People Problems at Wal-Mart

Sam’s/Wal-Mart vs. Costco

• Refresher Quiz: Profit = xxx – yyy– Revenue – Costs

• Lowering costs leads to _____– Higher profit

Labor “Cost” or “Investment” Sam’s Club/WM Costco• Avg. Wage $10.11/hr $17/hr• Health Ins. 46% covered 85%• Health Ins. 67% prem. Paid 92%

– HI Cost. $3500 $5735• Retirement 64% covered 91%• Retirement $747 $1330• Union 0% 13%• Labor Costs 42% of operating costs 70%

Wal-Mart Profit

Labor “Cost” or “Investment”• Net Result?? Sam’s Club/WM Costco• Profit/Employee$7,804

$15,890• Turnover 44% 17%• Shrinkage (Theft) 1.0% sales 0.2%• Productivity $525 sales/ft2 $886

• Wal-Mart’s “Missing” Profit = $16,980,600,000

Wal-Mart vs. Costco Stock Price

Labor “Cost” or “Investment”

DANGEROUS SAFE VALUABLE

Wal-Mart’s Message to Managers

We make money by

cutting costs

Your job is to help us make money

Your job is to cut

costsThe

biggest cost you control is

labor

You should

cut labor costs

A little lower

Lower

Lowering Labor Costs

• Pressure may lead to illegal activities– Wage & Hour lawsuits– 12/05 Ordered to pay $172 million for failing to

provide meal breaks to 116,000 CA workers– Fined repeatedly for violating child labor laws– Largest class action case in history for sex

discrimination

Gender-Based Pay DisparitiesJob % of

Women in jobs

Male Salaries

FemaleSalaries

Differencein Salaries

Reg. Vice Pres. 10% $419,400 $279,800 $139,600

District Mgr 10 239,500 177,100 62,400

Store Mgr 14 105,700 89,300 16,400

Assistant Mgr 36 39,800 37,300 2,500

Mgmt. Trainee 41 23,200 22,400 800

Dept. Head 78 23,500 21,700 1,800

Sales Associate 68 16,500 15,100 1,400

Cashier 93 14,500 13,800 700

Were Women as a Group Less Qualified for Management ?

Performance Ratings 2001

3.2

3.4

3.6

3.8

4

4.2

4.4

4.6

All Hourly Sales Assoc. Dept. Managers

Job Positions

Per

form

ance

Sco

res

Women

Men

“Women don’t want to be managers”

In the news…

• June 3, 2010 New York Times

• June 20, 2011

DANGEROUS SAFE VALUABLE

Competitive Advantage

• Something that allows one company to successfully compete against its competitors.– Valuable: Does it increase revenue or decrease

costs?– Rare: Is it unique to this company?– Not easily imitated or substituted: Is it difficult to

copy?

• Example: Wal-Mart’s size

The Cost of Turnover• Turnover Costs (1.5 – 2.5 x salary)• Separation Costs

– Exit interviews, administrative functions, separation pay, unemployment tax

• Replacement Costs– Advertising, selection function, staff

meetings, travel/moving expenses

• Training Costs– Formal/informal training, performance

differences

The Cost of Turnover?• SAS

SAS 2% T/O SAS 20% T/O

# of employees 6,000 6,000

Avg. Salary $60,000 $60,000

Avg. Replacement Cost

$90,000 $90,000

Turnover 120 1,200

T/O Cost $10.8M $108M

Savings $97.2M

Savings from low absenteeism SAS (6,000 employees)

National Average Absenteeism = 5 days/yr X 6,000 = 30,000 days/year X $240/day = $7.2 Million SAS Absenteeism = <2 days/yr X 6,000 = 12,000 days/year X $240/day = $2.88 Million Savings of $4.32 Million

• Some companies get it.

• Fortune’s Best Companies to Work For

Competitive Advantage

• Something that allows one company to successfully compete against its competitors.– Valuable: Does it increase revenue or decrease

costs?– Rare: Is it unique to this company?– Not easily imitated or substituted: Is it difficult to

copy?

• Example: HR Function at SAS