\f 134 THE BIG SQUEEZE munications Workers of America that has sought to unionize high"tech workers. "They hire whomever Microsoft tells them to put on their payroll. Then they p~ocess their paychecks, and that's it."4I During the litigation, Microsoft said it had the right to choose whom to hire as a permanent employee and whom to hire as a temp. Microsoft's chief executive officer, Steven A. Ballmer, said the permatemps were trying to get something beyond what they had a right to expecto'~ temp is a temp," Ballmer said. "People know when they sign up. It's not like we fool anybody." 42 Microsoft took a public relations beating during the permatemps battle, fueled by workers like Rebecca Hughes, who temped for Microsoft for three years. "If Microsoft cannot afford to treat all its employees well, then no company in the history of the world could," Hughes said. Amy Dean, who headed the AFL-CIO's office in Silicon Valley, said permatemps were "one more strategy in which companies are seeking to avoid their responsibilities to their workers."43 The United States Court of Appeals in San Francisco ruled against Microsoft, finding that its permatemps were common-law employees and thus should have been included in the discount stock purchase plan. The litigation dragged-on for thirteen years and ended in 2005 when Microsoft ultimately agreed to.a $97 million settlement that covered 8,500 workers. 44 Microsoft overhauled its policies as a result of the dispute. But even when Microsoft ordered its temp agencies to improve their health and vacation benefits and 401(k) offerings, the benefits they offered remained far worse than what Microsoft offered its regular employees. To ensure that its temps would never again be considered common-law employees, Microsoft decreed that as soon as temps reach their 365th day with Microsoft, they have to take a 100-day break before working at the company again. Despite Microsoft's loss in the courts, HP continues to ape Microsoft's failed practices. The courts may someday rule on the wisdom of that decision. tO symbolize tough-minded management and the squeeze on American workers, it isWal-Mart, the nation's largest corporation. The giant retailer maintains that its low prices make it the best friend of America's working families. But Wal-Mart's many critics assert that for its workers, its business practices demonstrate thatWal-Mart is leading a race to the bottom. It's time to take a close look at the colossus from Arkansas. IF ANY COMPANY HAS COME Chapter Eight WAL-MART, THE LOW-WAGE COLOSSUS Lee Scott is the head ofWal-Mart, the biggest retailer on the planet, with sales greater than the combined sales ofthe nation's five next largest retailers and with more employees-1.9 million in 2008- than the combined populations ofVermont, Wyoming, and North Dakota. "The world's most powerful CEO," according to Fortune magazine, he earned $29.7 million in salary, bonus, stock awards, and stock options in 2006.! Yet Wall Street has essentially given him a "D" in the subject that CEOs care about most- the -company's share price. During Scott's first eight years as chief executive, Wal-Mart's stock price fell by 27 percent, representing a $77 billion loss in value-this at a company that posts its share price in the lobby of its headquarters and even outside some employee restrooms. For Scott, the stock's poor performance is frustrating because under him, Wal-Mart's sales and profits have more than doubled; its sales were $345 billion in 2006, its profits were $11.3 billion. 2 Scott, a down-to-earth guy whose father ran a gas station in Kansas, has other troubles. Not a day goes by that his company isn't pilloried by groups with names like Wal-Mart Watch and Wake Up Wal-Mart, upset that he pays his workers only 59 percent of what his discount rival, Costco, pays, or that tens of thousands of his employees must turn to taxpayer-financed Medicaid because }:hey earn too little to afford the premiums and deductibles for Wal-Mart's health plan. When Alice Walton, a Wal-Mart heiress, paid $35 million for Kindred Spirits, an 1849 painting that is a defining work of the Hudson River School, to install it in a museum near Wal-Mart's headquarters in Arkansas, one anti-Wal-Mart group issued a news release pointing out that the $35 million could have bought health insurance for 8,572 uninsured Wal-Mart workers. Scott has also been criticized by journalists who have written about WalMart's illegal and unethical activities, such as forcing employees to work off the clock and locking its workers in at night, activities we've already discussed, as well as violating child labor laws in Arkansas, Connecticut, Maine, and New Hainpshire; having illegal immigrants work seven days a week cleaning its stores; and buying goods from Chinese sweatshops where managers beat 136 THE BIG SQUEEZE Wal-Mart, the Low-Wage Colossus 137 workers and hold them in virtual slavery.3 Blaming the messenger, Scott and other Wal-Mart executives often complain that the company's stock price and image have been hurt mostly because of these stories and not the practices themselves. But in factWal-Mart's sales and its share price have been held down partly because of some major marketing mistakes, including apparel designs that didn't catch on, but far more so because the bulk of its customer base, 42 percent of whom have household incomes under $3s,ooo, are hurting due to stagnating wages and soaring fuel prices.4 Even though Scott and Wal-Mart's corporate PAC donates lavishly to Republicans, Scott has quietly complained that President George W Bush's tax cuts went disproportionately to the rich, helping lift sales at Neiman Marcus and Saks Fifth Avenue but doing little for Wal-Mart's customers and revenues.s More than forty lawsuits have been brought againstWal-Mart over off-theclock work, and the company is the defendant in the biggest class action employment discrimination lawsuit in American history. That lawsuit is seeking billions of dollars in damages and accuses Wal-Mart of discriminating in pay and promotions against 1.6 million current and former women workers. Wal-Mart deserves to be examined in detail because it is immense-it is not just the world's largest retailer but the world's largest company-and because it has a huge influence on retailers and business practices across the United States. Business executives and MBA students alike are assiduously studying how to mimic its low-cost ways. Its sales represent an astonishing 2.6 percent of the nation's gross domestic product. It is three times as large as the world's second-largest retailer, Carrefour of France. Its sales are greater than the com.bined sales of Target, Sears, Kmart, JCPenney, Kohl's, Safeway, Albertsons, and Kroger. Some retail consultants predict that it will become the world's first $1 trillion company in a dozen years. s Each week 130 million shoppers visit its 4,100 U.S. stores, and each year 82 percent of American households shop at Wal-Mart. It is the nation's largest grocer, and will have 35 percent of the nation's food market and 25 percent of the pharmacy market by the end of this decade, according to Retail Forward, a consulting firm. 7 Wal-Mart already sells one-third of the nation's disposable diapers, toothpaste, shampoo, laundry detergent, paper towels, and nonprescription drugs, and some say it could soon capture a so percent share for those products. It is the biggest customer of Walt Disney and Procter & Gamble and accounts for 28 percent of Dial's sales, 24 percent of Del Monte's, and 23 percent of Revlon's. 8 Wal-Mart also accounts for 15 percent of the nation's single-copy magazine sales and nearly 20 percent of all sales of CDs, videos, and DVDs.9 Over the past decade Wal-Mart has opened more than 250 new stores each year in the United States. Its expansion efforts employ 30,000 construction workers, and its plans call for adding 6o,ooo employees a year. Wal-Mart has more than 4,000 stores in the United States, including 2,300 supercentersgiant stores that sell groceries in addition to general merchandise-and top company officials say they hope Wal-Mart will one day have thousands of additional supercenters. 10 "In the United States, we have between 8 and 10 percent of the retail sales, non-automotive, non-restaurant, so we can be a much larger company," says Scott.I 1 Ironically, while it is easy for critics to find grounds for demonizing WalMart, it is hard to imagine Scott as some Mephistophelian force. He is a charming man who speaks with Andy Griffith-like folksiness. Under Scott, Wal-Mart has become a national leader in promoting energy conservation and in making low-cost generic drugs available to consumers. When Hurricane Katrina struck, Scott put FEMA to shame by immediately dispatching a giant fleet of trucks to carry bottled water and other necessities to the stricken Gulf Coast. When Scott became CEO in 2000, his mission was to spread Wal-Mart from rural America into the nation's cities, to expand overseas, and to turn Wal-Mart into a snazzier merchandiser to compete more effectively with its archrival, Target. Scott was responsible for overseeing the efficient shipment of s billion cartons of goods each year to more than s,ooo stores worldwide. Scott's mission was also to safeguard Wal-Mart's credo: "Always low prices." Scott sees himself as a champion of the value-seeking consumer. He is constantly talking up Wal-Mart's role in saving American consumers billions of dollars each year. 12 He often portrays Wal-Mart as the best friend of "working families" (borrowing the vocabulary of the AFL-CIO), saying its jobs and prices have helped millions of struggling families "achieve a higher standard of living." Its low prices give them "a raise" every time they shop at Wal-Mart, he says.I3Wal-Mart, he adds, is a boon to low-income Americans, its low prices a blessing to the poor, partly because its prices have forced other retailers to cut theirs. But the low wages and modest benefits that Wal-Mart offers have induced other companies to cut their wages and benefits, too, thus squeezing the living standards of the "working families" that Wal-Mart has embraced. Wal-Mart's founder, recognized Scott as a man to watch. Scott was a quick study, a good talker, an attentive listener, and an astute strategist. He was a wizard at logistics, and he knew how to analyze a EARLY ON, SAM WALTON, 138 THE BIG SQUEEZE difficult situation and then get the job done. He was also hypercompetitive in a company that thrives on competitiveness. (In the years before Wal-Mart helped push Kmart into bankruptcy, Wal-Mart's offices were filled with pictures of Wal-Mart's yellow smiley-faced mascot strangling a red K with a devil's face.) Scott grew up in Baxter Springs, Kansas, a town of 4,6oo best known for a robbery staged there by Jesse James. His mother was a music teacher, and his father owned a Phillips 66 filling station. To pay his way through college-he majored in business at Pittsburg State in Kansas- Scott worked nights at a tire-molding factory. He married before his junior year, and the young couple started humbly, moving into a trailer court. After graduation, Scott went to work for Yellow Freight, the giant trucking company. One day in 1979 he confronted a Wal-Mart transportation executive, David Glas_s (who later rose to become CEO), complaining thatWal-Mart had failed to pay a $7,000 bill to Yellow Freight. Glass was so impressed by Scott's mix of tenacity and charm that he offered him a job as Wal-Mart's assistant director of trucking. At the time, Wal-Mart had 276 stores, 21,000 employees, and $1.2 billion in sales. An investor who bought $10,000 worth ofWal-Mart stock that year would now be sitting on shares worth more than $4 million. Scott was perhaps an overly zealous manager. Whenever a Wal-Mart truck driver was caught drinking or arrived late, Scott dashed off notes to every driver, warning of potential discipline. He got under the drivers' skin so badly that one day nine of them went to see Sam Walton to demand that Scott be fired. Walton told Scott to apologize and made him tell the drivers that he appreciated that they had used Wal-Mart's Open Door policy to go over his . head to complain. Chastened, Scott became a kinder and gentler manager. Indeed, he has developed a reputation as a people person with some of Sam Walton's common touch. He inhabits the same modest ground-floor office, laminated wood desk and all, that Walton once used-facing the company parking lot. Like Walton, Scott is a genial, get-along guy. He seems genuinely surprised by all the broadsides that Wal-Mart faces. Regrettably, he says, his job has increasingly evolved into giving speeches and television interviews to try to beat back wave upon wave of criticism. "It has been a hard transition for us going from being the darling to being under attack," he said. 14 Scott tells everyone who will listen that Wal-Mart's detractors are often unfair and even dishonest. But it seems clear that the critics only want the company to start providing better wages and health benefits. According to Wal-Mart, the Low-Wage Colossus 139 Wal-Mart, its average hourly wage for full- time workers was $10.51 in 2007. One study found that Wal-Mart's average wage was 25.6 percent below the average at large general merchandise stores and 17.5 percent below that at large grocery stores.ls The annual pay for Wal-Mart's full-time hourly workers averaged $19,100 in 2007- some $1,500 below the poverty line for a family of four. Wal-Mart provides health insurance to just so percent of its employees, compared with 53 percent for large retailers in general and 83 percent for Costco, one of its main competitors.l6 According to an internal Wal-Mart study from 2005, 19 percent of \\1\\Tal-Mart workers had no health insurance, while 5 percent of its employees turned to Medicaid for coverage. To Wal-Mart's embarrassment, that internal study found that 46 percent of the children of Wal-Mart workers were either uninsured or had Medicaid coverageY This means that taxpayers are paying for health coverage for many ofWal-Mart's workers and their families. In 2005, Wal-Mart paid just $2,660 for health coverage for each of its s6o,ooo insured U.S. employees, while the nation's major corporations paid an average of$s,6o6 per insured worker.ls Scott often boasts that several studies have found thatWal-Mart's grocery prices are 5 percent to 17 percent lower than those of other grocery stores.l 9 But Scott hardly ever mentions that his company's rock-bottom costs make its rock-bottom prices possible. WAL-MART'S EXTRAORDINARY EXPANSION has of COUrSe been fueled by those "everyday low prices." It has made its famously low costs-and pricespossible by pressuring suppliers to hold down prices, building the most efficient transportation system in retailing, creating an extraordinary computer and inventory system, and maintaining rock-bottom labor costs. It creates a ripple effect. "Wal-Mart comes up in every single labor negotiation we have, whether it's Safeway or Schnucks in St. Louis or the IGA in any number of communities," said Joseph Hansen, president of the United Food and Commercial Workers (UFCW), the main union representing supermarket workers. "They all say, 'We need to reduce our wages and benefits to maintain our profit margins and stay competitive with Wal-Mart.' " Craig Cole, the chief executive of Brown & Cole Stores, a supermarket chain in the Pacific Northwest, has been vocal about "Wal-Martization" as the retail colossus has expanded in his region. "Wal-Mart has developed a business model based on being an employer of 140 THE BIG SQUEEZE the working poor," said Cole, whose company provides health insurance to 95 . percent of its workers, twice the level atWal-Mart. "Wal-Mart's business model is undermining communities by pushing out locally owned retailers while driving employee wages down.2o "Socially, we're engaged in a race to the bottom," says Cole.2l A study led by David Neumark, an economics professor at the University of California at Irvine, concluded that Wal-Mart's arrival in a community depresses wages. The study found that eight y~ars after Wal-Mart enters a county, earnings per worker in that county, retail and nonretail, fall between 2.5 and 4.8 percent.ZZ The drop happens because Wal-Mart often drives out retailers that pay higher wages or pressures those that survive to cut their wages. Wal-Mart's downward pull manifested itself most clearly in Southern California when the state's three largest grocery chains- Safeway, Albertsons, and Kroger, which owns Ralphs- demanded deep wage and benefit concessions because they feared Wal-Mart's plans to open forty supercenters in the state. The grocery chains repeatedly pointed out that their cashiers earned $17.90 an hour on average while Wal-Mart's earned $8.50. The UFCW balked at the huge concessions these chains demanded, but after a four-and-a-half-month strike and lockout in 2003-4 involving 59,000 workers, the union agreed to drastic concessions, including vastly inferior health and pension plaris for newly hired workers. (The union's fight was badly undercut by its own poor planning and by embarrassing revelations about the exorbitant salaries paid to its top officials in California.) Under the resulting contract, the three supermarket chains contributed less than $2,000 a year for health coverage for each new full-time employee, enough only for bare-bones health coverage. That was far lower than the $6,goo a year the companies contributed for each full -time worker before the contract showdown. The contract cut starting pay by go cents an hour and reduced the maximum that newly hired workers could earn from $17.90 an hour to $15.10. 23 The UFCW was forced to agree to somewhat lesser concessions in its contracts in San Francisco, Sacramento, and Seattle. "We have been in business for sixty-eight years, and in that period of time we have seen dozens of competitors come and go," said Jack Brown, president of Stater Brothers, a unionized California grocer. "However, Southern California has never seen as big a competitive threat as the Wal-Mart supercenter."24 Wal-Mart is known for placing unusually intense pressure on its 61,000 suppliers, often forcing them to squeeze their domestic workers on wages or move their operations overseas or both. Bill Nichol, CEO at Kentucky Derby Hosiery, Wql-Mart, the Low-Wage Colossus 141 said Wal-Mart pressed him to move production overseas: "Their message to us, surprisingly, is, 'There's a broad market out there. If you want to focus on the lowest part of the market, it's obvious that you can't do that [by manufacturing] in the United States.' "25 Lakewood Engineering and Manufacturing, a Chicago-based company whose plight was analyzed in a Pulitzer Prize-winning series by the Los Angeles Times, makes a twenty-inch box fan that sold for twenty dollars in the early ggos. But the company, facing pressures from Wal-Mart, cut its costs and 1 prices to such a degree that Wal-Mart now sells those fans for ten dollars. Lakewood's o~er, Carl Krauss, said he could satisfyWal-Mart's demands only by increasing automation and by importing the electrical guts of each fan from Shenzhen, China, where Lakewood now makes heaters and desktop fans. As a resclt, it takes seven workers in Chicago to produce a fan, down from twentytwo a decade ago. In Chicago, Lakewood's workers earn thirteen dollars an hour; in Shenzhen, the going rate is forty cents an hour. Eager to please WalMart Lakewood now produces 40 percent of its volume in China. "~y father was dead set against it," Krauss said about opening a plant in China. "I have the same respect for American workers, but I'm going to do what I have to do to survive.'' 26 stems from Sam Walton's idea to make money by selling more goods instead of selling goods for more, and from h~s determination to cut costs to the bone and then cut them some more.27 Walton founded his empire in 1 g62 with a single store in Rogers, Arkansas, and he practiced what he preached. When he and other Wal-Mart executives took business trips, he would insist that everybody double up in hotel rooms.When he summoned store managers from miles around to join in the weeklong sprint to prepare a new store for opening, instead of putting them up in ~otels, he had them camp out in the soon-to-be-opened store. When Wal-Marts buyers traveled to Manhattan, they were told to stay at cheap hotels near Madison Square Garden and to walk everywhere, forgoing taxis. In his first few s~ores he paid many of his workers less than the federal minimum wage, assertmg ~at each store was an individual company that should enjoy a wage exempuon d' d 28 available to very small businesses. The Labor Department 1sagree "In the beginning . .. we really didn't do much for the clerks except pay them an hourly wage, and I guess that wage was as little as we could get by WAL-MART'S PHENOMENAL SUCCESS . b' h 29 with at the time," Walton wrote in h 1s auto 10grap Y 142 THE BIG SQUEEZE At the urging of his wife, Helen, he eventually became somewhat more generous, offering his employees modest bonuses, a bare-bones health insurance plan, and discount stock purchases. (Thanks to those stock purchases, some workers who joined Wal-Mart early on have become millionaires.) Sam Walton's cost-cutting legacy has been passed down to Wal-Mart's current management. Following Walton's example, the company's senior executives have generally viewed overtime-paying time and a half when employees work more than forty hours a week-as an outlandish luxury. In many stores, signs next to the time clock proclaim '~bsolutely No Overtime," while managers at some stores use the PA system to tell employees, "No overtime this week." Wal-Mart tells its store managers that their annual bonus, which can exceed their base salary, will hinge largely on the profitab~ity of their stores. Base salary for store managers generally ranges from $5o,ooo to $8o,ooo, with annual bonuses for strong performers running from $7o,ooo to $150,000. In seeking to increase store profits, managers have little control over sales, so they focus on what they can control-costs, especially labor costs. As discussed earlier, Wal-Mart also orders store managers not to exceed the payroll assigned to their stores. Headquarters tells many store managers to keep weekly payroll between 5.5 and 8 percent of weekly stOJ;e sales, far lower than the 8 to 12 percent level at most retailers. To squeeze out more profits, headquarters usually requires store managers to reduce that percentage from one year to the next. If store managers exceed that ceiling several weeks in a row, they can be fired or demoted to assistant manager or even to hourly employee, their pay perhaps falling from $150;ooo a year to less than $5o,ooo. These rules, as we've seen, made life miserable forWal-Mart managers like Melissa Jerkins and Wal-Mart supervisors like Farris Cobb. But Wal-Mart's rules and cost-cutting culture can also play havoc with the lives of its regular employees. Verette Richardson, her husband, and their four children piled into their car and headed south on I-435 to the Wal-Mart supercenter in Kansas City. They viewed the store as the next best thing to Six Flags. The kids loved the toy department, the vast expanses of children's clothes, and the pint-sized jet fighter ride out front that bobbed them up and down for a minute or two. "I shopped there so much that I thought it would be fun to work there," Verette said. "That was my mistake." TWO, THREE, EVEN FOUR TIMES A WEEK, Wal-Mart, the Low-Wage Colossus 143 Verette, a large African American woman with a commanding voice and booming laugh, began there as a cashier, but in her eight years atWal-Mart, she also worked as a front -door greeter, overnight stocker, forklift driver, truck unloader, shopping cart fetcher, guard for the changing rooms, sales assistant in apparel, sales assistant in sporting goods, manager of the layaway department, and manager of customer service. At firstverette adored working atWal-Mart-she liked the camaraderie, the atmosphere, talking to the cashiers and customers. But she slowly soured on it. Sometimes, she said, she was forced to work ten straight hours without a break. The store was so understaffed, she said, that some days managers did not let her take her thirty-minute lunch break or the two fifteen-minute rest breaks that Wal-Mart rules promised. One holiday season, the employees were so overstretched and the breaks so rare that the only way Verette could eat lunch was to sneak into a changing room to wolf down a sandwich and chips. She said the managers were especially stingy about giving bathroom breaks. "They'd say, 'What do you mean, you need me to watch the register for you to go to the bathroom?' They'd say, 'Why don't you hold it in?' "Verette said. "There was one woman-she kept saying, 'I have to go to the bathroom, I have to go.' The woman menstruated on herself. Afterward we had to wrap bags around her so she could get to the bathroom to clean herself up." Worried that her colleague would get in trouble, Verette shut down her own cash register and rushed over to run her coworker's register. To provide further help, Verette asked another employee to run to get some sanitary napkins and a washcloth, which Verette paid for herself. She was punished for this act of kindness. "They said I was going to get written up because I left my register without permission. Then I also got written up because I bought some things while I was on the clock." Fearing that she might someday face a similar emergency, Verette started keeping spare underpants and a washcloth in her pocketbook. Several weeks later, a manager demanded that Verette show him a Wal-Mart receipt to prove that she had not stolen the underpants that were stuffed into her pocketbook. "I told them, 'Who's going to want this raggedy underwear from home?' " Verette said. There was one inspiring moment, however, that caused Verette to keep some faith in Wal-Mart. Soon after she was hired, Sam Walton visited the store, and he shooed away the managers to talk with Verette and several other employees. "You could see the sincerity in his face," Verette said, as if describing an 144 HIE BIG SQUEEZE Wal-Mart, the Low-Wage Colossus 145 audience with the pope. "When he said, 'People came first' and 'This was family,' you believed him." Verette said she was willing to put up with a lot because she believed in those preachings. But she grew disillusioned because of an accumulation of things, large and small. Some days, minutes after she punched out to begin her thirty-minute lunch break, the PA system called forVerette by name. The manager then ordered her to run to apparel to answer a customer's questions or rush to sporting goods tQ help a customer fill out forms to buy a rifle. She was told not to clock back in until after she had finished serving the customers, and as a result, she would work those ten or fifteen minutes unpaid. At times, the moment she entered the store, even before she walked past the two dozen cash registers up front, a manager ordered her to rush over to a register because the lines were so long and the store s~ short-staffed. And there was no time, she was told, to go to the back of the store to clock in. Once, she recalled, she worked for two hours at the registers before she had a chance to clock in, but she was never paid for those two hours. "They wanted us to do a lot of work for no pay,'' Verette said. "They treated us like little slaves. A company that makes billions of dollars doesn't have to act like that." Sometimes as soon as Verette clocked out for the day- Wal-Mart workers clock in and out by swiping their identification badges in front of the time clock's electric eye- a manager ordered her to collect shopping carts in the parking lot or to straighten up the apparel and linen departments. That meant working thirty minutes off the clock. Once she worked four extra hours because she was ordered not to leave until she had finished putting together an elaborate floor display of infant cribs. She said she was never paid for those hours; she was too scared to put in for them because that would have pushed her over forty hours for the week: Management had repeatedly warned that if employees did that, they would face the managers' wrath and a write-up. "They'd say, 'No overtime is permitted, it's not in the budget,' "Verette said. "But they would wait till we got off the clock, and say, 'Can you finish that up? Please wait to take care of these customers here. Can you keep an eye on the front door while I return this item to the shelf? Can you return some items? Can you help finish that project? Because the district manager is doing a surprise visit tomorrow and I want it to look good.' They'd do it every night. The managers sat at the clock, and if they weren't sitting at the clock, they were sitting by the front door. They'd look like parrots just sitting there. One time I'm going home, and they said, 'Did you finish the soft lines?' I told them, 'No, my time is up.' And they said, 'If you don't finish it, I will write you up.' " Verette said Wal-Mart's managers have ways of getting rid of workers who complain or protest.. She is convinced that was why, in her final year at Wal-Mart, management put her on the worst shift and most arduous job- the midnight shift, unloading trucks. "They worked off intimidation," she said. "They'd get people frustrated, not paying them correctly, not giving them enough hours, giving them too many tasks, giving them mediocre jobs, putting them on the overnight shift, not allowing them to advance. And then they would quit.'' She said managers often schemed to get African American employees to quit instead of firing them, because if they quit they would have a hard time suing for discrimination. Verette remembers several times when managers ordered her to spend an additional hour straightening up off the clock even though her husband and kids were waiting outside the front door to pick her up. "Once it got to the point that my husband came in, and he was angry, and he was going off at the manager, and the manager said, 'If your wife can't handle the work we do in the time allotted her, maybe she should look for employment elsewhere.' " At one point Verette took two months off under the Family and Medical Leave Act to take care of her husband, who was seriously ill. When she returned to work, the store manager told her she was being switched to parttime work. Verette protested because that would slash her weekly pay and jeopardize her health coverage. "The manager said, 'You have to choose between your family and your job,' "Verette said. She grew so fed up that she quit. Verette said she stayed as long as she did only because of her allegiance to Sam Walton and his vision. (He died in 1992.) "When he said, 'People come first' and 'We're all family,' that was in my head,'' Verette said. "I felt obligated to this dead man. I promised him I was going to remain a family member. But the new people runningWal-Mart don't treat you like family.'' to remember, Mike Michell stripped thieves of their knives- and sometimes their guns- when he stopped them as they sought to slip out the front door. Surprising as it may seem, Mike loved his job, loved the adrenaline rush of apprehending shoplifters, and he was good at it, catching 18o 'over a two-year period at the Wal-Mart stores he patrolled inEast Texas. MORE OFTEN THAN HE CARES 146 . THE BIG SQUEEZE Wal-Mart, the Law-Wage Colossus 147 Mike, a member ofWal-Mart's loss-prevention team, was also responsible for cracking down on internal theft. He spied on cashiers to make sure they weren't pilfering money, and he installed hidden cameras not just to watch customers but to keep an eye on the employees who unloaded trucks. Twenty eight years old and built like a linebacker, he was so loyal and trusted that when the retailer's Texas operations needed someone to carry out the delicate- and illegal- task of installing secret cam~ras to spy on some meat department employees who supported a union, Mike got the assignment. (Federal law prohibits companies from spying on workers because they support a union.) Mike slipped into the stores after they had closed and installed the cameras, including one in a store's walk-in freezer.3o Mike loved being part of "Wal-Mart's praetorian guard." "I'd do anything for Wal-Mart," he said. "I couldn't believe they were paying me to do it. Most people said they were going to work. I said I was going to fu~." In the five stores that Mike policed, he had one last, highly unusual responsibility. He was ordered to spy on Wal-Mart workers who had filed workers' compensation claims. Specifically, Mike said he was told to find a pretext to fire those employees once they returned to work after being out for weeks or months with injuries. ruptured disks in my spinal cord. I also wound up with part of my kneecap broken on my left knee. They removed a section of my kneecap." Eager to show that he was an exemplary employee, Mike went back to work the next day even though he was all bandaged up. "I caught a shoplifter that day," Mike said. "My doctor told me I should do just light duty, but I was so loyal to Wal-Mart that I did everything I could to fulfill all my duties." Mike tried to work forty-hour weeks, but he soon realized that he couldn't; the pain was too great. "Just driving to work killed me. Just standing for a few minutes began to hurt. I went to my supervisor. I told him, 'I'm hurt. I need help doing my job.' " Mike told his bosses that he would need knee surgery and then some disability leave. But Mike said his managers warned him that if he took disability leave, they would demote him to door greeter when he returned. That position paid six dollars an hour and was often reserved for seventy-year-olds supplementing their Social Security. It was _f~ less prestigious than Mike's loss-prevention job, which paid more than twice as much. Notwithstandihg the managers' warnings, Mike opted for surgery and disability leave because the pain was so overwhelming. He told Wal-Mart's managers of his plans to have surgery in a month's time. A few days later at work, Mike saw the manager of the Wal-Mart where he was based, in Canton, Texas, forty miles east of Dallas, spying on him, keeping tabs on when he arrived and how he spent his time. Mike was sure the manager was looking to find a pretext to fire him. One afternoon the following week, the store's number two manager got on his walkie-talkie and ordered Mike to rush to the front door to help catch an unruly shoplifter. It was a strapping, overweight seventeen-year-old, and as Mike approached, he saw that the youth was wielding a knife. Mike, his adrenaline pumping, lunged at the shoplifter's hand, tugged the knife out, and jerked the youth's arms behind his back. He then walked him toward the holding area in the back of the store. "As I tried to search the guy, he kept pulling away," Mike said. "I said, 'If you don't stop, I'm going to put you on the floor.' I believed he was trying to go for another weapon so I pulled his leg out from under him. I didn't slam him down. I just took him to the ground. I had not done anything that had not been done before." When the police arrived minutes later, they found that the shoplifter was hiding another knife. Mission accomplished, Mike thought he was going to win high praise from management. But the next day Mike was called into the store manager's office. "They said "I didn't look at associates as employees," Mike said (associates is the word that Wal-Mart uses for employees). "I looked at them as potential thieves. Anytime anyone was injured and filled out a workers' comp claim form, we were told they were trying to get something for nothing, so let's get rid of them. If anyone filed a workers' comp claim that cost Wal-Mart a lot of money, we tried to terminate them. The rationale was, they're faking it." Mike's love for Wal-Mart began to crack one April afternoon when he was doing what he had done dozens of times before-apprehending a thief. That afternoon, a store manager told Mike that a female shopper was using stolen checks, and Mike chased the woman into the parking lot. She jumped into a bright green Cadillac- he vividly remembers the car- and when Mike approached to write down its license plate number, the woman's companion gunned the accelerator and the car lunged at him. Mike jumped onto the Cadillac's hood and tried clinging to the windshield wipers for dear life. The driver started swerving wildly, hoping to throw Mike off, and it quickly dawned on Mike that to maximize his chances of survival, he had better get off the car before it accelerated to sixty miles an hour and then tossed him off. So Mike let go of the windshield wipers. 'Mer I hit the ground, the car's front tire came so close to my head I could see pebbles in the tread," he said. "I wound up with a torn rotator cuff and two 148 THE BIG SQUE EZE I took the guy in back and beat the snot out of him for no reason," Mike said. "I spent an hour and a half in the office arguing with them. I was saying, 'This isn't right. This isn't true.' " Mike was ordered to step out of the manager's office. "They called me back twenty minutes later and said, 'You're fired for excessive use of force and for assaulting a customer.' " Mike is convinced he was set up to be fired, just as he used to set up other . injured employees. "I know they fired me because I was having a costly workers' comp case," Mike said. Nowadays Mike hobbles around, unable to run, unable to play baseball or basketball. For three years after the incident in the parking lot, he took Oxycontin to keep the pain at bearable levels. He is in too much pain to hold a job, and, financially depleted, he had to move back into his parents' house. Mike's doctor says he needs fusion surgery on the ruptured disks to relieve the pain, butWai-Mart insists that its workers' comp subsidiary should not have to pay for the $2o,ooo operation on his back; it maintains that Mike's disks were deteriorating even before the car crashed into him. Mike said Wal-Mart was refusing to pay for the operation simply because it wanted to skimp on medical expenses. During his years at Wai-Mart, Mike learned that the costs of a worker's injury- the doctor's visits, the surgery, the paid weeks off- were deducted from the profits of the store where the injured employee worked, hurting not just the store's profits but the store manager's bonus. After two years oflitigation to try to getWai-Mart's workers' compensation subsidiary to pay for his back operation, Mike and his lawyer surrendered. Injured, unemployed, and with his resources dwindling, Mike turned to the State of Texas for help. Now the taxpayers of Texas, rather than Wai-Mart, will pay for his operation. ASK LEE scoTT ABOUT documented abuses ofWai-Mart employees, and he oft~n lays the blame on "knuckleheads," a term that suggests the abuses are unintentional slipups by careless managers. But scores of interviews, affidavits, depositions, and personal statements as well as court testimony make clear that these are not random occurrences. David Glass, Scott's predecessor as CEO and currently chairman of the board's executive committee, said at the 2005 shareholders meeting, "The original philosophy [of Wal-Mart was] not an employer-employee relation- Wal-Mart, the Low-Wage Colossus 149 ship, but let's make everyone a partner."3 1 But at stores across the nation, WalMart managers have systematically used improper and often illegal strategies: THE END-OF -SHIFT LOCK -IN: When the evening shift ended, some managers locked workers in their stores until they had spent thirty to sixty minutes, sometimes off the clock, straightening up the merchandise. INTERNAL BANISHMENT: Two union supporters- Katherine McDonald at a Wal-Mart in Aiken, South Carolina, and Angie Griego at a Sam's Club in Las Vegas- said their store managers ordered them not to talk to coworkers during their workday out of fear that they might spread their pro-union views. (Federal labor law prohibits such intimidation and retaliation against union supporters.) cHILD LABOR: In 2000, the State of Maine fined Wal-Mart $205,650 for 1.400 child labor violations- violations at every one of its twenty stores in the state. The violations included making children work past ten p.m. on school nights and making them work seven hours on school days when the law set a four-hour limit.32 In 2005, Wal-Mart paid $135,540 in fines after the United States Labor Department found eighty-five child labor violations at stores in Arkansas, Connecticut, and New Hampshire. The department's investigators had found underage workers using dangerous machinery, including cardboard balers and a chain saw.33 SLASHING scHEDULEs: In store after store, Wal-Mart managers often drastically slash many employees' work schedulesto make their budgets. 34 Sally Wright, an $n-an-hour greeter who worked twenty years at a Wal-Mart in Ponca City, Oklahoma, said that one day manag~ment inexplicably cut her back from thirty-two hours a week to just eight. She was convinced the store manager wanted to push her out because the store could hire lower-wage newcomers to take her place. Belva Whitt, a $7-40-an-hour cashier at a WaiMart in Tampa, complained that her store reduced her from full-time to parttime many weeks- and some weeks assigned her no hours at aiL ''I'm a single mother trying to raise my son, so not having that money makes it hard," she said. "Sometimes I have to decide, Am I paying the rent or will I have food on the table?"3s ovERNIGHT LOCK-INs: Despite a death in 1988 because of this policy, this practice was still going on in 2004. 36 MISSED BREAKs: Wal-Mart managers often strong-armed employees not just to work off the clock but to work through their required breaks. A jury awarded $172 million to n6,ooo current and former Wal-Mart employees in California over the company's systematic failure to give those workers their 150 THE BIG SQUEEZE thirty-minute lunch breaks over a four-and-a-half-year period even though state law expressly required it. "From the top down to the store manager, it seemed that there was disregard for the laws," said one of the jurors, Jeff Peetor, a fifty-two-year-old software developer.37 SHAVING TIME: Dorothy English, a payroll assistant at a Wal-Mart outside New Orleans, said one of the store's managers often told her that when employees worked more than forty hours during a given week, she was to log on to the computer and erase several hours from their time records. Jon Lehman, who was the top manager of several Wal-Marts in Kentucky, said shaving time was so prevalent and accepted that a Wal-Mart district manager instructed store managers gathered at a district meeting about a handy trick to keep them from exceeding their assigned payrolls-go into the computer and delete employee hours. Victor Mitchell said that when he became a store manager in Alabama, an aggressive district manager ordered him to start shaving hours. "I was told to get rid of our overtime," Mitchell said. HIRING ILLEGAL IMMIGRANTS: For years, Wal-Mart had more than five hundred illegal immigrants washing and waxing floors at its stores. Many of these immigrants worked seven nights a week but never received overtime. They were paid off the books and were almost always kept out of the Social Security and workers' comp systems. Wal-Mart's top executives asserted that they knew absolutely nothing about these undocumented workers, saying that they had turned their floor-cleaning operations over to outside contractors. Between 1998 to 2001, federal immigration officials arrested 100 illegal immigrant janitors at Wal-Mart stores in Missouri, New York, Ohio, and Pennsylvania, and in October 2003 they arrested 245 more at sixty Wal-Marts in twenty-one states. sEx DISCRIMINATION: Evidence in the sex discrimination lawsuit shows that 65 percent ofWal-Mart's hourly employees were female, but just 33 percent of its managers were. In contrast, among a group of large retailers that compete with Wal-Mart, 57 percent of the managers were women, according to a study commissioned by the plaintiffs' experts. Those experts found that full-time female hourly employees at Wal-Mart earned $1,150 less per year than men, while women store managers atWal-Mart earned $16.400 less than male store managers.3a Diane Durfey, an assistant store manager at a Wal-Mart in Utah, said that when she told her superiors she wanted to become a store manager, one top manager let her know that "it was maybe not something for women because it means you have to be away from home a long time each day." While working as an assistant manager of a Sam's Club in Riverside, California, Wal-Mart, the Low-Wage Colossus 151 Stephanie Odle learned that a male assistant manager at the store was making $23,000 more than she was earning. "When I went to the district manager, he first goes, 'Stephanie, that assistant manager has a family and two children to support,' "Odle said. "I told him, 'I'm a single mother and I have a six-monthold child to support.' "39 Wal-Mart denies any system-wide discrimination, saying the problem was limited to a few of its stores. Other dubious practices have marred Wal-Mart's reputation. David Glass did not distinguish himself for candor when NBC's Brian Ross once asked him about a factory in Bangladesh that made private-label shirts forWal- Mart. At that factory, child workers, some as young as ten, were often locked in past midnight. Glass insisted that all the workers were over fourteen, even though Wal-Mart's own inspectors had found otherwise. (In Bangladesh, it is often considered appropriate for fourteen-year-olds to work, but not tenyear-olds.)40 When BusinessWeek found that Wal-Mart_-was importing goods .from a handbag factory in China where manag~rs hit workers and prohibited them from leaving the factory compound for more than one hour a day, a senior Wal-Mart executive denied that his company used the factory, calling the allegations lies. He later admitted that he was not telling the truth and thatWalMart had long used the factory.41 Embarrassed by news reports about the large number ofWal-Mart workers on Medicaid and food stamps, Wal-Mart officials have denied that their stores ever gave forms to newly hired workers that explained how they could apply for food stamps and Medicaid~ But many workers said Wal-Mart managers had distributed those forms during orientation. In 2006, Wal-Mart workers in many states complained that their managers had pressured them to agree to open availability, that is, to agree to make themselves available for work any time of the day or night, making it difficult to arrange child care or to take college courses. Those who refused open availability often had their hours of employment cut severely. A Wal-Mart spokeswoman in Bentonville insisted that Wal-Mart did not have such a policy. 42 In the fall of 2005, Susan Chambers, then Wal-Mart's executive vice president for employee benefits, sent the company's board a memo recommending that Wal-Mart cut its health costs by seeking to attract a healthier workforce. To that end, her memo recommended that Wal-Mart "design all jobs to include some physical activity (e.g., all cashiers do some cart gathering)." Her memo added that such moves would "dissuade unhealthy people from coming to work at Wal-Mart." Chambers nonetheless told the news media in inter- 152 THE BIG SQUEEZE views that the memo in no way called for discouraging unhealthy people froni applying.43 Lee Scott said in a CNBC documentary thatWal-Mart had not accelerated the process in which American companies were moving production to China, notwithstanding companies such as Lakewood, the Chicago-based fan manufacturer. In fact, Wal-Mart doubled its imports from China between 2000 and 2005 to $18 billion a year.44 "We will always be committed to the highest standards of integrity, even when it hurts," Scott told the 2005 shareholders meeting. "It's just like Dr. Martin Luther King said, 'The time is always right to do the right thing.' "45 LEE SCOTT CLEARLY BELIEVES that the good thatWal-Mart does hugely OUtweighs any misdeeds. He repeatedly boasts thatWal-Mart not only has created more than 120,000 jobs in the last two years but saves American consumers tens of billions of dollars a year. He deserves considerable credit because he has moved to end many of the most glaring illegalities that victimized WalMart workers, illegalities that, when exposed, shocked Wal-Mart's customers, unnerved its investors, and undercut its stock price. At times, Scott made clear that a major reason for the cleanup was to avoid embarrassment. On an internal Wal-Mart Web site, he warned managers against taking shortcuts such as cheating on payroll. "It's not unlikely in to day's environment that your shortcut is going to end up on the front page of the newspaper. It's not fair to the rest of us when you do that," Scott wrote. "Your value to Wal-Mart is outweighed by the damage you could do to our company when you do the wrong thing."46 It remains to be seen whether Scott's cleanup campaign will persuade WalMart's managers to comply fully with the law.47 Many managers will still be tempted, for example, to demand off-the-clock work because of the continuing pressures to minimize costs. It's not easy to change corporate culture overnight. 48 Scott's campaign to putWal-Mart on a more law-abiding path has included numerous praiseworthy steps. Orientation for new employees and managers makes clear that off-the-clock work is illegal and will not be tolerated. The company has reprogrammed its cash registers and the handheld electronic gadgets that post prices for merchandise so that workers cannot operate either piece of equipment when they are off the clock. Wal-Mart's computerized time-clock system now signals cashiers when they are due to take their Wal-Mart, the Low-Wage Colossus 153 breaks, and both cashier and manager can get in trouble if breaks are not taken. To prevent child labor violations, Wal-Mart has begun using sophisticated software to ensure that teenage workers are not scheduled to work too late or too many hours. To halt the practice of shaving hours, managers are now supposed to obtain an employee's signature every time they use the store computer to adjust that employee's hours. (Some time adjustments are per~ fectly valid, as when a manager notices that a worker left for the day without clocking out.) Employees can still be locked in, but now a supervisor with a key is always supposed to be on hand to let them out in case of emergency, as I mentioned earlier. To stop sex discrimination, Scott has sought to end the oldboy network, in which Wal-Mart did not post openings and store managers tended to tap their male favorites to become management trainees. Scott has ordered that managerial openings be posted and has called for cutting the bonuses of senior executives who fall short on diversity goals. In a variation of the Web site message citecj.~arlier, Scott told the 2005 shareholders meeting, "We are stepping up in a way that not only are we going to be subject to less criticism, but we actually will be a better company." Critics who never have a kind word for Wal-Mart should be applauding tllese steps. Alas, illegalities continue. Long after Scott began his crackdown on off-the-clock work, Aaron Payne, an army veteran who served in Iraq and tllen worked at a Wal-Mart in Camden, South Carolina, said an assistant store manager had repeatedly forced him to work unpaid hours after his shift ended. "It happened-almost every night," said Payne, who earned $6.25 an hour working in the sporting goods department. ''I'd usually have to stay one and a half or two extra hours." 49 Houston Turcott, an overnight manager at a Wal-Mart in Yakima, Washington, said, "They gave big speeches saying they'd fire people for working off the clock, and then they'd take you around the corner and say, 'You have to do what has to be done even if it means working off tile clock.' " Abi Morales, a pet department employee at a Wal-Mart in Orlando, said that even though he regularly worked forty hours a week, some weeks his paycheck mysteriously compensated him for only thirty hours. Morales said that no manager ever asked for his approval before tinkering with his time records. After Morales threatened to hire a lawyer, the store's manager agreed to give him seven hundred dollars in back wages, equivalent to eighty hours of pay tllat had disappeared through some unexplained legerdemain.so Catherine Kandis, a cashier, said that at her Wal-Mart in Kissimmee, Florida, more than a dozen workers complained in late 2004 that their paychecks cheated them out Wal-Mart, the Low-Wage Colossus 154 TH E BIG SQU EE ZE of more than ten hours' pay. The store manager, she said, had told the workers that he needed to cut costs because a series of hurricanes had hurt sales. The manager all but admitted shaving their hours, Kandis said, when he gave the complaining workers an unprecedented "bonus" check.s1 Jon Lehman, the former manager of several Wal-Marts in Kentucky, warns that managers will continue to feel huge and often irresistible pressures to take shortcuts that harm workers. "Wal-Mart might tell store manage~s to stop doing this and stop doing that, but they won't show they're serious about ending abuses until they give store managers a more realistic payroll to operate with," Lehman said. Even though Scott has taken many positive steps, Wal-Mart's critics continue to fire salvos at him day after day for paying wages below the retail industry average and for providing health benefits far worse than what most large companies provide. The nation's two largest teachers unions, the National Education Association and the American Federation of Teachers, with more than four million members combined, have urged families not to buy school supplies at WalMart because, they say, it treats its workers so shabbily. An anti- Wal-Mart film, Robert Greenwald's The High Cost of Low Price, generated a storm of unwanted attention for Wal-Mart, and so did the vote by the Chicago City Council to require Wal-Marts there to pay all employees at least ten dollars an hour and provide three dollars an hour worth of benefits. (Chicago's mayor vetoed the bill.) The large number of Wal-Mart employees who have turned to Medicaid to obtain health coverage has attracted much press attention. In Florida, newspapers wrote that the state's Medicaid program covered 12,300 Wal-Mart workers and dependents when the company had 91,000 employees in the state.52 At a meeting of the National Governors Association, Christine Gregoire, the governor of Washington State, complained that 20 percent of the Wal-Mart workers in her state receive public health care assistance.s3 Prominent Democrats, including John Edwards and Barack Obama, have taken WalMart to task. "Wal-Mart is making enormous profits and yet it has chosen to go with low wages and diminished benefits," Obama said on a union-sponsored conference call with workers and reporters. "You've got to pay your workers enough that they can actually not only shop atWal-Mart but also send their kids to college and hopefully save for retirement." All the criticism and bad publicity have taken a toll; a Wal-Mart-commissioned study found that between 2 and 8 percent of consumers have stopped shopping at Wal-Mart because of all the negative press about the company.s4 155 For its part, Wal-Mart boasts that it has a generous health plan. Its executives cite occasions when Wal-M.art's health plan spent more than a million dollars on procedures to save a baby born prematurely. Despite such laudable examples, Wal-Mart's main family health insurance plan has long been prohibitively expensive for many workers. The company's standard plan for family coverage called for employees to pay $2,300 a year in premiums as well as an additional $3,000 in deductibles. That's a daunting amount forWal -Mart's full-time hourly workers, who earn $19,100 a year on average. Susan Chambers, Wal-Mart's top employee benefits official, said in a memo to the company's board that nearly 40 percent of the retailer's employees spend at least one-sixth of their Wal-Mart income on health care. Wal-Mart says that while its plan is certainly not as generous as a General Motors plan, it is typical for retailers. But one study found that Wal-Mart spends 27 percent less per worker on health insurance than the typical large retailer and that a smaller percentage of its worJs:e_!S are insured.ss Distressed by all the bad publicity, Wal-Mart introduced a new health plan in 2005, in large part to increase the embarrassingly small percentage ofWalMart workers who sign up for its health insurance. Wal-Mart hailed the new plan as a huge step forward, boasting that its new "value" option had premiums of"as low as $n a month" with the first three doctor visits free. Despite the huge fanfare, the new plan barely increased the percentage of workers in WalMart's health plan- it remained below 50 percent. Many workers shunned the plan because after the three free doctor visits, the plan's high deductibles kicked in: $1,000 for an individual and $3,000 for a family. Moreover, the "value" plan required workers to pay 20 percent of their medical bills even after they paid their deductibles. These provisions are prohibitive for a group of workers who earn less than $2o,ooo a year on average. That much-ballyhooed plan did little to silence Wal-Mart's critics. So in late 2007, again with great fanfare, Wal-Mart introduced another "improved" health plan. In the latest version, premiums remain enticingly low, and employees can get hundreds of prescription drugs for four dollars. But the deductibles, while somewhat lower- now $2,000 for families-remain prohibitive for manyWal-Mart workers. Wal-Mart announced with great pride in early 2008 that employee participation in its health plan had inched up by two percentage points, enabling it to proclaim that it had reached the 50 percent mark.56 Scott often responds to critics by saying that Wal-Mart offers competitive wages and benefits. Why else, he asks, would n,ooo people from the San Francisco Bay area apply for 400 openings at a supercenter planned for Oakland? I Wal-Mart, the Low-Wage Colossus 157 156 THE BIG SQUEEZE Why, he asks, shouldWal-Mart offer higher wages and benefits if it can obtain the employees it needs at its current pay levels? "It is clear to me that people wantWal-Mart jobs," he said.57 Scott recognizes that Wal-Mart has replaced GM and Microsoft as the archetypal American corporation, but he argues that critics are wrong to think that Wal-Mart can provide the pay and benefits that those corporations do. He wrote in a 2005 advertisement that while "Wal-Mart earned roughly $6,ooo in profit per associate, Microsoft, by contrast, earned $143,000 per associate." Scott added: "If we kept our low prices and raised our average wages and benefits above today's market levels by a few dollars an hour or so, we would sacrifice a hefty chunk of our profits, hurting shareholders ... If on the other hand we raised prices substantially to fund above-market wages, as some critics urge, we'd betray our commitment to tens of millions of customers, many of whom struggle to make ends meet." sa In response, many argue that Wal-Mart, as the nation's largest corporation, has basic societal responsibilities, and those include paying its workers enough so that they don't have to turn to taxpayers for medical coverage, food stamps, and housing subsidies. Others, such as the retailing analyst Burt Flickinger, argue that Wal-Mart's customer service and efficiency would improve markedly if it raised its wages and benefits enough so that employee turnover dropped sharply. Some say Wal-Mart's internal theft would fall substantially as well. (This strategy has worked wonders at Costco, as we shall soon see.) Scott's strategy aims to maximize Wal-Mart's profits, but it has not lifted Wal-Mart's share price. Critics argue that if Scott improved wages and benefits, that would help increase the share price by reducing ill will and negative publicity, and just might do so without doing much harm to profits. Such a strategy might defuse the opposition that Wal-Mart faces in New York, Chicago, Los Angeles, and other cities where its expansion efforts have been frustrated. Such a strategy might also win back some of the millions of shoppers who have shunned Wal-Mart in response to all the negative publicity. IfWal-Mart raised its wages to the very modest average for other general merchandise retailers- other retailers pay about $1.70 more an hour than Wal-Mart on average- that would increase Wal-Mart's costs by roughly $3.5 billion a year. 59 Such an increase would represent 1.3 percent ofWal-Mart's annual U.S. sales ($270 billion). This could be offset by raising its prices by 1 percent, yielding $2.7 billion in extra sales and paring its operating profits by $8oo million, still leaving it $10.5 billion in net profit. Even if there were to be a wage increase, many critics assert that they will not stop battling Wal-Mart until it provides a respectable health care plan. That might mean spending three dollars per hour per worker, the same figure embraced by several big box ordinances. Wal-Mart now spends less than one dollar per hour per worker. so The proposed increase in wages and health costs would amount to an $8.1 billion increase in annual spending. To offset that, Wal-Mart might have to increase prices by 2 percent, yielding $5.4 billion, and cut its profits by $2.7 billion. That would still leave $8.6 billion in profits. Scott would no doubt argue that this would do grievous damage to WalMart's shoppers and shareholders. Scott objects strenuously to the idea of raising prices, even by 1 or 2 percent, to help pay for higher wages and benefits, even though he has often boasted that Wal-Mart's prices are at least 15 percent lower than its competitors' prices. This certainly indicates that Scott's company should face little injury from such a modest price increase. Nonetheless, Scott might well argue that Wall Street woqld take him to task for such things. But by taking such decisive action, Scott might placate Wal-Mart's critics, eliminate much of the negative publicity, and lift Wal-Mart's stock price. There's another alternative to improve health coverage for Wal-Mart's workers. With their combined worth of more than $8o billion, Sam Walton's heirsthe world's richest family- could easily donate, say, $3 billion a year to help create a good .health plan for Wal-Mart's employees. Just as Bill Gates has donated billio~s to improve health care for the world's poor, the Walton heirs could donate billions to improve health care forWal-Mart's poor. IT's ALL TOO EASY to catalog the ways that myriad companies mistreat their workers, whether leviathans such as Wal-Mart or a small discount store in Brooklyn. Fortunately, there are companies that treat their workers in an exemplary manner, offering far better wages and benefits than their competitors do and showing employees respect and considerateness. These businesses are far too few, but as we shall now see, they have a lot to teach us. ALAS, Cascio, W.F. (2006). The high cost of low wages. Harvard Business Review, 84, 23. Greenhouse, S. (2008). The big squeeze: Tough times for the American worker. Random House, Inc. New York. (Chapters 8 and 9 are posted in WTClass) Ton, Z. (2012). Why \"good jobs\" are good for retailers. Harvard Business Review, 90, 124131. Chapter 8: Walmart, the low wage colossus 1. One of Walmart's legacies will be its commitment to low prices. What business practices have allowed Walmart to achieve such low prices? (2 points) Answer: Walmart is able to maintain their commitment of low prices by reducing the wages of the labor. The salary paid by the Walmart is far lower than the market rates and they are not providing any benefits to their employees. They are violating child-labor law, not paying for overtime, not providing any other benefits to the employees. It is reducing the overall cost incurred by the company and they are able to generate higher profits with lower prices. 2. Compensation administration is about more than just hourly wages and/or salary. Describe how Walmart compensates its hourly employees. Describe their health care options, their treatment on the job, and the company's commitment to their overall wellbeing. Be specific. (2 points) Answer: The hourly wages paid per hour was $11 for an employee who served the company for more than 20 years. They are too stingy in making any payment to the labors. Similarly, the labors are not even provided the bathroom breaks by the manager. Walmart deduct more amount towards the healthcare premium that are not affordable by the employees and they bought the health insurance. Walmart provides only health insurance to 50% of their employees. They provide inf