Cutting Head Office Jobs Is Right and Wal-Mart Should Do More

By Zhengyu (James) Fang and Peter Li

In January 2015, Wal-Mart announced that by the end the month it would open another 11 supercenters in Canada, realizing its expansion plan north of the boarder. In contrast with its ambitious footprints in Canada, the company cut 210 jobs last November, most of which was among head office headcounts in Mississauga Ontario, to “create a more efficient organizational structure as the company positions itself competitively for the future”, according to Andrew Pelletier, the company’s vice-president of corporate affairs and sustainability. The same thing is happening in both its home and international battlefields – the company shrank its regional office in China [1], and allegedly cut 700-800 jobs at Arkansas headquarters last year [2]. Facing stagnant growth in recent years and intense competition, Wal-Mart has spared little effort in decreasing operational expense to satisfy the shareholders. The retail giant’s high turnover rate of employees has been a sore point of criticism. This time, however, the company is doing the right thing to both cut operational costs and to solve its current public disputes on labor costs and employee welfare.

It is no secret that store managers of Wal-Mart are paid better than most of its competitors. According to National Bureau of Economic Research, average annual salary of a Wal-Mart store manager is about $92.5K, which is among the “highest paid in the nation”[3]. Same-level manager at Whole Foods and Starbucks are paid on average $76K and $45K. Although Costco store manager is paid about 15% more than Wal-Mart, it is noticeable that cashiers at Costco are making more than 40%, and Whole Foods more than 20% than those in Wal-Mart. On the other hand, senior executives of Wal-Mart are paying way higher than those of its major competitors, as illustrated below [4]. An average senior executive took home $12.6 million compensation, which almost doubled runner up Target. For each hour, a Wal-Mart senior executive earns over $6,000 dollars, comparing with less than $10 dollars of an associate. Middle management is also arguably enjoying a higher than average compensation package. District managers could earn more than $240K, and regional vice presidents could reach over $420K [5].

Cutting cost at manager and above levels, we believe, is both necessary and imperative through either cutting the headcounts in head offices around the world, or slashing the staggering high paychecks of senior management, or even both. Costs saved by such initiatives could be used to subsidize front-line associates to their pay increase and life-saving social welfare. By doing so, the company could also show the public its efforts to solve its notorious labor issues, saving millions of tax payers’ dollars. Wal-Mart is on the right track of slashing jobs in head office, but it needs to do more.

It is worth comparing Wal-Mart with its biggest competitor Costco here. As illustrated above and based on data compiled by Morningstar, Costco’s executive compensation totaled $21 million for 2013, actually a 6.68% decline from the previous year, while Wal-Mart’s executive compensation totaled $77 million in 2014, showing a 9.04% increase from 2013 [6]. In contrast, Wal-Mart pays $8.53 on average to its cashiers, but Costco pays $15.6. While Wal-Mart announces that “more than half” of its employees had health insurance coverage, Costco has 88% for the same statistics [7]. In terms of revenue growth, Costco had a soaring total 51.54% from 2010, while Wal-Mart only had 17.73%. When Costco announced a remarkable 10% growth in sales in August 2014, Wal-Mart struggled with a 2.8% increase for the same period [8]. One should be very curious about why Wal-Mart struggling in cutting every penny from store-level associates generously increased the compensation for their executives while Costco enjoyed vivid growth but shared more of their gains with their own employees.

Figures are more telling when we go beyond financials. Wal-Mart’s current low labor cost strategy is actually hurting its bottom line rather than helping it. If we consider “all-in costs” of such a strategy, it is actually paying its employers more in order to improve in-store performance, retain reputation, and reduce the cost from potential law suits, all of which are not reflected on its financial statements but could have been saved otherwise. Statistics shows that Wal-Mart’s overall employee turnover rate is about 44% in 2013 [9]; it could be as high as 70% at some stores. High turnover rates will not only hurt an organization’s productivity, but also damage the overall image of the employer. Costs associated with high turnover rate could include wasted employee training costs, additional time in recruiting, problematic team dynamics as well as low morale and productivity. Even though Wal-Mart tries to justify its human resource policy by stating that training and replacement costs are low for the work force at their stores, they could be completely wrong about it when they ignore the fact that the low wage has led to deteriorated service quality and employee satisfaction [10]. In 2013, Wal-Mart was ranked No.1 in the “10 worst retailers that have the lowest customer satisfaction” list [11]. From the news and media, things haven’t been improved much, if not becoming worse, in 2014. It is not surprising that the growth for Wal-Mart was only 1.5% in 2013-14 then. When Wal-Mart is suffering from low quality and drives away its customers, other retail stores are more than happy to welcome the outraged, anti-Wal-Mart force to join their customer base.

In conclusion, Wal-Mart is on the right track of redesigning its management structure in the head office, but that’s obviously not enough to fuel its long-term growth. It should revisit overall compensation scheme and must be well positioned to justify its staggering paychecks to those executives and senior management under stagnant period of business growth. Saved costs from these initiatives should be used to subsidize front-line associates, regardless of impending regulatory changes or not, so as to save its reputation, cut litigation costs and bring lost customers back to it.

References:

[1]. http://usa.chinadaily.com.cn/business/2014-12/03/content_19014719.htm
[2]. http://abcnews.go.com/Business/story?id=6850964
[3]. http://time.com/3026504/wal-mart-managers-average-salary-higher-than-starbucks/
[4]. Compiled by http://www1.salary.com from companies SEC filings
[5]. Always Low Wages, Lisa Featherstone, 2014
[6] http://blogs.wsj.com/corporate-intelligence/2014/07/23/pay-at-wal-mart-low-at-the-checkout-but-high-in-the-managers-office/
[7]. http://insiders.morningstar.com/trading/executive-compensation.action?t=COST
[8]. http://www.fool.com/investing/general/2014/09/05/why-costco-is-crushing-wal-mart.aspx
[9]. http://aattp.org/raising-employee-wages-could-actually-raise-walmarts-profit-margin/
[10]. http://www.forbes.com/sites/rickungar/2013/04/17/walmart-pays-workers-poorly-and-sinks-while-costco-pays-workers-well-and-sails-proof-that-you-get-what-you-pay-for/
[11]. http://www.washingtonpost.com/business/economy/these-10-retailers-had-the-worst-customer-satisfaction-ratings-for-2013/2014/02/27/a0860cb4-9f25-11e3-a050-dc3322a94fa7_story.html

After a decade of trying – it still sucks to be a women at Walmart

By Shelly Rampersad and Rachel Steger

Gender discrimination scandals have plagued Walmart in the media for a number of years. In 2011, 1.5 million female employees attempted to launch a class action lawsuit against Walmart (Goudreau, 2011). Since then, another 2000 women in 48 states have initiated legal proceedings against Walmart for pay and promotion discrimination (Alice Hines, 2012). In her book Selling Women Short, Liza Featherstone (2005) highlights that on average, female hourly workers earn 30% less than their male counterparts.

Despite the negative press surrounding Walmart’s treatment of women, the organization has made significant strides when it comes to the number of female directors on their board. With 25% females on their board of 16 seats, Walmart effortlessly beats the 2013 national average in of 16% in United States (McKinsey & Company, 2013).

The Forum of Executive Women reports that 25% is the tipping point when women begin to make meaningful impact on governance (Goudreau, 2012) suggesting that Pamela Craig, Aida Alvarez, Linda Wolf and Marissa Mayer have the ability to make gender equality a priority for Walmart. If this is the case: Why aren’t the advances Walmart has made in the boardroom reflected in significant improvement throughout the rest of the organization?

[Figure 1: Walmart’s Female Directors. Top Left Counterclockwise: Craig, Alvarez, Wolf, Mayer (Source: Walmart.com)]

The answer is one that Walmart has heard time and time again: as the largest company in the world, affecting change takes much more than it does for others. For Walmart, change must be brought about with a multi-dimensional approach. To truly change the organization, Walmart needs to (1) bridge the gap between management and front-line staff, (2) avoid mini-me succession planning and (3) ensure the right opportunities are in place for women to travel through the pipeline.

The great divide

Given the media buzz around gender diversity at Walmart, the issue has a focus for Walmart in recent years. The 2013 Walmart Global Responsibility report shows some of Walmart’s successes in this area: female Senior Vice-Presidents have increased from 12% in 2003 to 33% in 2013. This promotional area is highly influenced by the executive team which may help explain the increase. Alternatively, at the store-level we see only 29% of promoted store managers being women, a relatively low number given that women make up 57% of the employee pool. Store manager and in-store promotions are less influenced by the executive team and are dictated by middle managers. This illustrates a poignant divide between the executive management and front-line managers that are responsible for executing these initiatives. The communications and values being heralded at the management level isn’t present at the front-line.

The Walton ‘mini-me’ syndrome

Every Walmart CEO since and including Sam Walton has been a male born and raised in Arkansas or surrounding states (Figure 1) with similar backgrounds and leadership styles. Having like-minded leadership over the years has perpetuated the Walmart ideology, which in turn, has reinforced the activity system that has made Walmart so successful. However, it also means that fresh and diverse perspectives have not been brought into the organization through the CEO. In fact, Walmart’s extreme similarities in CEOs highlights the mini-me syndrome (if you’re thinking Austin Powers, you’re not that far off!). Often referred to in succession planning, the mini-me syndrome states that executives may subconsciously choose successors with characteristics (including gender) similar to themselves (PwC, 2008). This puts females at a severe disadvantage in organizations where leadership positions are m ale dominant, such as Walmart. [Figure 2: Highlighted states where Walmart CEO’s were born., Figure 3: Austin Power’s Mini-Me, Source: Google Images]

In 2006, CEO Lee Scott reinvigorated the company under the premise sustainability. It only takes one CEO to do the same with gender: it would generate the excitement in the organization and influence real change. Instead, under every CEO, the mini-me syndrome and discrimination against women has persisted.

Walmart’s leaky pipeline

Women at Walmart disproportionately occupy the lowest ranked positions. They then become increasingly outnumbered at each respective upward rank – in other words, Walmart has a leaky pipeline (PwC, 2008). There simply isn’t enough emphasis put into keeping women in the ‘pipeline’. To achieve gender equality Walmart needs to address the cultural and personal barriers keeping women from advancing through the organization (PwC, 2008).

One such barrier is the mobilization of middle managers. In a recent study, 54% of men indicate that gender diversity initiatives are potentially unfair to men (McKinsey & Company, 2013). Furthermore, women are often unaware of the potential opportunities open to them because of the lack of female leaders as role models. Increasing awareness and education around these issues may fix part of the leakage in the pipeline. Particular emphasis should be placed on securing female role models and mentors within the organization that others can gain support and learn from.

Walmart isn’t that bad when it comes to gender …right?

Some may say that Walmart is already better than average on many key gender metrics. After all, 25% of the board is female, they have committed to spend $20 billion on sourcing from female-led companies and they have created the Walmart Global Women’s Economic Empowerment Initiative (Walmart, 2014). However, Walmart is not the average company, it is not facing average strategic challenges and it does not have a gender neutral customer base – so average simply isn’t good enough.

In 2015, Walmart faces unprecedented strategic challenges regarding future growth. As the U.S. market nears saturation, Walmart needs to become an agile company ready to pivot. Diverse perspectives will help facilitate this transition and having women contribute to the discussion will increase the likelihood of success. With women controlling 70% of global consumer spending decisions, the ability to leverage their insight is paramount (European Commission, 2013). Finally, Walmart’s executive team has been fighting the gender war for far too long, and it has substantially diverted managerial attention away from business issues. Seriously addressing the issue of gender equality will allow Walmart to refocus their attention on what they do best: selling products.

References:

Alice Hines. (2012, June 06). Retrieved from Huffington Post: http://www.huffingtonpost.com/2012/06/06/walmart-sex-discrimination-women-_n_1575859.html

European Commission. (2013). Women on boards – Factsheet 1. Retrieved from http://ec.europa.eu/justice/gender-equality/files/womenonboards/factsheet-general-1_en.pdf

Fairchild, C. (2015, January 16). The 23 Fortune 500 companies with all-male boards. Fortune.

Featherstone, L. (2005). Always Low Wages. In Selling Women Short: The Landmark Battle for Workers’ Rights at Wal-Mart (p. 129).

Goudreau, J. (2011, June 20). Wal-Mart Wins Supreme Court Ruling In Historic Sex Discrimination Suit. Forbes.

Goudreau, J. (2012). Will Google’s Marissa Mayer Help Solve Wal-Mart’s Woman Problem? Retrieved from Forbes: • http://www.forbes.com/sites/jennagoudreau/2012/04/18/google-marissa-mayer-walmart-woman-problem/

McKinsey & Company. (2013). Gender diversity in top management: Moving corporate culture, moving boundaries. Paris: McKinsey & Company.

PwC. (2008). The leaking pipeline: Where are our female leaders? Gender Advisory Council.

Walmart. (2014). 2014 Global Responsibility Report. Arkansas: Walmart.

Who benefits more from Obamacare: Wal-Mart or Employees?

By Katherine Fan, Shantanu Nigam and Sissi Yang

On October 7^th 2014, Wal-Mart announced it would discontinue health and other benefits starting 2015 for around 30,000 part-time employees who work 30 hours or less [1]. Not known as a particular employee friendly company, Wal-Mart has been criticized in the past for its low wages, gender and racial discrimination, and inadequate health insurance [2]. With the advent of the new Patient Protection and Affordable Care Act (a.k.a. Obamacare), Wal-Mart is once again at the center of public scrutiny for its latest move [3]. Wal-Mart has been a big supporter of Obamacare [4] and is being accused of taking advantage of new healthcare regulations to offload its own cost onto American taxpayers. However, looking digging further into Wal-Mart’s as well as government healthcare system in context of the Obamacare, we think that the employees, rather than Wal-Mart, would stand to gain more from this policy.

Part-time employees now qualify for financial subsidy for Medicaid healthcare insurance

Most part-time workers are forced to do so due to lack of sufficient full-time opportunities. They often work multiple part-time jobs to make sufficient living and seek every sponsorship and financial aid to help in expenses. One attraction of the employer sponsored healthcare plan for them is the tax-benefit on the premium paid towards the plan. However, most low-wage employees also qualify for the financial subsidy for government Medicaid healthcare plans at the exchange (known as Heath Insurance Marketplace) resulting in further savings. Employees weigh their healthcare options for the cheapest deal (tax benefit or financial subsidy) and make their choice. The new Affordable Care Act (Obamacare) has added a layer of complexity to it. Under the new provision, a low income individual may not qualify for subsidy if his/her employer offers health insurance at work even if the individual does not choose to buy it [5] [6]

For example, as calculated by Kaiser Family Foundation’s subsidy calculator [7], a low-wage employee at Wal-Mart with 2 kids and household earning of $22,000, which is below poverty line[8], would still not qualify for the government financial aid for private insurance at the state exchange (cheaper alternative) if he/she is offered healthcare by Wal-Mart; Even if he/she choose not to buy Wal-Mart insurance. By removing the healthcare provision for the same employee, Wal-Mart actually enables him/her for annual government financial aid of $5700.

Government offers better and more reliable Healthcare coverage than Wal-Mart

Another indirect benefit from Wal-Mart’s move, is that employees now access to better and more reliable healthcare coverage. As sited by ‘Walmart-Watch’, a Washington based non-profit organization, Wal-Mart healthcare is highly inadequate especially with the advent of Obamacare [9]. Wal-Mart’s insurance include high deductible compared to other public and private options; involve long waiting period before the worker becomes eligible for healthcare. Pre-existing conditions require further wait-period for employees to become eligible for healthcare; ambulance, and emergency services require extra charges while preventive care has prohibitively high deductible under Wal-Mart’s healthcare plan. In comparison government provided Medicaid covers ambulance service [10], preventive health service [11], include pre-existing conditions [12], and does not involve waiting period [13].

For part time employees eligible for subsidy, Wal-Mart’s healthcare plans are more expensive than comparable government plans. As sited in the Walmart Watch report, a $700 deductible healthcare plan with $4000 out-of-pocket expenses costs $700f0, something unaffordable for an employee earning $20,000. The recent hike to the premium [14] has made Wal-Mart’s healthcare plan even more undesirable. The case with part-time employees earning too high to qualify for subsidy is different as the premium for Wal-Mart Healthcare plan is relatively cheaper than unaided premium of the Medicaid [15]. However it is highly improbable for a minimum wage employee working less than 30 hours per week to not qualify for any subsidy.

Not only inadequate and expensive in case of Wal-Mart, an employer based healthcare program in general is inherently an unreliable mode of insuring oneself for the time of emergency. As Washington Post’s Paul Waldman mentions, the insurance coverage should not depend on the employer [16]. It should not be impacted with the loss or change of job/career; it should not designed based on the will of the employer such as which illnesses to cover and when to cover etc. There is no reason to outsource these choices to a middleman, the employer.

Wal-Mart saves on insurance cost. But how much?

Although Wal-Mart’s senior management has been shying away from disclosing the cost savings resulting from the change in plan [17], Bloomberg estimates Wal-Mart could save roughly $50 million in cost assuming 30,000 affected workers use lowest-cost plan [18].

Under the new plan, Wal-Mart’s lowest-cost health plan would cost an employee $21.90 per pay period [19]. Paying biweekly and covering 75% of the total premium, Wal-Mart incur an overhead of $66 per pay period per employee. Contrary to Bloomberg’s assumption that all 30000 part-time employees buy Wal-Mart health insurance, ADP Research Institute report showed that only 8% of total part-time workers (approx. 17000 of 210,000) actually bought the coverage in 2013 [20]. Hence under the conservative estimates Wal-Mart could save the annual insurance overhead of only about $29 million at current subscription rate. A meagre saving for a half trillion dollar company.

[Image Source: ADP Resource Institute; http://www.vox.com/2014/10/7/6939057/walmart-drops-insurance-good-news]

 Conclusion

Wal-Mart has openly stated its concerns about the rising healthcare costs and its recent action is no surprise. Obamacare mandates employer to provide a quality and affordable healthcare coverage to all full-time equivalent (FTE) employees. It also takes care of those left out of employer sponsored healthcare insurance. Looking at the opportunity to reduce cost, every firm including Wal-Mart, is now restructuring its workforce by cutting working hours of employees to reduce FTE workforce, as well as cutting benefits in compliance of the mandate. The change in its policies and benefit structure might save some costs for Wal-Mart, we believe it has done more good to the employees who could now avail government financial subsidy and a better more reliable healthcare program.

Reference

[1] Wal-Mart drops healthcare for some part-time employees http://www.wsj.com/articles/wal-mart-to-end-health-insurance-for-some-part-time-employees-1412694790
[2] Criticism of Wal-Mart http://en.wikipedia.org/wiki/Criticism_of_Walmart
[3] Obamacare Explained http://obamacarefacts.com/obamacare-explained/
[4] Wal-Mart supporter of Obamacare http://www.weeklystandard.com/blogs/walmart-obamacare-supporter-drops-coverage-another-30000-employees_810824.html
[5] Obamacare brings change in healthcare regulations http://www.vox.com/2014/10/7/6939057/walmart-drops-insurance-good-news
[6] Eligibility for Health Premium Subsidy http://www.zanebenefits.com/blog/bid/288577/ACA-Limits-Premium-Subsidies-For-Families-of-Covered-Employees
[7] Kaiser Family Foundation’s subsidy calculator
http://kff.org/interactive/subsidy-calculator/#state=&zip=&income-type=dollars&income=22000&employer-coverage=0&people=2&alternate-plan-family=individual&adult-count=1&adults%5B0%5D%5Bage%5D=36&adults%5B0%5D%5Btobacco%5D=0&child-count=2&child-tobacco=0
[8] Poverty Threshold http://www.irp.wisc.edu/faqs/faq1.htm#thresholds
[9] Wal-Mart Watch report – Wal-Mart healthcare is inadequate http://walmartwatch.com/wp-content/blogs.dir/2/files/pdf/medicaid_factsheet.pdf
[10] Medicaid covers ambulance service http://kff.org/medicaid/state-indicator/ambulance-services
[11] Medicaid covers preventive health service https://www.healthcare.gov/preventive-care-benefits/adults
[12] Medicaid covers include pre-existing conditions http://obamacarefacts.com/whatis-obamacare]
[13] Medicaid [http://en.wikipedia.org/wiki/Medicaid]
[14] Recent hike to Wal-Mart premium http://www.reuters.com/article/2012/11/12/walmart-healthcare-idUSL3E8MC18E20121112
[15] Wal-Mart Healthcare plan is cheaper than that under Medicaid http://www.washingtonexaminer.com/surprise-walmart-health-plan-is-cheaper-offers-more-coverage-than-obamacare/article/2541670
[16] Insurance coverage should be employer independent http://www.washingtonpost.com/blogs/plum-line/wp/2014/10/08/how-walmart-is-showing-that-obamacare-is-working/
[17] Wal-Mart will not disclose cost savings http://www.wsj.com/articles/wal-mart-to-end-health-insurance-for-some-part-time-employees-1412694790
[18] Bloomberg estimates Wal-Mart could save roughly $50 million in cost http://www.bloomberg.com/news/2014-10-07/wal-mart-will-cut-health-benefits-to-some-part-time-employees.html.
[19] Wal-Mart healthplan cost http://www.bloomberg.com/news/2014-10-08/wal-mart-health-cuts-reopen-debate-over-obamacare-costs-savings.html
[20] 8% of total part-time workers actually bought Wal-Mart coverage in 2013 – ADP Research Institute Report http://www.vox.com/2014/10/7/6939057/walmart-drops-insurance-good-news

Cutting Benefits for its Part-time Workers Could Prove to be a Pyrrhic Victory for Wal-Mart

by Amy Cao, Pavan Kulkarni and Christy Xu

Nancy’s Story

In October 2014, Walmart decided to cut health benefits for most of its part-time employees and raise premiums for its full-time workers to counter the rising cost of benefits. Nancy Reynolds, a sixty seven year old woman who works part-time has struggled to balance doctors visits with associate duties over the last six years. She is now worried about her ability to afford diabetes and arthritis treatment. Nancy states, “I depend on the Wal-Mart’s health care. I’m not sure what I’m going to do” (Corey, 2014). Given Wal-Mart’s 2011 decision to cut benefits for employees working under 24 hours per week, Wal-Mart’s recent action affects part-time employees who work between 24 hours to 30 hours. Now, only part-time employees working 30 to 34 hours are covered. The move to remove benefits for Wal-Mart’s part-time employees is a fruitless effort at decreasing operating expenses while negatively affecting 30,000 others in precarious situations similar to Nancy’s.

Wal-Mart Employees Count on Benefits to Supplement Low Wages

Recent Current Population Surveys indicate that there has been an increase in the percentage of Americans involuntarily working part-time. This is an effect of the Affordable Care Act; businesses are trying to avoid penalties for not providing healthcare coverage to its full-time employees by pivoting towards a higher proportion of part-time workers. However, healthcare coverage is the benefit that provides highest utility to employees (Exhibit 1, Chambers, 2006). Part-time employees will now have to rely on insurance exchanges and government subsidies, thus struggling to afford expensive future coverage.

Although Wal-Mart is among the last of its peers (such as Target) to cut health insurance benefit for its part-time employees, the action will likely have more negative impact on Wal-Mart workers compared to the employees of its peers, because the wages offered to part-time employees at Walmart is approximately 12% less (Payscale, n.d.).

Exhibit 1 – Associate-Ranked Satisfaction and Importance Varies by Benefit (Chambers, 2006)

Part-time Employees Need Benefits more than Full-Time Employees

According to a Reuter’s report, Wal-Mart has been adopting a hiring policy to add more temporary workers while cutting the hours for all existing employees (Wohl, 2013). This policy negatively affects its existing part-time workers’ opportunity to be converted to a full-time position, which provides better income and benefit, because their hours are intentionally capped.

The part-time employees are often the ones who benefit most from the coverage because they don’t work enough hours to cover their expenses (in comparison to full-time employees). As Exhibit 2 shows (in 2006 dollars), on average, a part-time worker’s wage was $8.23. This is $0.19 lower than that of a full-time position. Assuming that on average, a full-time employee works 40 hours a week, 52 weeks a year, their annual income would be $17,514. A part-time worker who works 27 hours a week (the median between 24 and 30 hours) would only earn an annual income of $11,555. The almost $6000 gap makes the health insurance coverage more indispensable to the affected workers. Additionally, among those who worked in the labour force for more than 27 weeks, 14.4% of part-time workers were classified as working poor compared to 4.2% of full-time workers (BLS Reports, 2013).

Exhibit 2 – Comparison of Wages for Wal-Mart PT and FT Workers (2006) (Arindrajit Dube, 2007)

Part-time workers’ average wage = (137,189 * $7.69 + 99,382 * $8.98)/ (137,189 + 99,382) = $8.23
Full-time workers’ average wage = (238,872 * $7.68 + 294,223 * $9.02)/ (238,872 + 294,223) = $8.42

 Adverse Selection Results in a Costlier Full-Time Employee Pool in the Long Run

As Wal-Mart’s senior vice president, Greenhouse, argued, long-term employees are more expensive and not necessarily more productive and as such, a high turnover rate is targeted. While this may be true, high turnover rates are more a band-aid to the problem rather than a solution. It would be better to ask why Wal-Mart’s long-term employees are, on average, more expensive and less productive than its short-term, high turnover employees.

The answer may lie in Wal-Mart’s part-time and full-time benefits package. Research indicates that the least healthy and least productive employees are most likely to be satisfied with the benefits provided and therefore tend to plan longer careers at Wal-Mart. The effects of adverse selection can be observed because a high percentage of the turnover rate consists of healthier and more productive employees leaving due to dissatisfaction of benefits and less healthy and productive employees staying.

Noting that 24 to 30 hours translates to 71% to 88% of full-time working hours (Sherman, 2014). The part-time population is likely to include workers who want to convert to a full-time position. Walmart should provide benefits to part-time workers and align the package plan with that of its most valuable part-time and full-time associates such that these associates are more incentivized to plan longer careers at Wal-Mart. The result would be a group of full-time associates who are, on average, healthier and more productive.
 
Conclusion

While it is the case that moving to a consumer driven insurance exchange is more efficient in the long run, particularly when competitors have already made the move, a more prudent approach may be to move towards the same goal in a more staggered fashion. In the meantime, Wal-Mart should cater to its most valuable employees. As such, Wal-Mart’s newest strategy to lower costs negatively affects the employees to whom benefits are most essential and necessary. This decision is futile and will result in increased costs to wages resulting in little long run impact to the decrease in operating costs.

Works cited

Arindrajit Dube, D. G.-S. (2007, December). Living Wage Policies and Wal-Mart: How a higher wage standard would impact Wal-Mart workers and shoppers. Retrieved from laborcenter.berkeley.edu: http://laborcenter.berkeley.edu/retail/walmart_livingwage_policies07.pdf

(2013). BLS Reports. US Bureau of Labor Statistics.

Chambers, S. (2006). Reviewing and Revising Wal-Mart’s. http://www.nytimes.com/packages/pdf/business/26walmart.pdf: Walmart Memo.

Corey, E. (2014, July 30). How the ‘Schedules That Work’ Act Could Change the Lives of Millions of Workers. Retrieved from inthesetimes.com: http://inthesetimes.com/working/entry/17016/schedules_that_work_act

PayScale. (n.d.). Retrieved from payscale.com: http://www.payscale.com/

Sherman, E. (2014, October 09). Walmart Health Insurance Could Leave A Really Sick Worker Broke. Retrieved from forbes.com: http://www.forbes.com/sites/eriksherman/2014/10/09/walmart-health-insurance-could-leave-a-really-sick-worker-broke/

Traub, A. (2014, June 2). Retail’s Choice: How raising wages and improving schedules for women would benefit America. demos.org. Retrieved from http://www.demos.org/publication/retails-choice-how-raising-wages-and-improving-schedules-women-retail-industry-would-ben

Wohl, D. S. (2013, June 13). Wal-Mart’s everyday hiring strategy: Add new temps. Retrieved from reuters.com: http://www.reuters.com/article/2013/06/13/us-walmart-hires-temps-idUSBRE95C05820130613