Friday, April 27, 2007

Big Bucks Bonanza in Bentonville

Wal-Mart CEO Lee Scott received a $22 million bonus this year allegedly because of the corporation’s 2006 sales figures, not its earnings or stock price - both of which were pretty much flat. No information is available on the increase in salary, bonus, or benefits awarded to “associates” who actually work in stores and handle the sales.

Yesterday, the Bentonville-based corporation filed a statement with the Securities and Exchange Commission about CEO Scott’s big bonus, claiming that “Our associates respect that Wal-Mart has a well-recognized culture of opportunity. They are proud that their CEO started as a manager in the trucking division and has stayed with the company for 28 years. They’re also proud that his leadership -- through sustainability initiatives and the $4 prescription drug program -- reflects the company’s purpose of saving people money so they can live better.”

Wal-Mart does not claim that they are paying low wages so that their employees “can live better,” and there is some serious question about the efficacy of its low-wage culture. Professors James O'Toole and Edward E. Lawler III, at the University of Southern California's Marshall School of Business, have a fascinating commentary on, "Low Costs Versus High Wages?," where they almost snicker that “Wal-Mart Stores' CEO argues that he has ‘no choice’ but to pay low wages to meet his customers' demand for low prices.

“Although offering minimal wages and benefits is the most common way companies try to lower their costs, our recent study of American management practices reveals that such bottom feeding may not be the most effective strategy. In fact, low wages paradoxically generate a variety of negative employee behaviors that add to the overall cost of doing business.”

You won’t hear anything like this coming from the UA Walton College of Business, a wholly-owned subsidiary of Wal-Mart, but the study by the USC professors found that in “almost all industries, productive, higher-paid workers can more than cover the costs of their salaries and benefits, if they are managed appropriately. For example, Costco Wholesale pays its workers $17 an hour on average, while its competitor, Wal-Mart's Sam's Club, pays only $10 an hour on average; 85% of Costco employees enjoy company-provided health insurance, compared with less than half of the workers at Sam's Club. Significantly, these high wages and benefits do not come out of the pockets of Costco's shareholders. In fact, Costco has outperformed Wal-Mart on the stock market over the last five years. The real reason for the difference in compensation and benefits is that Costco employees have much lower turnover, better interaction with customers and are more productive than Wal-Mart's workers.”

The USC professors don’t directly address the added corporate costs of spying on employees, but they do note that because “Sam's Club employees require layers of close supervision, they are much less productive than Costco's largely self-managing workers. The results speak for themselves: Costco generates slightly more sales than Sam's with 38% fewer employees.”

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