QUICKLINKS: Obits NEWCOMERS GUIDESearch Browse by date Thu, Oct 27, 2005Wed, Oct 26, 2005Tue... Wal-Mart memo targets benefits

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.

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.

Rep. Rosa DeLauro, D-Conn., said Wednesday in a statement the memo was a "smoking gun confirming what we have been saying for months about Wal-Mart's anti-worker employee benefits strategy."

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 )."

Former Rep. Tony Coelho, an author of the Americans With Disabilities Act, said : "It's a sad day when America's largest employer callously treats its employees as products in its stores. Wal-Mart has a moral responsibility to immediately disavow itself of this memo and not selectively hire Americans on the basis of their potential cost to the company."

Chambers said in an interview 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."

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.

The recommendations in the memo could be taken up by Wal-Mart's board in November or sometime after the first of the year, said Sarah Clark, a Wal-Mart spokesman.

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.

George Whalin, president and chief executive officer at Retail Management Consultants of San Marcos, Calif., said Wednesday seeing the memo in public was surprising. But he said Wal-Mart's focus on cutting costs was not unexpected.

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.

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 that is allied with labor unions and claims that Wal-Mart's pay and benefits are too low. Tracy Sefl, a spokesman 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 just $ 11 a month in premiums.

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 this week 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 memo, prepared with the help of McKinsey & Co., 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."

By reducing from two years to one the amount of time part-timers must work to qualify for health insurance, Wal-Mart is hoping to allay some of its critics. Information for this article was contributed by Edward Klump of the Arkansas Democrat-Gazette and Lauren Coleman-Lochner of Bloomberg News.

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