Monday, March 13, 2006

A Word on Wal-Mart

There is a lot of talk about Wal-Mart these days.

Before I get too deeply into the topic, let me say that I own Wal-Mart stock. It might be in various retirement and index funds I own, but, more importantly, it is included in the portfolio created by the investment club I belong to. I did not research and present the stock for consideration, but I did vote to purchase it. We have owned 50 shares for about a year and it has lost about $2.00 a share since then. I also shop at Wal-Mart and affiliated stores.

Wal-Mart is the state's largest private-sector employer, with 48,000 employees; nearly 16% of these workers are on Medicaid. The state's cost to provide medical benefits to these workers is $15 million (3/06/06). This number includes both full and part-time employees. Information was not released on how many employees had other jobs as well. Many part-time employees work more than one part-time job or are students or retirees. While the number of Wal-Mart employees on state assistance is high, I would like more information.

Wal-Mart does offer health care benefits. Full-time employees are eligible for benefits after 6 months, part -timers after 2 years. According to company officials, nationally 7% of new hires are on Medicaid, but that goes down to 3% after two years.

State Rep. Jake Wheatley (D - Allegheny) has introduced a bill that would require the PA Department of Public Welfare to annually provide a list of businesses with more than 20 workers on Medicaid (3/03/06). State Rep. Mike Veon wants to require businesses with 10,000 or more employees to devote at least 8% or their payrolls toward health care benefits. (Paul Lang, candidate for 6th state senate district, and one of the candidates I am following, is also in favor of this.) This is in part response to a bill in Maryland requiring Wal-Mart (the only company in the state that fit the requirements of the bill) to spend at least 9% of their payrolls on health insurance. Other states are also looking at similar measures to track state funded health benefits for employees of large companies and perhaps legislate more employer contributions. For more on this topic see Wal-Mart Watch.

An article in the Feb. 5th Inky provided more information, excerpted here:

Wal-Mart disputes the claim that it provides inadequate health coverage. Company spokesman Dan Fogelman said employee payments for family coverage for Phladephia-area Wal-mart employees started at $65 a month. That comes with a $1,000 annual deductible, but every member of the family can get three doctor visits and three prescriptions filled before the deductible kicks, in, he said.


later in the same article:

[Vincent] DeMarco [lawyer and activist] worked the [Maryland] legislature and addressed church, community and business groups, doing what he could to keep the issue in the news. Giant, a unit of Ahold, USA, became a powerful ally. It spends substantially on health care for its large unionized workforce and competes againts Wal-Mart. But DeMarco also linked up with small employers such as Mark Derbyshire, who owns a moving and storage firm in Aberdeen, Md.

Derbyshire said he had long been concerned about the cost of health insurance for his employees, and decided to join forces with DeMarco after hearing him speak at his church. Derbyshire, who testified in a legislative hearing for the proposal, said his company paid 75 percent of the cost of comprehensive health insurance for his workers; they pick up the balance of $200 a month for family coverage.


I don't like the idea of large corporations cutting costs by pushing medical expenses off on the state, but I don't like laws aimed at one company or person either. The issue should have more thought behind it than that. Public employers were not included in the state numbers released and I'm a little worried at what will happen when the numbers of part-time instructors at state colleges and universities who are on Medicaid start showing up on reports. Or the part-time employees of custodial companies who do the work that used to be done by union members or state employees. How about the number of military dependents on public assistance? Maybe I'm wrong but I think there are a lot of people out there in those situations.

If the problem is that employers are not offering the benefits they used to, let's focus on that. I know there are employers, such as UPS, that do offer good benefits, even to part-timers. But UPS bases it's business on reliable customer service, something that, in a free country, requires the acquisition and maintenance of well-trained, reasonably happy employees. If you have shopped at a Wal-Mart lately I'm sure you have noticed their emphasis is on low prices and not on customer service, reliable or otherwise.

Medicaid is government health insurance, a very touchy subject. Do we want to keep it solely for the indigent or disabled? Do we want to encourage people who do not have a long work history to find employment where they can? Do we want to foster the growth of consortiums of large and small businesses to provide employee health care benefits at reasonable prices? What do we want to do here? Wal-Mart and other large conglomerates are easy targets because they are so large and are easily idenfiable, especially given the high percentage of the American population that shop there. But, again, I am wary of demonizing one individual or group in particular. Do I think Wal-Mart could do a better job of providing benefits? My answer, formed in complete ignorance of the internal workings of the company, is "Sure." From their point of view, if the law states that employers with more than 10,000 workers in a state have to pay more for health coverage, wouldn't the easiest thing for them to do be to fire one person and get down to 9,999? What would be better all around is a more detailed, thoughtful solution to the problem at hand.

As one more personal note, I went to high school in a small, rural town. The county library was within walking distance and I used it often. Even in those days library budgets were small, and my reading was shaped by what they had as opposed to what I might have wanted. The local drugstore had a small selection of books and magazines and I kept watch on those, learning the delivery schedule and getting to know the delivery man. The grocery store had a few books too. To find a real bookstore you had to drive about 2 hours (in any direction -- the town was equidistant from everywhere). A big box store, Wal-Mart or something like it, I don't remember now, opened on the outskirts of town and it had a larger selection of books and magazines that anywhere else nearby. While I still relished the trips to a city mall (with Dalton's or Walden's) 2 or 3 times a year, the big box store did expand my horizons at least a little.

Sources:

Gurney, Kaitlin, "Wal-Mart bill in NJ seeks health benefits," Philadelphia Inquirer Feb 26, 2006, p. A1

Mondics, Chris, " Forcing firms to spen on health," Philadelphia Inquirer February 5, 2006, p. E1

"One out of 6 state Wal-Mart employees enrolled on medicaid," Pittsburgh Post-Gazette March 6, 2006, p. B4

Worden, Amy. "Workers' Medicaid data to be released," Philadelphia Inquirer March 3, 2006 p. B1

4 comments:

phillydem said...

The law Maryland just passed actually covers 3 companies, Wal-Mart, Giant and one other, who's name escapes me. Of those 3, only Wal-Mart does not meet the minimum spending on health care.

My big box employer also offers health care, but it is almost prohibitively expensive for anyone working less than 30 hrs a week at
$7, $8 even $9 an hour.

The whole idea behind laws like MD's
is to show how much public subsidy
goes into making businesses like Wal-Mart very profitable. Instead of the usual capitalist race to bottom to pay the lowest wages, offer no benefits, give no pensions and have no unions, Maryland has at least provided a floor where everyone will be better off because of government action, which is what I, as a Democrat, believe in.

FTR, the Domini fund used to be a big investor in Wal-Mart, but they
dropped the stock several years ago because even a large institutional stockholder like them could not
get Wal-Mart to adopt more socially
responsible policies.

Jamison said...

When we passed the legislation here in Maryland I was so happy. First I grew up in Arkansas about 40 miles from Bentonville and my father was a truck driver that did a lot of driving for Wal-Mart. So Wal-Mart has been a part of my life for as long as I can remember. I'm not aware of any Wal-Mart shares in my portfolio, but it's not in the top 10 of any of stock funds. I don't shop at Wal-Mart.

My first thought was utter disappointment that Wal-Mart couldn't do better on this. I mean they could have chosen to become the Wal-Mart of healthcare reshaping it with their eye towards efficiency, instead they decided the best choice was to resort to standard low browed corporate tactics to answer the challenge presented by Maryland. I think the Maryland legislation was very fair, they asked Wal-Mart to step up a be a good corporate citizen or there will be punishment for doing harm to our state. The legislation is as simple as that. They only get punished if they don't try to live up to a minimum level of decency. It's speaks volumes for the corporate values at Wal-Mart. I can muster not even an ounce of sympathy for them. Why as a tax payer should I be made to pay corporate welfare so their CEO's can live off my hard earned wages?? Why shouldn't their massive profits be poured back into their employees and made to make my state better instead of worse for their existence?

howard said...

Jane,

I think it's interesting that you pointed to UPS as an example of a company offering good benefits. You're probably aware that UPS, unlike some of its package industry competitors, is largely unionized.

As someone who owns UPS stock and has worked for the company, I can tell you they're infinitely more profitable as a business than their leading competitor (Fedex). But to hear stock analysts speak of it, you'd think the amount of spending on compensation and salaries completely neutralizes the fact that they almost no debt and turn out record net profits almost every year.

The problem at WalMart seems like it's related to the common Wall Street perception that employee compensation is a liability rather than an investment.

My experience talking to many actual WalMart "associates" tells me that the low level of compensation is hurting them, because in any industry that relies on front-line customer service (as both UPS and WalMart do), customers do take certain cues from the employees they encounter.

In short, I have very little sympathy for WalMart in situations like these. And if I were you, I'd be thinking twice about WalMart stock as a long-term investment. Big Box employers never seem to stay on top for very long.

AboveAvgJane said...

Howard,

Investing is always risky and no industry or company is a safe long-term invesment. We've been burned more than once by buying a stock that looked wonderful and had great press, only to have them revise their financial statements the next quarter and the price dives and never recovers. Retail is especially risky but a balanced portfolio will probably have at least one retail-based stock in it.