Wal-Mart Memo in a Lengthy

¶ … Wal-Mart Memo

In a lengthy Memo to the Board of Directors at Wal-Mart, Susan Chambers reports on the findings and recommendations of her team. The team's purpose was to evaluate Wal-Mart's present benefits program and to propose new strategies to address its shortcomings. The memo is 12 full, single-spaced pages and rather formal. The most effective memos are briefer -- one page or less -- in keeping with the reading habits of today's people. Memos are also usually informal, whereas this memo seems to be a formal statement of a committee's findings. Because it is so long, one wonders how many of the Directors (busy people, no doubt) actually will carefully read it. The memo also has a strong persuasive tone and uses language in a way that is designed to influence the Board of Directors to accept its recommendations.

The author states, "Growth in benefits costs is unsustainable," but does not explain why or if the team considered other types of cost cutting. She also states that the team's most troubling finding was "the least healthy, least productive Associates are more satisfied with their benefits than other segments [of Wal-Mart's workforce] and are interested in longer careers with Wal-Mart" (p. 1). Does this imply that Wal-Mart would like to get rid of these employees? Exactly what is meant is not discussed until late in the memo when the author describes a strategy to phase out unhealthy (old, actually) employees. The author points out that no solution will be entirely satisfactory to everyone, thus, apologizing in advance for her plan's limitations. She then describes seven "limited risk initiatives" to be discussed. By a limited risk intiative she means things Wal-Mart can do that won't cost much money, or things Wal-Mart can do to cut down on benefits expenses -- mainly, things that reduce benefits for the employees, such as raising the premiums for spouse's healthcare coverage.

A of the memo is mostly a preview of what is to come, and does give structure and organization to the memo, so that the reader knows what information will be explained.

Throughout the memo, the author couches her proposals in euphemistic language so it doesn't sound as crass as it really is.

For example, workers are referred to as "Associates," implying that Wal-Mart is a more democratic organization that it really is. On page 2, she recommends, "Make some select strategic investments in our healthcare offering (e.g., lower maximum out-of-pocket expenses) so it can better withstand external scrutiny. Improve communication of Wal-Mart's benefits offering so we get more credit for what we provide, and over the long-term work to shape state and national outcomes on healthcare." What this means is, give the workers just a little bit so the media will say Wal-Mart is improving its benefits package. Make sure the media publicizes the changes, and spend more on lobbying the legislature in order to shape and influence healthcare proposals in a way that benefits Wal-Mart).

The introduction to the memo is quite long. The writer doesn't actually begin to explain the team's recommendations until page 3 with a discussion of the rising cost of employee benefits. She states it is critical to hold these costs "constant," which translates to hold these costs down.

The writer states that Wal-Mart's workforce is aging faster than the national average but does not explain why -- perhaps, because Wal-Mart has found it profitable to high retired people who will work for low wages. She points out, "Our workers are getting sicker than the national population, particularly in obesity-related diseases" (p. 3) and that Wal-Mart employees tend to use more expensive forms of medical care such as emergency room visits and hospital services. She states, "This pattern is most evident among our low-income Associates, and the team hypothesizes that this behavior results from prior experience with Medicaid programs." This statement implies a mentality has been learned from being on welfare, but perhaps Wal-Mart's healthcare coverage doesn't pay for doctor visits at $50 a crack. It certainly doesn't admit that when you hire the poor at low wages, they continue to be poor. The author also contends. "...technological innovations... are driving increased utilization of medical services across the U.S. healthcare system." By this, I guess she means stints, pacemakers, and other expensive internal medical gadgets designed to keep people alive longer.

The author goes on to imply that Wal-Mart doesn't want people to working there long because they have to pay them more the longer they work, and staying makes more employees eligible for benefits while their productivity doesn't change: "...because we pay an Associate more in salary and benefits as his or her tenure increases, we are pricing that Associate out of the labor market, increasing the likelihood that he or she will stay with Wal-Mart" (p. 3). This statement implies that Wal-Mart needs new people to come and work for lower wages, rather than older employees to stay and work for higher. Probably, training new people doesn't cost much since the work is relatively unskilled, making a big turnover an economic advantage. She furthermore suggests that full-time employees, currently working 34 hours a week, be made to work more hours thereby "spreading benefits costs over more hours." Of all the suggestions, the author seems most enthusiastic about this one. Probably, full-time workers get paid by the week, so it would cost Wal-Mart nothing if workers had to work longer hours. Wal-Mart will get more for their money at the expense of the employees.

Much of the memo appears to report on research the company did relative to employee attitudes. For example, the author states, "...the least healthy, least productive Associates are more satisfied with their benefits than other segments and are interested in longer careers with Wal-Mart" (p. 4). How did they figure that out? Did they do a survey, perhaps, and compare who complains most to who uses their insurance the most? This seems unethical. Surveys of employee satisfaction ought to be anonymous. Did the workers know what the information they were giving would be used for?

She goes on to say that "low utilizers" (people who don't collect on their insurance as much) "are the most attractive Associate segment because they cost Wal-Mart less in terms of healthcare expenses and are more productive in their jobs." She then explains that productivity findings were "based on analysis of individual cashier items per hour data" (p. 4), presumably by looking at their cash register records. Also, it seems unfair to fault older employees for being "satisfied" with the benefits package when obviously they cannot readily get work anywhere else. Perhaps, younger or more productive workers don't plan to stay because they can get better benefits elsewhere -- benefits that include payroll savings plan and help paying for more education. Wal-Mart claims only 3% of their employees came there to work for the benefits, and satisfaction with Wal-Mart depends on several factors, not just its benefits package. The author assumes the number is low because people are not too interested in benefits, but it may be that some people never come to Wal-Mart because they've heard the benefits are bad.

The author sees the view that Wal-Mart is part of the current healthcare crisis as unfair even though she admits that many Wal-Mart employees are so poor they are qualified for Medicaid. Some states are trying to make Wal-Mart responsible for employee healthcare costs instead of the taxpayers. This would add to Wal-Mart's costs and further contribute "to the decline of Wal-Mart's overall reputation." In an honest discussion of Wal-Mart's poor reputation (buried on p. 8), the author admits that because the healthcare coverage Wall-Mart offers is so expensive, many low-income employees cannot afford coverage: "...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." (p. 8). The cost for them is nearly twice the national average. Moreover, it is likely that Wal-Mart employees with catastrophic illnesses will have to declare bankruptcy. Meanwhile, 46% of Wal-Mart employees have children either uninsured or on Medicaid. In other words, the state pays instead of Wal-Mart. Furthermore, she points out that critics can use this information against Wal-Mart, further eroding Wal-Mart's reputation. This part of the memo is refreshingly honest and straight-forward.

The author gets down to recommendations for changes in policy on page 9 and numbers the "initiatives." The first is to make healthcare benefits dependant on the number of hours worked. Full time employees would get health care after 1000 hours of work (in about 6 months), while part time would get theirs after 2,000 hours (about a year of work). Premiums would be higher for spouses' coverage. The company would initiate a program to educate employees (especially people formerly uninsured or on Medicaid) to more efficiently choose medical services. Life insurance benefits would be lowered to $12,000. Enrollment for healthcare coverage would be reduced by hiring more part-time workers and fewer full-time. The company would develop a list of the best (and cheapest) doctors and offer incentives for employees to go to them. Wal-Mart would replace its current one-size-fits-all benefits package for a flexible offering that allows employees to choose which benefits each wants. Although this seems like a good idea, the total number of benefits offered would probably be reduced. Health clinics in stores is another suggestion with "innovations to create lower cost visits." All these changes would involve little risk and/or expense for Wal-Mart.

The author then presents five "bold steps" that would make a big impact. Her use of the word bold is interesting. Bold implies courage, something everybody wants to have. Bold also sounds safer than risky. The use of the positive word bold shows the attitude the author wants the reader to take toward the recommendations. The first bold step is to get rid of the present insurance plan and establish Health Savings Accounts (HSAs) -- bank accounts "for health expenses...similar to...401(k). Wal-Mart would contribute annual seed money to fund it, employees would contribute annually, and Wal-Mart would match the employee's contribution. With no deductible, the employee would pay for medical care from the HSA account. If the account ran out, the employee would have to cover his own expenses until co-insurance kicked in. This time when the employee has to pay from his own pocket is referred to as a "bridge," but there is no explanation how long the bridge would be. All employees would participate. A healthy employee could build up an account from $600 to $2,100 in three years time. The author remarks that a program like this would be harder to sell to the employees than an insurance plan, but it would be more beneficial to everyone involved.