February 18, 2006

Employers & Employee Benefits

The Independent writes about comments made by Wal-Mart CEO to a disgruntled manager. The manager in question wanted to know why such a large company wasn’t doing more for its low-wage employees.

The manager had asked Mr Scott why "the largest company on the planet cannot offer some type of medical retirement benefits?" Mr Scott replied: "Quite honestly, this environment isn't for everybody. There are people who would say, 'You should take the risk and take billions of dollars out of earnings and put this in retiree health benefits and let's see what happens to the company'. If you feel that way, then you as a manager should look for a company where you can do those kinds of things."

Scott’s ‘take it or leave it message’ certainly won’t do anything to help the firm’s already run-down reputation. That said, Scott has a point, which is bolstered by an observation about the problems facing General Motors he makes in the full letter here.

GM has seen failing demand for its products over time and has underestimated its pension liabilities. Its future as a firm is sometimes questioned. For more, see this NYT article

"The thing that annoys me about GM is that when I retired I had a letter that said I would receive health care for life at no cost," said Chester Clum, 79, a former sales and service manager at GM who retired in 1981 after 38 years of service. "They never brought up that they could change that at will." But, in fact, the change has been long in coming. While there are exceptions in industries less subject to intense competition, GM is like many other once impregnable American corporate titans in arguing that reducing the burden of caring for retirees has become essential to compete against foreign companies with lower benefit costs and domestic rivals with younger work forces and less generous benefit packages.

With retirees living longer and accounting rules forcing companies to more honestly reflect their full costs on their books, the corporate-sponsored social contract is no longer sustainable. Something else, experts say, needs to replace it.

"It was easy to offer these things 40 years ago because they were cheap," said Paul Fronstin, director of the Health Research and Education Program at the Employee Benefit Research Institute, a nonpartisan group in Washington. "They're not cheap anymore."

Wal-Mart could certainly pay it’s staff more and contribute towards healthcare plans but it comes at the cost of a) taking on fewer people in the first instance b) being more vulnerable to competitors c) being more vulnerable to economic changes that affect all companies. The effects of the first are more immediate whereas the latter two get ignored because they’re non-tangible probabilities. None of these things are good for the groups who’re supposed to gain from higher wage/non-wage benefits. Of course the scale of the benefits granted by the ailing GM may dwarf those Wal-Mart’s employees are asking for; after all, many firms offer good packages without any problems. The main point is that one-sided accusations of greed and exploitation are unfair.

- 2 comments by 2 or more people Not publicly viewable

  1. Christopher Rossdale

    The problem seems to be that success in the current world market involves a degree of suspended ethics. Wal-Mart wouldn't be the biggest company on earth if it didn't do things such as firing workers a week before they become entitled for profit sharing, slicing off hours from immigrant workers, poor pay rises and appaling anti-organisation measures; this doesn't make it justifiable. The excuse is competition, naturally, but if there were regulations in place to stop it, or even solid agreements between companies, surely there could be far less of such actions. Naturally profits and bonuses for the top wouldn't be as high, but surely that's not the reason the companies act as they do?

    18 Feb 2006, 19:08

  2. Granted I know little about Wal-Mart but I doubt the firing of workers before they’ve met the requirements for participation in the company’s profit sharing scheme is standard practice. If the firm is that averse to rewarding workers, why implement a profit sharing scheme at all? Perhaps they make the promise of share options merely to induce extra effort in the short term. However if it’s common knowledge that one is likely to be fired before being eligible, then even this fake promise will have no effect on worker effort. Unless one thinks Wal-Mart is actively trying to prevent knowledge of these sackings spreading via the media I’d query the contribution of this practice towards the firm’s success.

    I differ to you in that I don’t see levels of pay, wage increases over time and cooperation with unions as measures of whether or not a firm is acting ethically. Many firms could be more charitable but failure to do so shouldn’t be equated with an absence of ethical standards. As I stated in the initial post, charitable behaviour carries costs; costs which will be incurred by those we sought to help. The ideal balance between these costs and the benefits of charitable behaviour isn’t obvious. I put great weight on the low prices that increase the purchasing power of the poorest individuals, on the high profits that help ensure the firm will be around to provide jobs in 20 years time and on the unwillingness to accept union wage demands, thus allowing total employment to be higher than it would be otherwise. These are things that could be compromised by regulations mandating subjective views of fairness.

    19 Feb 2006, 13:06

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