustments tend to be limited to those employees with a defined amount of tenure (e.g. one year or more) and those that are low within their pay range (e.g. lowest third).

Variable pay: Other critical components to distribution center pay, including productivity-based bonuses and shift differentials, have remained in place throughout the pandemic and show no sign of waning. The vast majority of surveyed organizations use some form of productivity-based incentive down to their hourly worker – most commonly tied to engineered standards. Almost nine out of 10 employers (88%) use shift differentials, typically for weeknight and weekend shifts, ranging from 50 cents to $2/hr. extra.

Temporary rewards: Distribution center and warehouse operators are also turning to temporary reward programs to attract and retain talent. Almost three-fourths (73%) of retailers reported referral programs for full-time distribution center staff. These awards typically range in value from $300 to $1,000, vesting over multiple months.

A notable minority of retailers (20% to 30%) have started using sign-on and retention awards for their distribution center populations as well. These awards commonly range from $500 to $1,000, vesting over multiple months. We expect more retailers to adopt these programs as many large organizations advertise lucrative sign-on awards.

Concluding thoughts:

The labor market for hourly workers has shifted dramatically since the beginning of the pandemic. While many of these pain points were building prior to COVID-19, they are reaching a fevered pitch. Retailers, restaurants and wholesalers need to act to successfully recruit, retain and engage these workers. Given continued cost pressures facing the industry, this presents a challenge, and one that often requires a customized approach to the facts and circumstances to each organization.

Authors

Director, Executive Compensation Team (New York)
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Associate, Rewards
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Associate, Executive Compensation Team (New York)
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