Even Seasonal Workers Offered Benefits at REI
By George Anderson
To be eligible for health benefits from REI, workers need to be employed by the company for 30 days. That’s it.
Beginning in January, the retailer will begin offering health benefits to all employees regardless of how many hours they work as long as they meet the 30-day requirement.
The move will affect roughly 2,000 workers at the company who are not currently eligible for benefits under the existing package, which provides for employees who have worked an average of 20 hours a week and have been with REI for six months or more.
REI estimates the cost of expanding the plan will run around $500,000 a year. The company is hoping that it will help it improve employee retention levels. REI’s annual turnover is currently running at about 50 percent, much lower than most companies in the retail space.
Michelle Clements, vice president of human relations for REI, said the expansion of health coverage to all employees should benefit workers, the company and customers.
“The customer really can’t tell the difference between part-time and full-time staff,” she told The News Tribune. “Being able to retain an employee who is knowledgeable and enthusiastic about the outdoor experience is important.”
Under the new plan, REI will pay 60 percent of medical benefits, with employees paying a monthly premium of about $41 for medical and dental coverage. The plan has a $150 deductible.
As a point of contrast, the piece in The News Tribune pointed to the recent decision by Mervyn’s to move all full-time hourly employees to part-time status. Mervyn’s will not provide health coverage benefits for part-timers in the new year. As result, about 15 percent of the staff in Mervyn’s stores (1,200 full-time and 3,600 part-time) will no longer be eligible for health benefits as of March 2006.
Moderator’s Comment: What is your reaction to the health benefit decisions made by REI and Mervyn’s? –
George Anderson – Moderator
My immediate response is: Buy REI/dump Mervyn’s. By the way, Starbucks has been paying part-timers benefits for a while now. What they lose in benefit costs they make up for in loyalty and decreased turnover and training.
Good on REI. And shame on Mervyn’s; I’m pretty sure their staff behaviour is going to start suffering sooner rather than later.
Kaiser Permanente began as a healthcare service provided by Kaiser Aluminum for their employees. At the time, they were much smaller in terms of sales and employees than many American companies today. Why can’t Wal-Mart, P&G, McDonald’s, and General Motors do the same? Middlemen (claims processors) and insurance companies got in the way, of course, and remain so today. Is it too much to overcome?
The only way to take the flatulence out of healthcare costs is for companies to do it themselves. They’ll save millions and have more loyal employees if they jettison the third-party providers and develop their own proprietary healthcare programs. There was a time when progressive employers decided to stick to their core competencies and outsource everything else. That included healthcare and, in many cases, the entire Human Resources function. Things have changed, and it’s time to go back to the future.
Both are retailers with different business models (and assortments), two different approaches to their employees and, by extension, to customer service in the store. If you’re in a retail segment with little ability to differentiate your brand or your products, you become a commodity and you earn appropriate margins which (in Mervyn’s case) cannot support taking care of your employees. In REI’s case, they have a solid and defensible value proposition with sufficient margin power to support their employees with significant contribution to health care.
In the short term, Mervyn’s numbers might be good, but the inevitable employee turnover in the store will catch up with customer service, giving less reason to visit the stores, so management drops prices more to attract traffic, and provides less service, and the vicious cycle continues until we have one less undifferentiated retailer.
For REI, they will continue to support their employees as long as their differentiated strategy earns them satisfied customers driving above average margins.
While I would agree with scotti on the research, I think in this case, there’s more to it. A company making this type of investment with the stated objectives of retention is likely doing other things as well. Today, more than ever, health insurance doesn’t only equate to money by itself. It also equates to trust, as mentioned, as well as an overall concern by the employer.
Retailers making these types of initiatives encourage me to believe that there are those out there that are beginning to understand the connection in the equation of the associate to the bottom line and, equally importantly, the top line. I would take these types of moves as more successful than those by Sears, Kmart and others discussed this week with regard to employee loyalty. There is an equation that could be put together here.
Neither plan will directly impact retention or the bottom line; possibly it will initially attract somewhat qualified new employees.
Retention of employees and managers — and their productivity — is more impacted by “satisfiers” including personal achievement, recognition, responsibility/autonomy, trust with their manager and challenged growth. This has been proven by 25 years of research by AT Kearney, Hertzberg and 5 other firms that continue to monitor what motivates (and retains) top performers.
Anything to do with money consistently ranks #4 with this subject.
Some health insurance is better than no health insurance. I like REI’s 60% plan. With a cost of only $500k to cover 2,000 employees, this sounds too cheap and I’m sure there are many more restrictions. Still, it’s low cost and by putting 40% on the backs of employees, it encourages more decision making on the consumer to seek out the most cost effective treatments. On the other hand, this could put a hardship on low income employees who will be forced to leave State sponsored health care plans which offer better coverage. But the more we wean people off welfare plans and get them to take on more personal responsibility, all the better.
REI’s decision is excellent, since they need skilled staff that can properly guide customers. Their customers are fairly picky, and often quite well-informed already. They value skilled assistance, and high-turnover staffs don’t provide that. Furthermore, I strongly suspect that lower staff turnover leads to reduced shrink, since the employer can be more picky and the more experienced staff can spot thieves (both internal and external) more easily. Also, much shrink stems from sloppy execution of internal procedures, and experienced people make fewer mistakes. The most recent Jack L Hayes shrink study showed $2,800 shrink for every employee, on average (not necessarily due to every employee, obviously). It showed that 1 out of every 28 employees was caught stealing. So I believe that the lower turnover will lead to better sales and reduced shrink.
My guess is that Mervyn’s doesn’t pretend to need customer service like REI, and is willing to take the shrink risk. Let’s see what happens to their financials.
Sounds like REI is taking a page from Costco in hopes of a similar result – loyal employees. While paying for 60% of health care is a big chunk of money, the company is still not paying all the benefits full time employees receive, but health care coverage is a difficult, expensive, and important item for employees. Addressing this problem and making life easier for part-time employees will make it difficult for them to leave. A very good strategy to motivate and keep employees with knowledge and skill.
A couple of sidenotes: It’s a telling comment that the REI spokesperson says that customers can’t really tell who’s full time and who’s part time. That is the truth, and it’s really important, because just as customers don’t care which channel they are shopping in, neither do they care whether they are being “helped” by a full-timer, or a part-timer, as long as they are being helped.
As to the shrink statistics, if the average is $2800 in annual shrink per employee, and 1 of 28 employees is stealing, that means that the average per employee involved in stealing is a whopping $78,400. To state the obvious, that’s a lot of money. Maybe retailers need to rethink the shrink model and figure out how to reward and communicate better with the 27 of 28 employees who don’t steal, and crack down, and hard, on the 1 of 28.