Wal-Mart To Elder Employees: Drop Out

from "Wal-Mart Memo Suggests Ways to Cut Employee Benefit Costs"
By STEVEN GREENHOUSEand MICHAEL BARBARO New York Times [excerpts; emphasis added]

An internal memo sent to Wal-Mart's board of directors proposes numerous ways to hold down spending on health care and other benefits while seeking to minimize damage to the retailer's reputation. Among the recommendations are hiring more part-time workers and discouraging unhealthy people from working at Wal-Mart.

In the memorandum, M. Susan Chambers, Wal-Mart's executive vice president for benefits, also recommends reducing 401(k) contributions and wooing younger, and presumably healthier, workers by offering education benefits. The memo voices concern that workers with seven years' seniority earn more than workers with one year's seniority, but are no more productive.

To discourage unhealthy job applicants, Ms. Chambers suggests that Wal-Mart arrange for "all jobs to include some physical activity (e.g., all cashiers do some cart-gathering)."

The memo acknowledged that Wal-Mart, the world's largest retailer, had to walk a fine line in restraining benefit costs because critics had attacked it for being stingy on wages and health coverage. Ms. Chambers acknowledged that 46 percent of the children of Wal-Mart's 1.33 million United States employees were uninsured or on Medicaid.

Wal-Mart executives said the memo was part of an effort to rein in benefit costs, which to Wall Street's dismay have soared by 15 percent a year on average since 2002. Like much of corporate America, Wal-Mart has been squeezed by soaring health costs. The proposed plan, if approved, would save the company more than $1 billion a year by 2011.

Acknowledging that Wal-Mart has image problems, Ms. Chambers wrote: "Wal-Mart's critics can easily exploit some aspects of our benefits offering to make their case; in other words, our critics are correct in some of their observations. Specifically, our coverage is expensive for low-income families, and Wal-Mart has a significant percentage of associates and their children on public assistance."

The memo, prepared with the help of McKinsey & Company, said the board was to consider the recommendations in November. But the memo said that three top Wal-Mart officials - its chief financial officer, its top human relations executive and its executive vice president for legal and corporate affairs - had "received the recommendations enthusiastically."

Ms. Chambers's memo voiced concern that workers were staying with the company longer, pushing up wage costs, although she stopped short of calling for efforts to push out more senior workers.

The memo noted that Wal-Mart workers "are getting sicker than the national population, particularly in obesity-related diseases," including diabetes and coronary artery disease. The memo said Wal-Mart workers tended to overuse emergency rooms and underuse prescriptions and doctor visits, perhaps from previous experience with Medicaid.

"It will be far easier to attract and retain a healthier work force than it will be to change behavior in an existing one," the memo said. "These moves would also dissuade unhealthy people from coming to work at Wal-Mart."

Ron Pollack, executive director of Families U.S.A., a health care consumer-advocacy group, criticized the memo for recommending that more workers move into health plans with high deductibles. "Their people are paying a very substantial portion of their earnings out of pocket for health care," he said. "These plans will cause these workers and their families to defer or refrain from getting needed care."

The memo noted that 38 percent of Wal-Mart workers spent more than one-sixth of their Wal-Mart income on health care last year.