Wal-Mart Benefit Plan Analysis Wal-Mart

Wal-Mart Benefit Plan Analysis

Wal-Mart describes its benefits plan in fairly flowery terms. They state that they offer a comprehensive benefit package that can provide up-front cash to pay medical expenses. Also, they tout bonus incentive programs as well as up to a six percent match for their 401(k) system (Wal-Mart Opportunity & Benefits, 2012)

However, despite the window dressing that Wal-Mart has placed around their benefits, the reality is not quite that simple. Not all of the associates, for instance, are covered by the health plan. Of the 1.1 million employees Wal-Mart has, not even two thirds of them (700,000) are even eligilble for the benefits. Even when the benefits are available, the results for associates, which is what Wal-Mart calls its employees, are mixed. For example, Wal-Mart issued a revised "preferred prescriptions" list in July 2009 and only 128 preferred brands were on that list. Many drugs were replaced with a single brand that was meant to encompass all of the drugs that would normally be used (Edwards, 2009).

In informing the employees about the change, they noted that non-preferred drugs would be eliminated from the grogram and that the prior preferred vs. non-preferred arrangement was being shut down. The only exception to this was specialty drugs. Many employees were very uhappy with this change. One employee noted that no effective alternatives, if any existed at all, to some drugs and that employee cited Athrotec and Ambien CR as examples. The latter is time-released whereas many comparable generics are not (Edwards, 2009).

In 2011, the news worsened with the corporation announcing that it was rolling back its health benefits for part-time workers still further. The new plan stated that Wal-Mart will no longer provide health coverage for employees who work less than 24 hours per week, whiles those who work between 24 to 33 hours per week can still receive coverage for themselves and their children. Their spouse must look for health insurance elsewhere.

In 2012, Wal-Mart proceeded even further by slashing the health care benefits of all of their workers in half. Benefits for family members were reduced to $500 per annum, whilst healthcare costs for employees were subsidized by just $250 per year. Employees have complained that the deductible alone could amount to 20% of the worker's annual pay.

Given those facts, therefore, it is not surprising that more than half of Wal-Mart's employees opt out of the company's so-called health insurance benefits. Many employees find the costs more expensive than the benefits. "Wal-Mart pays 67% of the cost of health insurance for employees, about equal to the retail industry average of 68% for family coverage-but, for individual health insurance, far below the 77% that retailers contribute on average" Deductibles are $1,000 for a plan with a low premium -- and this excludes routine treatments such as flu shots and child vaccinations (Evaluating Wal-Mart's health insurance).

Wal-Mart has always been known as a cheap organization. It has made its money and its notoriety that way. The reputation of its benefits package, consequently, conforms to its general reputation: miserly and poor as the company expands and becomes wealthier. Concerned social activists and simply those with an axe to grind have long criticized the corporation for its miserly habits in general including its poor treatment of employees) and its disreputable health benefits in particular. Many of the benefits, too, that appear on paper (as, for instance, on its website) disintegrate when analyzed more closely. That this is the case was exemplified here in connection with their health plans.

To reform and amend Wal-Mart's benefit package is the beyond the energy of one individual - certainly beyond my realm. A theoretical plan would be to draw public attention to their shortcomings -- which has already been done -- and to provide Wal-Mart's veteran, dedicated and full-time workers with a more generous package that is commensurate with their character and work. Health benefits should be increased and more drugs made available. Details should be worked out so that benefits equitably reflect worker's duration of employment as well as quality of service. These are some of my ideas. To get Wal-Mart to accept them is another story.

Statement of the Issue

The basic issue involved here is whether Wal-Mart is simply being cheap and treating their employees like an expendable commodity or if they simply cannot afford to provide health care coverage on an acceptable scale to 1.1 million employees. After all, Wal-Mart is the largest employer in the world.

The point of this paper is to offer constructive solutions and theories from research that suggest how Wal-Mart could or even should proceed. The major issue is that Wal-Mart has a ton of employees yet they have balance keeping employee benefit costs low and meeting the social responsibility demands of other firms. Wal-Mart is far from being the only firm that engages in these practices but they get the most attention because they are the proverbial elephant in the room which means that no other company could or would do what Wal-Mart is doing on such a massive scale.

The degree to which employee involvement and choice is or is not part of the equation is also worth of review. People often treat this as ancillary to the overall concern but such a viewpoint is short-sighted. That being said, employees not choosing to work at the best corporation in terms of concerns like coverage for children or spouses would be throwing them under the bus and it is a clear divergence from the major points, those being social responsibility and the amount of resources that Wal-Mart has. Especially in tough times, Wal-Mart argues that the retail industry is cut-throat and unforgiving but many others reply by saying that Wal-Mart has the resources to do the right thing and they should do so.

Literature Review

One article the author of this paper founds ties in nicely to the fact that Wal-Mart is far from the only large retail entity that is seemingly giving their retail employees short shrift when it comes to benefits. In an article dated in May 2011, it is noted that many union voices have started hurling their invective towards Wal-Mart's most formidable competitor, that being Target. The United Food and Commercial Workers Union mounted the first broad campaign to unionize the roughly five thousand workers at nearly 27 stores in the greater New York City area. It should be noted that Wal-Mart has next to no presence in that area (Greenhouse, 2011).

An employee of one of the affected stores went on record as stating that she earned nearly twelve dollars an hour but that she believed Target should have union or legal compulsion to pay people a living wage. Target countered this by saying their benefits are competitive with the industry and that, as such, there was no need for a union to be formed (Greenhouse, 2011).

However, in drilling deeper in the results, it was found that a major complaint about Target and its practices was less about insurance and more about a dearth of hours worked per week by each employee. Indeed, many employees were assigned to work only one or two shifts a week which can bring great stress to a person or family that is simply trying to get by. It is finally noted in the story that Target had nearly 1800 stores as of 2011 and Wal-Mart had north of 4400 and none of them were unionized. Wal-Mart in particular has gone so far as to shut down stores instead of being subject to a union (Greenhouse, 2011).

Another story reviewed for this report will most certainly be controversial to many. The story, which appeared on the Forbes website in early 2008, actually was so bold as to say that Wal-Mart and its benefits brings a net benefit to the communities and areas in which it inhabits, rather than being cancerous to the community's smaller businesses and its overall populace. A study conducted from 1985 to 2003 found that personal income, overall employment and retail employment all grew faster in areas with Wal-Mart as opposed to areas that did not have Wal-Mart's. Additionally, nine in ten employees that work at Wal-Mart are covered under some health plan, whether it be their own or a spouse's and that is line with industry averages (Van Riper, 2008).

The story goes on to note that Wal-Mart, by itself, is responsible for six percent of retail and food store goods in the United States and this number grows to seven and a half percent if you include food sales. A Pew study found that more than four fifths of the population thought that Wal-Mart was a good place to shop and roughly nine in ten people around the country live within 15 miles of at least one Wal-Mart. That being said, roughly a quarter of the population thinks that Wal-Mart is bad for the community and/or the country and nearly a third of people hold an overall unfavorable view of Wal-Mart, whatever the reason may be. Wal-Mart is also deemed to be a company that greatly mistreats and discriminates against its employees but there has apparently been no reliable empirical data to back that up (Van Riper, 2008).

The article concludes by conceding to some Wal-Mart critics. First, Wal-Mart cites Ohio University professor Richard Vedder, who points out that Bureau of Labor Statistics Data holds that Wal-Mart's wage structure lags behind the retail sector as a whole (Van Riper, 2008)

Relative to what Wal-Mart pays its employee and the benefits they bestow, a third source was widely condemnatory of Wal-Mart and insisted that it could and should be paying its employees more…a lot more. The average associate at Wal-Mart, per this story, makes an average of not quite twelve dollars an hour. If annualized, that would be below the United States poverty line. The story's author insists that wages and benefits are not higher simply because Wal-Mart can get away with it and not because they have an inability to afford it (Blodget, 2012).

The author notes that if Wal-Mart took $7 billion of its 2011 operating profit and used it to give employee raises, the employees would no longer be below the poverty line on an annualized basis. However, their inability or unwillingness to do so has led to the increasing disparity between the rich and the poor that has been emblematic of the past few decades in the United States (Blodget, 2012).

Another story notes how Wal-Mart is actually taking a two-pronged approach to lower its employee benefit expenditures. It is commonly known that part time employees at Wal-Mart do not get health benefits any more. What is less well-known is that Wal-Mart is also concurrently increasing the proportion of part-time works that comprise Wal-Mart's workforce (Kim, 2011).

A final story about Wal-Mart talks about a few things touched upon throughout this report. The first is that there is good and bad behind Wal-Mart and the greater retail sphere. The good, as stated on this non-profit site, are immigrant rights movement, minimum wage increases, telecommuting options, executive accountability and recent favorable Supreme Court decisions. The bad includes hurricanes and their impacts, income inequality, decline of the auto and airline industries, mining disasters and loss of workplace privacy (WorkplaceFairness.org, 2012).

The site levels one statistic against Wal-Mart that is quite damning. It doesn't speak to the accuracy or legitimacy of the charges, but roughly five thousand workplace practices lawsuits are filed against Wal-Mart ever year. That comes out to roughly 17 per day. This site, like the Blodget story, says that insufficient benefit packages and paltry wages can surely be corrected by using at least some of the $11 billion in operating profit that was had one fiscal year (WorkplaceFairness.org, 2012).

This same site, specific to this discussion of health care, made note of the health care changes mentioned earlier in this report. It noted that not long after Wal-Mart revamped its benefit packages and touted the cost of $11 per pay period for one of them, they were ostensibly caught red-handed via an internal memo that simply wanted to reduce health care costs via methods like hiring more part time workers, reducing 401(k) contributions, putting health clinics in Wal-Mart stores and discouraging unhealthy people from working at Wal-Mart and that job descriptions should be manipulated to mandate the need to be able to engage in physical activities.

Issue Analysis

The overall issues are not hard to dissect. The first major issue is whether or how Wal-Mart can increase its health care benefits without sacrificing their competitive edge and ability to expand. While many people say that Wal-Mart's operating profit is a honey pot that should only go to the employees, there are significant dangers in being that simplistic. As noted in the Forbes story earlier, even with the lower wages and benefits, to say that the community or that Wal-Mart as a whole is worse off become of Wal-Mart would be specious.

The second issue is how Wal-Mart, regardless of its ensuing plans, is going to combat the open public derision levied towards them as a result of their perceived or verifiable employment practices. Indeed, there are some people that are anti-big box, anti-retail or anti-capitalism in general and no amount of kowtowing and capitulation is going to satiate them. However, this is not to say that Wal-Mart should treat their employees as an afterthought and treat concerns about their social responsibility as irrelevant.

The third issue is the prospect of how exactly Wal-Mart would have to react if it greatly increased its health care outlays only to befall economic struggle later. This is often pointed to as one of the major, if not the major, reason why GM, Ford and Chrysler had such massive problems over the last few decades. That being said, a growth in the employee benefit plan can be done at minimal cost and great benefit to all. It just has to be done in a way that makes sense, is based on real facts and not best guesses and is based on real industry practice and success.

Issue Solutions

One major solution for Wal-Mart would be to, once their overall implementation strategy is defined, to mount a public relations campaign that espouses and shows a commitment to their employees and their well-being. At a bare minimum, Wal-Mart should adjust their pay and benefits to match established retail standards applicable to both full-time and part-time employees. With part-time employees in particular, it is rather odd that part-time employees would expect expansive benefits given the low amount of hours they work, but there is actually a way to address that without being confronting about it.

Wal-Mart is actually hurting itself by using so many part-time employees. It would be wiser form them to reduce their overall headcount and use more full-time employees. It is true that full time employees cost a lot more and for a number of reasons, but the amount of savings to be had by greatly reducing the number of part time employees should far outstrip the costs borne of hiring more full time people.

One major reason that Wal-Mart would resist such a move, beyond the costs involved, is the fact that positions like cashiers and the like are very much a peak-time concern. Meaning, there are times where the front end of a Wal-Mart is pure and utter chaos while other times it is dead as a brick. Wal-Mart can address this concern by hiring people that would function both as department associates when the department managers are not there and these people can be called to the front as needed to cover registers when peak times hit. This would lead to the registers being sufficiently covered and the departments in the store would be zoned and taken care of.

This would translate to benefits in that Wal-Mart could easily increase benefits because less people are being hired and, thus, less people would need coverage. In addition, many employees would still find coverage from outside sources (e.g. spouses) so that would tend to keep Wal-Mart's outlays low as well. The reduction in headcount should also allow Wal-Mart to raise the average wage scale for all employees while keeping overall payroll outlays flat. The one downside is that employee headcount as a whole would drop and this would impact the community. However, providing expansive health care to 1.1 million employees, many of them part-time who would not be contributing monetarily anywhere close to what they would be receiving in return, is a non-starter. An employee working 24 hours a week does not (and should not) receive the same benefits as someone who works 40. It is not equitable and it is wholly against industry standards and that is not just retail that this applies to. Increasing pay for part time employees may be justified, but expansive benefit packages will not and should not happen.

Next, it should be openly explained and justified that much of Wal-Mart's profit is used to remodel and expand existing stores as well as opening new stores. As inferred elsewhere in this report, Wal-Mart cannot forsake its profit leverage just to placate social responsibility advocates who want to treat the chain like a collective or a commune rather than a business that needs to maximize its profits and answer to shareholders. That being said, just because costs can be lowered does not mean they should be. As such, benefits and pay should be maximized while not sacrificing the ability to further expand the Wal-Mart brand.

Solution and its Implementation

The changes to the part-time vs. full-time structure should not be done via mass firings and forced attrition. Instead, it should just be established that the emphasis going forward will be to hire full time employees rather than part time employees. For example, if two part time people leave from a department and they worked 20 hours/week each, the replacements should be a single full-time person that works 40 hours a week. This may simplify it a bit and some reallocation of people within different departments may be needed, but one should get the idea.

Second, as it relates to pay scales, everyone should be given raises to bring them in line with industry and national averages. However, the pay scales currently do vary based on the cost of living of a given area and that is the way it should say. A person in Denver making 12 bucks an hour is not the same thing as a person in rural Georgia making the same. Pay should be scaled based on cost of living because equal money does not equal the same standard of living so the pay scales should be different.

Additionally, new employees hired will immediately be put in to the new wage bracket. However, great care should be taken to avoid newer employees immediately usurping the pay levels of existing employees as this will cause a great detail of animosity. Unless there is overarching reason for any such disparity, people that are new should generally always make less per hour than established employees at the company and people with more tenure overall should generally make more than people who are newer. Since Wal-Mart has a merit-based wage raise system, this may vary as time goes on but as long as it can be explained via means other than tenure, race or gender.

The first page of this section may seem unrelated to benefits, but it most certainly is. The above tactics would free up a lot of cash that can be used to flesh out and beef up employee benefit packages. Employees should have several options including bear-bones programs like catastrophic care (with a stern warning as to what that truly means in terms of costs) as well as different options based on family size, spouse coverage and so forth. The overall quality of the benefit program should absolutely be no worse than industry averages and standards.

Wal-Mart can also give incentives to people that make smart lifestyle choices. As much as is possible and legal, employees who have good body mass index (BMI) proportions and people who do not smoke should be given the ability to pay less in health care premiums as those employees are going to cost Wal-Mart a lot less. Wal-Mart's practice of not hiring "unhealthy" people should stop, at least to the extent where it is just about health care costs and not because of a concern about whether the person can do the job, but it should be stressed that people of certain weights, family histories and what not will tend to be sicker and that there is a way to benefit both their pocketbook and themselves if they get healthier. Companies and people are often condemned for charging different rates to different people but risk and chances of disease are what they are and employees cannot (and should not) be exempted from their responsibility to take care of themselves and that they will bear additional burden if they don't comply. While this line of thought is controversial to many, it actually resonates with a lot of people.

Other solutions that Wal-Mart should be doing (if they are not already) is to allow people to use HSA and/or FSA accounts. These accounts allow employees to defer money pre-tax so that the funds can be used on health expenses. Since no taxes are paid on these funds, it actually saves the employee money. Rather than paying $20 in taxes out of $100 gross pay and then spending $50 on a doctor bill (total of $70), that same person can spend just the $50 and save the $20 for a future medical expense. These plans have fairly large implications in that money not used is forfeited, most times, but a little planning and forethought by the employees can go a long way.

Another solution that should be implemented is the clinics that Wal-Mart has been announced as using. While it is highly probable that these clinics were operated on the cheap up till now, it is not beyond the pale that Wal-Mart's massive resources can be used to mitigate a lot of costs. The cost of an uninsured doctor's visit would be a lot higher than what Wal-Mart could offer. A single physician is probably all that would be needed, and maybe a nurse or two, and that is probably it. The physician would be required so that patients could get prescriptions although some professionals like nurse practitioners can also prescribe medications so that would probably save a lot of money in addition. This would directly feed the Wal-Mart pharmacy and would be an example of Wal-Mart keeping everything in-house, much like Walt Disney World does with its actual city it runs of Lake Buena Vista.

All of the suggestions above can and should be verified for efficacy and accuracy. It is not impossible that some changes and alterations might be necessary but those should be kept to a minimum as long as everything is done well as there is a wealth of information and Wal-Mart has a wealth of resources that other firms would kill for.

Lastly, Wal-Mart would need to mobilize a massive public relations presence because the amount of criticism and skepticism, especially in the initial phases, will almost certainly be wilting. Wal-Mart cannot let that echo chamber go off unabated and unanswered to, so some measure of public relations management is called for. The PR department should be open, honest and transparent and this is not hard to justify since Wal-Mart is a public company. Stakeholders may express disdain for this remobilization of resources, but Wal-Mart actively flouting that might actually pull in new investors. There would most certainly be some bumps in the road initially, but in the long run the increase attractiveness of Wal-Mart flexing its fiscal muscles for good would please both customers and investors alike. What Wal-Mart and its PR department cannot do is be two-faced or duplicitous. Internal memos should be written and disseminated as if they are public. This is not to say that trade secrets and such are not important, just that if one cannot justify an action or statement in a memo or other business action on moral grounds, it probably shouldn't be done or said.