WalMart just announced that it will at some unspecified point down the road end minimum wage-level pay for its workers. As we’ll demonstrate, there is way less here than meets the eye. In fact, all in pay levels, including benefits, are falling for WalMart workers, not rising.
Even a “just the facts’, ma’am” account from Reuters makes clear how few WalMart employees will benefit from the story that the retailer is pushing today:
Wal-Mart Stores Inc plans to improve opportunities for its employees so that in the future there will no longer be a few thousand workers on its payroll making minimum wage, the chief executive of the world’s top retailer said on Wednesday.
The act of upgrading minimum wage positions would be largely a symbolic move for Wal-Mart. Currently only about 6,000 workers make the minimum out of its U.S. workforce of 1.3 million. Wal-Mart says its average full-time hourly wage is $12.92, compared with the federal minimum wage of $7.25.
This move is purely cynical. First, the vague planned measure was announced the day before fallies by OUR Walmart, a labor group pushing for better pay, were scheduled to take place. The announcement is an obvious ploy to take the winds out of the sails of those protests. And how much above minimum wage levels will these pay increases be, exactly? Given WalMart’s famed tight-fistedness, don’t expect more than token increases.
The policy change follows closely on the heels of WalMart announcing that it will eliminate health care benefits to over 30,000 part time workers, coinciding with the Bentonville giant stating that it would start selling health insurance in its stores. Nothing like having captive customers. But the media focus on the elimination of part-time coverage, a change Obamacare opponents predicted, missed the even bigger story as far as WalMart’s compensation practices are concerned: that it put through what amounted to a pay cut for its full time workers by shifting more health care costs on to them. As David Cay Johnston explained in an AlJazeera op ed earlier in the week:
To understand the pay problems Walmart illustrates, let’s start with a company announcement from last week.
The retailing giant never said it was cutting compensation, which would be a PR disaster, given the campaigns to raise the minimum wage. Instead, company publicists told reporters that come 2015, it would raise health insurance premiums for its full-time workers by 20 percent and eliminate access to company health insurance for 30,000 workers who have insurance now but who clock less than 30 hours a week. And reporters, as they too often do, parroted the company’s statements without contextualizing them.
Walmart said it must take these actions because it expects health care costs to rise by $330 million above the $170 million increase it budgeted for in 2015. To put those numbers in perspective, $330 million is about a third of the company’s domestic revenue for a single day. Over a year it comes to less than 7 cents out of each $100 Walmart’s underpaid cashiers ring up.
While that $330 million expense will disappear from the company’s books, it must be recorded somewhere on the universal ledger of America.
That $330 million will be borne primarily by Walmart’s workers, many of whom will finance the higher health insurance premiums by cutting back somewhere else, perhaps by skipping meals. Those who cannot squeeze another dollar from their budgets will drop their insurance, adding a new liability for taxpayers, if they become seriously ill or injured. Economists call the uninsured free riders. Some Walmart associates who lose or drop their health insurance will not seek treatment, their conditions going from curable to disabling or even fatal.
Walmart’s top five executives, of course, have no such worries. Their employment contracts describe them with the same word applied to stock clerks and cashiers: “associate.” But Walmart foots the bill for their annual physicals. Their titles may be equal, but management and board concern for the well-being of associates is not.
The story also stresses that WalMart has become a poster child of pay for executive underperformance:
Walmart claims its executive pay policies align the interests of shareholders and executives. CEO Michael T. Duke retired this year with at least $140 million of company stock, after averaging about $20 million in each of his last three years at the helm. He owes his fortune not so much to the rising stock price that benefits all investors as to meeting a narrow target that can be manipulated with accounting tricks: operating income (profits before interest, depreciation and taxes). This measure includes wages, however, giving Walmart executives an incentive to hold down rank-and-file compensation.
Over the last 10 years, Walmart’s stock price has grown only about two-thirds as much as the broad market, its debt-to-equity ratio worsened, and the return it earned on assets drifted downward. Profits grew only three-quarters as much as revenue. These are hardly exemplary marks for executive performance or a good sign of future profits.
Most troubling of all: Dividends grew 60 percent more than profits as founder Sam Walton’s heirs, who control half of all shares, stuffed their pockets.
The lesson here is that paying big bucks for inferior executive performance is like cutting rank-and-file compensation by raising health insurance premiums: It’s inefficient, unfair and counterproductive to the long-term interests of shareholders.
And of course, we have the elephant in the room: that WalMart’s policies of crushing worker wages, along with supplier margins, is a major factor in the lousy state of worker wages. One of the reason the stock market crumbled on Wednesday before Fed Chairman Janet Yellen talked it into reversing some of its losses is that retail sales and the New York manufacturing index, particularly the component that measures orders, were unexpectedly weak. In a consumption-driven economy, WalMart’s revenues comes from shoppers who look an awful lot like its workers. Squeezing workers on the scale it has managed to do has been a failing strategy for over a decade. But the company is such a cost-driven one-trick pony that it is unlikely to know how to get out of its own way, even if it were to have a miraculous change of heart. So even though, as economist Herb Stein said, that which is unsustainable won’t continue, it’s not clear what the crushing of labor end-game looks like.