Wal-Mart Seeks Ways to Cut Benefit Spending

By The Salt Lake Tribune

Oct. 27–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 were 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 dismay that workers with seven years’ seniority earn considerably more than workers with one year’s seniority, but are no more productive.

To discourage unhealthy job applicants, Chambers suggests that Wal-Mart design “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 have attacked it for being stingy on wages and health coverage. Chambers acknowledged that 46 percent of the children of Wal-Mart’s 1.33 million U.S. employees are 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 and is looking for ways to reduce those costs. The proposed plan, if approved, would save the company more than $1 billion a year by 2011.

In an interview, Chambers said she was focusing not on cutting costs, but on serving employees better by giving them more choices on their benefits.

“We are investing in our benefits that will take even better care of our associates,” she said. “Our benefit plan is known today as being generous.” Chambers also said that she made her recommendations after surveying employees about how they felt about the benefits plan. “This is not about cutting,” she said. “This is about redirecting savings to another part of their benefit plans.” One proposal would reduce the amount of time, from two years to one, that part-time employees would have to wait before qualifying for health insurance. Another would put health clinics in stores, in part to reduce expensive employee visits to emergency rooms. Wal-Mart’s benefit costs jumped to $4.2 billion last year, from $2.8 billion three years earlier, causing concern within the company because benefits represented an increasing share of sales. Last year, Wal-Mart earned $10.5 billion on sales of $285 billion.

A draft memo to Wal-Mart’s board was obtained from Wal-Mart Watch, a nonprofit group allied with labor unions that asserts that Wal-Mart’s pay and benefits are too low. Tracy Sefl, a spokeswoman for Wal-Mart Watch, said someone had anonymously mailed the document to her group last month. When asked about the memo, Wal-Mart officials made available the updated copy that actually went to the board.

Under fire because less than 45 percent of its workers receive company health insurance, Wal-Mart announced a new “Value” plan on Monday that seeks to increase participation by allowing some employees to pay $11 a month in premiums. Some health experts praised the plan for making coverage more affordable, but others criticized it, noting that full-time Wal-Mart employees, who earn on average around $17,500 a year, could face out-of-pocket expenses of $2,500 a year or more.

Eager to burnish Wal-Mart’s image as it faces opposition in trying to expand into New York, Chicago and Los Angeles, Wal-Mart’s chief executive, H. Lee Scott Jr., also announced a sweeping environmental plan to conserve energy.

In a surprise move, he also said that Wal-Mart supported raising the minimum wage to help Wal-Mart’s customers.

The theme throughout the memo was how to slow the increase in benefit costs without giving more ammunition to critics who contend that Wal-Mart’s wages and benefits are dragging down those for other American workers.

Chambers proposed that employees pay more for their spouses’ health insurance. She called for cutting 401(k) contributions to 3 percent of wages from 4 percent and cutting company life insurance policies to $12,000 from the current level.

Life insurance, she said, was “a high-satisfaction, low-importance benefit, which suggests an opportunity to trim the offering without substantial impact on associate satisfaction.”

By Michael Barbaro and Steven Greenhouse

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