The New Republic

By Clay Risen

Wal-Mart has been in the news a lot recently, with three announcements designed to convince the public that it is finally responding to its critics. In a speech to his employees on Monday, CEO Lee Scott promised to reduce greenhouse gases at the company's stores by 20 percent; roll out a new, cut-rate health-care plan; and push Congress to raise the minimum wage.

"With courage and commitment to change, we will be at our best and remain true to the legacy of the company Sam Walton founded some 43 years ago," he said.

Scott would like Wal-Mart employees--and, more importantly, increasingly skeptical consumers--to believe that his company has finally gone straight.

But in an amazing feat of bad timing, Scott's speech was followed closely by a leaked memo that put the lie to much of his new-leaf rhetoric. The memo, from the vice president for benefits to the board of directors, discusses the company's plan to combat skyrocketing health-care costs. To some extent, the memo simply pulls back the curtain on the sort of sausage-making that goes on behind every HR director's door: Talking about employees' health and well-being in coldly rational terms is what the job is all about. But it also reveals much about Wal-Mart's distorted worldview. And it shows that, for all of Scott's rhetoric about returning to the company's roots, Wal-Mart still doesn't get it.

The memo outlines two important goals to be achieved by revamping Wal-Mart's health-care system: reducing costs and bolstering the company's public image. A few good ideas are trotted out to accomplish the former--educating workers about good health practices, putting clinics in stores, giving employee discounts on fresh fruits and vegetables. But those, the memo admits, are unlikely to achieve the necessary cost savings. For that, the company must undertake a slate of "bold steps." These include rolling all employees from traditional insurance to health-savings accounts, reducing company 401(k) contributions by 25 percent, and pushing out older and less healthy employees.

These steps, the memo concedes, might--just might--have a negative impact on the company's public image, so it also proposes a set of initiatives to rebut Wal-Mart's critics, steps which suspiciously resemble Scott's own raft of proposals. "To address concerns about affordability, offer at least one insurance plan that covers Associates for $1/day," it recommends. It also advises the company to "become more engaged in the national health care debate ... Establishing Wal-Mart as a leader on this critical issue will help deflate our critics." In other words, don't make any substantive change, but rather call on the government to do something instead. This is exactly what Scott has done in calling for Congress to raise the minimum wage.

The thrust of the plan, then, is to slash benefits but make superficial changes to mask the impact of those cuts. But how likely is this to work, given that Wal-Mart is already known for its poor benefits and wages? Take the proposed low-cost insurance plan. While the price of Wal-Mart's health-care plans is certainly a reason most employees aren't on them, the real problem is that the plans aren't worth their price (that, and the fact that they have tough eligibility requirements). Scott's plan may be cheaper, but it is also even more meager than the status quo. If Wal-Mart thinks that its critics--which even the memo admits are "well-funded and well-organized"--aren't going to jump on this obvious smokescreen, it's in even worse shape than we thought.

The memo is the result of a study carried out in coordination with McKinsey, the elite consulting firm--and it shows in its fantastic grasp of the company's numbers and abysmal conception of the workers who make them possible. One proposal would replace the current 401(k) program, into which the company puts a fixed percentage of the employee's wage, with a matching program, in which the company's contribution is equal to the employee's (this on top of the proposed cut in company contributions, from 4 percent to

3 percent). From a cost-savings point of view, this is a brutally efficient strategy--after all, the average Wal-Mart employee makes $17,500 a year. How many are going to set aside 3 percent of that for retirement? What's amazing, though, is that the memo's author, Susan Chambers, seems to believe that employees would actually like this reduction in benefits, because, for those who can somehow afford to take full advantage, it "would help Associates better prepare for retirement."

Then there is the proposal to shift all employees into health-savings plans, replacing traditional insurance with tax-free bank accounts in which both employees and the company set aside money; they then use that money to pay for doctors visits, prescriptions, and so on. Again, from a coldly rational point of view, this makes certain sense: The more financial responsibility employees bear in their health-care costs, the less they are likely to spend. The problem is that, again, poorly paid employees are unlikely to make the sort of contributions necessary to cover expenses (for more on HSAs, see Jon Cohn's cover story in next week's magazine). Moreover, it's much easier for the company to quietly adjust its own contributions to employee health downward, a fact sneakily acknowledged by the memo (though instead of proposing a check it merely recommends more p.r.: "Wal-Mart will have to be sophisticated and forceful in communicating this change").

The disparity between the memo's self-delusion and the realities of Wal-Mart's poor employee benefits makes for entertaining reading, if somewhat on the black-humor end of the spectrum. For instance, at one point it asserts that "our benefit plan is known today as being generous" (by whom isn't clear). But a few pages later, it admits that whatever changes are made to the plan, "Because many of these [public health-care] programs will offer more generous health insurance than Wal-Mart provides, many Associates will still choose to enroll in Medicaid, leaving the door open for continued attacks." In other words, the company's "generous" plan is still less generous than the last-ditch, barebones government safety net. Then again, "choices" like this are exactly the sort of thing that executives believe make for happier employees.

The memo also misconstrues Wal-Mart's critics. To the company, these groups are just like any other competitor--their end goal is to destroy it. Going after its meager benefits and poor treatment of workers, then, is simply a means to an end. The critics, it says, "have selected healthcare as their main avenue of attack." The idea that their goal might actually be to help the employees, and that going after Wal-Mart's healthcare plans isn't simply a sneaky strategy but rather their entire raison dêetre, never seems to occur to the company. This is likely why the memo seems to argue that superficial changes to health-care policy and more aggressive p.r. will mollify critics and the public, rather than egg them on.

The best evidence of Wal-Mart's departure from reality, though, comes at the end, in the memo's proposed "communication" efforts. The problem, it seems to say, isn't that Wal-Mart provides sewer-grade benefits. The problem is that its mendacious critics have been allowed to frame the debate in their favor. "Clarify and improve messages about our healthcare offering," it recommends. "This kind of communication will help us reframe public perception of our healthcare offering, the only way for us to start winning the debate." The only? There's also the option of actually making substantive, pro-employee changes. But apparently that wouldn't be true to Sam Walton's legacy.

Clay Risen is an assistant editor at TNR.