Portside Date: November 18, 2013

Date of source: November 18, 2013

Wal-Mart faces warehouse horror allegations and federal Labor Board complaint

By Josh Eidelson

November 18th, 2013

Salon

The world’s largest private employer faces escalations on multiple fronts Monday, including strikes by its employees in Ohio and workers who haul its goods in California; media scrutiny on an employee-to-employee charity initiative; and labor groups’ announcements that California Department of Occupational Safety and Health complaints have been filed against two Wal-Mart-contracted warehouses, and the National Labor Relations Board is prepared to issue a complaint against Wal-Mart.

OUR Walmart, the non-union labor group closely tied to the United Food & Commercial Workers union, announced on an afternoon conference call that the National Labor Relations Board, the federal agency charged with enforcing and interpreting private sector labor law, is ready to issue a complaint against the retail giant. According to OUR Walmart, the complaint – similar to an indictment – would address “threats by managers and the company’s national spokesperson for discouraging workers from striking and for taking illegal disciplinary actions against workers who were on legally protected strikes.” As I’ve reported, a top Wal-Mart spokesperson stated publicly prior to last year’s “Black Friday” strike that “depending on the circumstances, there could be consequences” if workers did not show up to work that day; in the weeks following a longer, smaller June strike, at least 20 participants were fired.

Wal-Mart did not immediately respond to Monday inquiries; a spokesperson told Salon last week that the company had “a strict anti-retaliation policy,” but that “we do enforce attendance policies when they’re broken.” The NLRB did not immediately respond to an inquiry.

“We should not have to seek relief from the labor board to keep our jobs,” Wal-Mart worker Tiffany Beroid told reporters Monday. “But Wal-Mart has aggressively tried to silence us.” She argued the complaint would “provide additional protections for Walmart’s 1.3 million employees.” When the NLRB issues a complaint, the defendant can settle – potentially including commitments to reinstate fired workers and post workplace notices pledging to follow the law – or proceed to a trial before an NLRB administrative law judge. That judge’s decision can be appealed to the NLRB’s five presidentially appointed members, whose decisions in turn can be appealed to federal court.

“When Wal-Mart workers stand up for their rights, for each other, Wal-Mart often responds by retaliating …” AFL-CIO president Richard Trumka told reporters Monday. “The AFL-CIO has committed the full weight of the labor movement to support these brave, determined Wal-Mart workers, and to end this epidemic.” Trumka, who leads the country’s largest union federation, was joined on the conference call by leaders of groups including Color of Change, Moveon.org Civic Action, and United Students Against Sweatshops, who pledged to support workers’ Black Friday protests the day after Thanksgiving next week. “This year we have a bigger and broader coalition of allies” than participated in last year’s high-profile Black Friday actions, United Food & Commercial Workers Union President Joe Hansen told reporters. Last year, organizers said that 400-plus Wal-Mart workers – backed by tens of thousands of supporters – went on strike on Black Friday, the organization’s largest strike turnout to date. Asked whether the number of Wal-Mart employees striking on this year’s Black Friday would surpass the 2012 total, an OUR Walmart spokesperson told Salon that more information would be released this Thursday.

This afternoon’s NLRB news comes hours before non-union warehouse workers backed by the Change to Win union federation plan to announce the filing of complaints with the Cal-OSHA alleging widespread abuses at two California warehouses contracted by Wal-Mart. At a facility of American Logistics International, workers allege that “There is only one restroom for both genders”; “Emergency exits are often blocked”; and “Workers are constantly exposed to hazards, specifically falling boxes and forklifts driving in the same areas as workers who walk.” At Pacer International, workers’ allegations include “Fire exits are often blocked”; “Forklift drivers routinely drive into the dark trailers and containers while workers are inside, presenting a risk of workers being hit by forklifts”; and “There is a constant propane smell in the facility, resulting in workers feeling dizzy, nauseous and overwhelmed. There is no ventilation in the facility.” While workers like those at ALI and Pacer are not legally employed by Wal-Mart, the retail giant has faced increasing scrutiny over the past year about the prevalence of such alleged abuses in its sprawling domestic and international supply chain.

Monday was also marked by strikes by Wal-Mart retail employees in Cincinnati and Dayton, Ohio. “At Wal-Mart, we don’t get the respect that we feel like we need …” striker Jamaad Reed told Salon. “If we’ve got a problem with a manager or something, and we take it to the store manager, we start getting our hours cut.” Reed added, “I can work to midnight one night and then, the very next day, I’ve got to be at work at 6 in the morning … I might as well get a cot and sleep in the back.” The campaign said a count was not yet available for the number of workers joining Monday’s strikes, which follows work stoppages in Illinois, California, Washington and Florida over the past month. As Salon first reported, port truckers from ALI and another company who haul goods to Wal-Mart from the Port of Los Angeles are mounting their own strikes today.

Wal-Mart made additional news in Ohio Monday for putting out storage bins in an employee-only area of a Canton, Ohio, store, inviting employees to donate food to each other. A sign over the bins — photographed by an employee, sent to OUR Walmart, and reported Monday by the Plain Dealer — reads, “Please donate food items here so Associates in Need can enjoy Thanksgiving Dinner.” The worker who took the photo told the Plain Dealer she found it “demoralizing” and “kind of depressing,” and an OUR Walmart organizer urged the company to instead “stand up and give them their 40 hours and a living wage.” A Wal-Mart spokesperson defended the bins to the Plain Dealer as a store-level decision that reflected “the company’s culture to rally around associates and take care of them when they face extreme hardships.”

The AFL-CIO’s Trumka contended that Wal-Mart’s defenses were undercut by the NLRB’s planned action. “This shows that they have been retaliating – an independent agency has now said what they do violates the law on a nationwide basis …” said Trumka. “It shows them to be just like every other law-violating employer … They choose the dollar over their associates.”

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Walmart’s Dumb Blame Game

By Daniel Gross

November 18th, 2013

The Daily Beast

Wal-Mart touches more consumers than virtually any other company—140 million customers each week. The registers at its 4,135 U.S. stores ring up millions of transactions every day. Its sophisticated IT systems collect a wealth of information about the supply chain, the behavior of consumers, and real-time action in the consumer economy. And yet at some level, America’s largest retailer remains remarkably clueless about what is happening in the economy.

Even though the economy is growing, its sales aren’t. Strangely, fewer people are coming into Walmart’s stores. Traffic at stores open more than a year fell .4 percent in the third quarter from the year before, and as a result same-stores sales fell .3 percent. Yet the company doesn’t seem to know why. And the pronouncements it makes should lead observers to think twice about whether the company is missing the forest for all the trees.

Consider. If the government telegraphs that food stamps are going to be cut—and may be cut sharply in the future—you might expect the people who depend on them to start taking evasive action, perhaps by saving more and shopping less. Walmart cashes about 18 percent of food stamps in the U.S. Ergo, any cut would be bad news for the company. But as I noted, Bill Simon, president and chief executive of Walmart U.S., last month said (PDF) the cuts could actually work to the company’s benefit. Simon said that “when the benefits expanded, our market share actually went down.” (Translation: When people had more money to spend, they were more likely to go to places other than Walmart.) And so with customers who lose benefits becoming more price-sensitive—“in other words, everybody’s benefit is going to get cut, price will become more important. And when price is more important, we’re more relevant.” That reasoning was wrong, apparently. Last week, when Walmart announced disappointing quarterly sales, Simon said the coming fourth quarter could be tough because of “recent SNAP reductions.”

Another example of macro-cluelessness came in Monday’s Wall Street Journal. Businesses have been complaining about how the Affordable Care Act will affect their own operations from day one. Now some are saying it is already negatively impacting consumer behavior. Never mind that one of the first planks of the ACA to be implemented put money into the hands of consumers; some $504 million in rebates were sent out earlier this year. And never mind that the balance sheets of hundreds of thousands of poor people— the type of people who shop at Walmart—are being improved because of the expanded eligibility for Medicaid. Since October 1, in fact, states have signed up more than 400,000 people for Medicaid—which is to say, free healthcare. And never mind that none of the people who have signed up for insurance plans, many of which are subsidized, has to make a payment until December. And never mind, further, that the penalty for not signing up, which will be leveled at some point in 2014, starts at about $95 and can’t be higher than one percent of a person’s income. Walmart is convinced that the higher costs associated with the ACA are inhibiting the capacity of consumers to spend—even though it acknowledges there is no empirical evidence to support this contention. From the Journal article: “While it is not coming through in customer research, we do know that some of our customers are concerned about the impact of the Affordable Care Act,” Carol Schumacher, vice president of investor relations, told analysts on Thursday. “For many of our customers, having to afford health care and insurance may be another line item in their personal budget that they may not have had to cover previously.”

Finally, on Monday, the internet was aflame with outrage over an extremely telling anecdote from a single Walmart store. It seems that in an employee-only area in a store in Canton, Ohio, Walmart had set up bins to solicit food donations from Walmart workers to help feed… other Walmart workers. The Cleveland Plain Dealer has the depressing story here. A sign above the bins reads: “Please donate food items here, so Associates in Need can enjoy Thanksgiving Dinner.” Now, the article notes that this decision was taken at the store-level, and that Walmart has a series of policies and vehicles through which Walmart employees kick in funds for an employee assistance fund.

But this is insane. And it’s a great metaphor for what is happening in the U.S. economy.  “That captures Walmart right there,” Kate Bronfenbrenner, director of labor education research at Cornell University’s School of Industrial and Labor Relations, told The Plain Dealer. “Walmart is setting up bins because its employees don’t make enough to feed themselves and their families.”

This—not the food stamps cut, or the ACA, or the government shutdown—is the real reason for Walmart’s continuing sales struggles. Low-wage workers, four plus years into the recovery, aren’t getting paid enough to consume more. Employers large and small, while sitting on record amounts of cash and ringing up record amounts of profits, don’t feel compelled to share the bounty with employees. Labor share of national income is at a post-World War II low. This has real world implications. Walmart, of course, is the nation’s largest private-sector employer, with 1.4 million employees. Aside from accounting for a big chunk of overall retail employment, Walmart sets the benchmarks and norms for a large part of the service industry. The company’s sales are stagnating in part because it doesn’t pay its employees sufficient wages, and because many other companies follow suit. Yes, Washington may be playing a role in Walmart’s travails. But the real source of the problem is in Bentonville.

The irony, off course, is that, despite all the bad press and the stagnant sales, Walmart’s stock is doing quite well. International sales are growing at a rapid clip, the company pays a decent 2.4 percent dividend yield, and the stock market is generally roaring. Meanwhile, year after year, Walmart’s U.S. operations show an impressive ability to squeeze higher operating profits out of stagnant sales—in part by riding herd on costs such as wages.

It’s great that Walmart has a culture in which employees rally around one another in times of need. But if your employees need assistance to set their Thanksgiving table, it’s a sign that there might be a problem with your business model.

* * * 

Why Wal-Mart Can Afford to Give its Workers a 50% Raise

The world's largest retailer is under fire for its low wages. But the numbers show it can easily pay more without tanking its stock.

By Stephen Gandel, senior editor

November 12, 2013

CNNMoney / Fortune Magazine

FORTUNE -- When a Wal-Mart executive boasted at a Goldman Sachs investor conference in September that 475,000 of the company's U.S. store associates make more than $25,000 -- meaning that a large portion of its 1.4 million workers in the U.S. make less -- a long-simmering debate about the company's wages boiled over. Last week, a large protest outside a California Wal-Mart store led to 50 arrests.

Fueling the anger, Payscale, a salary information site, estimates that Wal-Mart CEO Mike Duke's 2012 pay of $23.2 million was 1,034 times more than the company's average worker. Wal-Mart has called that figure inflated.

So how much should Wal-Mart (WMT) pay its employees? To tackle that tricky question, I crunched a bunch of numbers and concluded this: Wal-Mart's workers should get a 50% raise.

And get this: The company wouldn't even have to disappoint Wall Street to pull it off. I'll explain the math in detail below.

There are a number of ways to answer the question of what Wal-Mart should pay its employees. One possibility is this: The lowest wage that Wal-Mart can get away with paying. That is probably the way many employers do it, but it's far from the best economic answer. Better-paid employees are likely to work harder and stick around longer. If employees made more, they would have more to spend at Wal-Mart.

Many critics argue that because Wal-Mart made $17 billion in profits last year, it can afford to pay more and even has an obligation to do so. That's silly, too. Public companies have to make enough money to satisfy shareholders, or else their stocks tank and executives end up getting canned.

I came up with what I feel is a better, more scientific way to determine the answer. Then I called a couple of really smart economists to get it "peer"-reviewed. Sendhil Mullainathan, who teaches at MIT and received a MacArthur genius grant for his work in behavioral economics a few years ago, said he basically came to a similar conclusion as mine a few years ago. He says companies have more discretion in setting wages then they let on. "Really the question is not whether this is possible but why some companies don't do it [this way]," says Mullainathan.

Wal-Mart didn't respond to requests for comment.

So without further ado, here's my methodology: Start with Wal-Mart's sales, and then subtract what it has to pay the suppliers that make all the stuff on its shelves. Last quarter that number was $28.7 billion.

What remains is Wal-Mart's gross profit. Wal-Mart, like all companies, has to split that between three groups -- bondholders, stockholders, and employees. How much should go to each? Bondholders are easy. They've agreed in advance to an interest rate. Last quarter, Wal-Mart's interest payments were $553 million. That leaves us with $28.2 billion, based on last quarter, or $112.8 billion a year.

How much to pay stockholders is a little bit trickier. But you can figure it out by looking at the market. Here's where my math comes in. Stock market valuations and return on equity (ROE) tend to go hand in hand. ROE is the measure of how much income a company makes compared to a company's net worth, which is also sometimes called shareholder's equity. Charles Lee, a finance professor at Stanford -- my second peer reviewer -- has done a lot of research that shows investors are willing to pay more for companies that can produce higher returns on shareholders' equity.

But you can also use Lee's research to figure out just what returns Wal-Mart's investors are looking for. The average ROE of retailers in the S&P 500 (SPX) is 16.95%. Their shares trade at price-to-book ratio of 2.9. Wal-Mart's price-to-book ratio of 3.5 is 20% higher than the group, which means that investors, based on Wal-Mart's current $79 share price, are expecting it to produce a higher-than-average ROE. How much higher? Lee says the relationship is not linear, or one for one. Let's call it 18%. That means, based on Wal-Mart's current stock price, investors are signaling that they are looking for a return of 20%.

Remember, that's not money that Wal-Mart actually pays out to investors. Most of that money is reinvested in its business. But it does pay out some in the form of dividends. And Wal-Mart has a higher dividend yield than the average retailer in the S&P 500 -- 2.4% vs. 1.3%. Adjust that for Wal-Mart's valuation vs. other retailers, and that means 4.6% of the return shareholders are looking for comes from the giant retailer's outsized dividend. That means the ROE it has to satisfy investors after dividends is 15.4%. Wal-Mart's actual current ROE is 21%. "What that suggests is that even Wal-Mart's investors think the company should pay its employees more, or at least expects it will," says Lee.

How much more? Wal-Mart has a book value of $76.7 billion. Take 15.4% of that, and that means investors are looking to get paid $11.8 billion a year. That leaves $101 billion to pay employees.

Wal-Mart paid its top executives and board members $66.7 million last year. The rest of the money has to be split among Wal-Mart's remaining roughly 2.2 million employees. Of those, about 1.4 million work in the U.S. Assume that Wal-Mart spends about 2/3 of that on the salaries of its U.S. employees, because salaries are generally higher here. That leaves $66.6 billion for the U.S. workers, or $47,593. The Bureau of Labor Statistics estimates that 30% of the average U.S. workers' total compensation is spent on benefits.

That means the average Wal-Mart employee's take home pay should be $33,315. Wal-Mart doesn't say what its actual average salary is. But Payscale estimated it to be just over $22,000 at the end of last year.

The conventional wisdom, of course, is that if Wal-Mart were to hand out raises, its stock would tank. That may not be true. When Google (GOOG) announced a 10% raise for its employees three years ago, the stock dropped a bit but mostly recovered within a year. And Google's stock is 60% higher now than it was before the raise.

As Lee points out, investors are basically giving Wal-Mart's executives a green light to raise wages. So why not?

[Stephen Gandel is a senior editor Fortune Magazine and has covered Wall Street and investing for over 15 years. He joins Fortune from sister publication TIME, where he was a senior business writer and lead blogger for The Curious Capitalist. He has also held positions at Money and Crain's New York Business. Stephen is a four-time winner of the Henry R. Luce Award.]