"What you've created here is better than communism, better than socialism could ever be, better eventhan capitalism. I like to call what you've got here 'enlightened consumerism,' where everybody workstogether as a team and the customer is finally king again."----PAUL HARVEY,radio commentator and guest at a Wal-Mart year-end meetingAs much as we love to talk about all the elements that have gone into Wal-Mart'ssuccessmerchandising, distribution, technology, market saturation, real estate strategythe truth is thatnone of that is the real secret to our unbelievable prosperity. What has carried this company so far so fastis the relationship that we, the managers, have been able to enjoy with our associates. By "associates" wemean those employees out in the stores and in the distribution centers and on the trucks who generallyearn an hourly wage for all their hard work. Our relationship with the associates is a partnership in thetruest sense. It's the only reason our company has been able to consistently outperform thecompetitionand even our own expectations.

Now, I would love to tell you that this partnership was all part of my master plan from the beginning, thatas a young man I had some sort of vision of a great retailing company in which all the employees wouldbe awarded a stake in the business. That I saw them having the opportunity to participate in many of thedecisions that would determine the profitability of that business. I would love to tell you that from the verybeginning we always paid our employees better than anyone else paid theirs, and treated them as equals.

I would love to tell you all that, but unfortunately none of it would be true.

In the beginning, I was so chintzy I really didn't pay my employees very well. The managers were fine.

From the time we started branching out into more stores, we always had a partnership with the storemanagers. Those guys I've already told you about, like Willard Walker and Charlie Baum and CharlieCate, all had a piece of their stores' profits from the beginning. But we really didn't do much for the clerksexcept pay them an hourly wage, and I guess that wage was as little as we could get by with at the time.

In fairness to myself, though, that was pretty much the way retail was in those days, especially in theindependent variety store part of the business.

CHARLIE BAUM:

"When I took over the store in Fayetteville, which would have been May of 1955, Sam was paying thegirls fifty cents an hour. After that first paycheck went out, I thought about it and decided, This is for thebirds.' So the next week I raised them to seventy-five cents an hour, and I got a telephone call from Sam.

He said, 'Charlie, we don't give raises of a quarter an hour. We give them a nickel an hour.' But I didn'tcut back. I stayed with the seventy-five cents because those girls were earning it. We were a high-volumestore for those days, making pretty good money."I don't remember beingthat tight, but I guess Charlie's got it about right. We didn't pay much. It wasn'tthat I was intentionally heartless. I wanted everybody to do well for themselves. It's just that in my veryearly days in the business, I was so doggoned competitive, and so determined to do well, that I wasblinded to the most basic truth, really the principle that later became the foundation of Wal-Mart'ssuccess. You see, no matter how you slice it in the retail business, payroll is one of the most importantparts of overhead, and overhead is one of the most crucial things you have to fight to maintain your profitmargin. That was true then, and it's still true today. Back then, though, I was so obsessed with turning in aprofit margin of 6 percent or higher that I ignored some of the basic needs of our people, and I feel badabout it.

The larger truth that I failed to see turned out to be another of those paradoxeslike the discounters'

principle of the less you charge, the more you'll earn. And here it is: the more you share profits with yourassociateswhether it's in salaries or incentives or bonuses or stock discountsthe more profit will accrueto the company. Why Because the way management treats the associates is exactly how the associateswill then treat the customers. And if the associates treat the customers well, the customers will returnagain and again, andthat is where the real profit in this business lies, not in trying to drag strangers intoyour stores for one-time purchases based on splashy sales or expensive advertising. Satisfied, loyal,repeat customers are at the heart of Wal-Mart's spectacular profit margins, and those customers are loyalto us because our associates treat them better than salespeople in other stores do. So, in the wholeWal-Mart scheme of things, the most important contact ever made is between the associate in the storeand the customer.

I didn't catch on to that idea for quite a while. In fact, the biggest single regret in my whole businesscareer is that we didn't include our associates in the initial, managers-only profit-sharing plan when wetook the company public in 1970. But there was nobody around preaching that philosophy in those days,and I guess I was just too worried about my own debt, and in too big a hurry to get somewhere fast.

Today, some of our company's critics would like everybody to believe we started our profit-sharingprogram and other benefits merely as a way to stave off union organizing. The traditional version of whathappened is that the Retail Clerks union organized a strike against us when we opened store number 20in Clinton, Missouri, and another one when we opened store number 25 in Mexico, Missouri, and that inresponse to those troubles we started all these programs to keep the unions out.

That story is only partly true. We did have labor trouble in those two stores, and we did fight the unionslegally and aboveboardand we won. In fact, we've never lost a union organizing election. But the ideafor sharing profits and benefits had come up even before we went public, not from me, but from Helen.

HELEN WALTON:

"We were on a trip, driving someplace, and we were talking about the high salary that Sam was earning,and about all the money and benefits that he was paying the officers of the company in order to keep histop people. He explained that the people in the stores didn't get any of those benefits, and I think it wasthe first time I realized how little the company was doing for them. I suggested to him that unless thosepeople were on board, the top people might not last long either. I remember it because he didn't reallyappreciate my point of view at that time. Later on, I could tell he was thinking about it, and when hebought it, he really bought it."It may be true that our skirmishes with the Retail Clerks and some other unions along thewayconstruction unions at our building sites, and the Teamsters at our distribution centershelped hurryalong our thinking in this direction. The unions, who don't seem to like our company muchmaybebecause they've never had any luck organizing uswant everyone to believe they're the only reason we'veever done anything good for any of our associates. The truth is, once we started experimenting with thisidea of treating our associates as partners, it didn't take long to realize the enormous potential it had forimproving our business. And it didn't take the associates long to figure out how much better off theywould be as the company did better.

I have always believed strongly that we don't need unions at Wal-Mart. Theoretically, I understand theargument that unions try to make, that the associates need someone to represent them and so on. Buthistorically, as unions have developed in this country, they have mostly just been divisive. They have putmanagement on one side of the fence, employees on the other, and themselves in the middle as almost aseparate business, one that depends on division between the other two camps. And divisiveness, bybreaking down direct communication, makes it harder to take care of customers, to be competitive, andto gain market share. The partnership we have at Wal-Martwhich includes profit sharing, incentivebonuses, discount stock purchase plans, and a genuine effort to involve the associates in the business sowe can all pull togetherworks better for both sides than any situation I know of involving unions. I'm notsaying we pay better than anybody, though we're certainly competitive in our industry and in the regionswhere we're operating; we have to be if we want to attract and keep good people. But over the longhaul, our associates build value for themselvesfinancially and otherwiseby believing in the company andkeeping it headed in the right direction. Together, we have ridden this thing pretty darned far.

On the other hand, let me say this: anytime we have ever had real trouble, or the serious possibility of aunion coming into the company, it has been because management has failed, because we have notlistened to our associates, or because we have mistreated them.

I think anytime the employees at a company say they need a union, it's because management has done alousy job of managing and working with their people. Usually, it's directly traceable to what's going on atthe line supervisor levelsomething stupid that some supervisor does, or something good he or shedoesn't do. That was our problem at Clinton and at Mexico. Our managers didn't listen. They weren't asopen with their folks as they should have been. They didn't communicate with them, they didn't share withthem, and consequently, we got in trouble.

We fought those situations using pretty traditional methods. We hired a good labor lawyer, John Tate,who has won a lot of organizing battles over the years, and who has since joined our company. Hisadvice helped me become even more determined to change the relationship between management andthe associates at Wal-Mart: take care of your people, treat them well, involve them, and you won't spendall your time and money hiring labor lawyers to fight the unions. Right after those confrontations, Johnhelped us conduct a management seminar down at Tan-Tar-A resort in Missouri, and soon thereafter welaunched a program called "We Care" designed to let the associates know that when they had problems,we wanted them to come to management and give us a chance to solve them. Our message became"Sure, we are a nonunion company, but we think we are stronger because of it. And because you are ourpartner, we have an open door, and we listen to you, and together we can work out our problems." Theunion, of course, would argue more along the line of "Hey, we can get you a $3.00-an-hour raise. Whydon't you strike"There's been all sorts of debate over why we chose to call our employees "associates," and everybodyand his brother takes credit for it. I don't know. Maybe they're right. But the way I remember it is prettysimple. First of all, in my day, James Cash Penney had called his hourly employees "associates," and Iguess I always had that idea in the back of my head. But the idea to try it at Wal-Mart actually occurredto me on a trip to England.

HELEN WALTON:

"We were on a tennis vacation to England. We were there to see Wimbledon. One day, we werewalking down a street in London, and Sam, of course, stopped to look at a storehe always stopped tolook in stores wherever we wentanywhere in the world, it didn't matter. On that same trip, we lost a lotof our things in Italy when thieves broke into the car while he was looking at a big discount store.

Anyway, he stopped at this one English retailing company, and I remember him saying, 'Look at that sign.

That is great. That's what we should do.' "It was Lewis Company, J. M. Lewis Partnership. They had a partnership with all their associates listedup on the sign. For some reason that whole idea really excited me: a partnership with all our associates.

As soon as we got home, we started calling our store workers "associates" instead of employees. Thatmay not sound like any big deal to some folks, and they're right. It wouldn't have meant a thing if wehadn't taken other actions to make it real, to make it something other than window dressing. The decisionwe reached around that time, to commit ourselves to giving the associates more equitable treatment in thecompany, was without a doubt the single smartest move we ever made at Wal-Mart.

In 1971, we took our first big step: we corrected my big error of the year before, and started aprofit-sharing plan for all the associates. I guess it's the move we made that I'm proudest of, for a numberof reasons. Profit sharing has pretty much been the carrot that's kept Wal-Mart headed forward. Everyassociate of the company who has been with us at least a year, and who works at least 1,000 hours ayear, is eligible for it. Using a formula based on profit growth, we contribute a percentage of everyeligible associate's wages to his or her plan, which the associate can take when they leave thecompanyeither in cash or Wal-Mart stock. There's nothing that unusual about the structure of the plan.

It's the performance I'm so proud of. For the last ten years, the company contributed an average of 6percent of wages to the plan. Last year, for example, Wal-Mart's contribution was $125 million. Now,the folks who administer profit sharingand this includes a committee of associateshave chosen yearafter year to keep the plan invested mostly in Wal-Mart stock, so the thing has grown beyond belief,collectively, and in the individual accounts of a lot of associates. Today, as I write this, profit sharing hasaround $1.8 billion in itequity in the company that belongs to our associate partners.

BOB CLARK, WAL-MART TRUCK DRIVER, BENTONVILLE, ARKANSAS:

"I went to work for Mr. Walton in 1972, when he only had sixteen tractors on the road. The first month,I went to a drivers' safety meeting, and he always came to those. There were about fifteen of us there,and I'll never forget, he said, 'If you'll just stay with me for twenty years, I guarantee you'll have$100,000 in profit sharing.' I thought, 'Big deal. Bob Clark never will see that kind of money in his life.' Iwas worrying about what I was making right then. Well, last time I checked, I had $707,000 in profitsharing, and I see no reason why it won't go up again. I've bought and sold stock over the years, andused it to build on to my home and buy a whole bunch of things. When folks ask me how I like workingfor Wal-Mart, I tell them I drove for another big company for thirteen yearsone they've all heard ofandleft with $700. Then I tell them about my profit sharing and ask them, 'How do you think I feel aboutWal-Mart'"GEORGIA SANDERS, RETIRED HOURLY ASSOCIATE, WAL-MART NO. 12, CLAREMORE,OKLAHOMA:

"I started out in April 1968, and worked as a department head in cameras, electronics, and smallappliances. In the beginning, I made $1.65 an hour, minimum wage. In 1989, when I retired, I wasmaking $8.25 an hour. I took $200,000 in profit sharing when I left, and we invested it pretty well, Ithink. We've done a lot of traveling, bought a new car, and we still have more money than we startedwith. Over the years, I bought and sold some Wal-Mart stock, and it split a lot. I bought my mom ahouse off some of that money. For me, Wal-Mart was just a great place to work."JOYCE MCMURRAY, DISTRICT OFFICE TRAINER AT WAL-MART STORE NO. 54 INSPRINGDALE, ARKANSAS:

"I live and breathe Wal-Mart. Sam always gives so much to the associates, I want to give as much as Ican back in return. I got my fifteen-year pin from him personally. I've had the maximum taken out of mycheck for stock purchases, and I've bought some on the outside too. You cannot imagine how my profitsharing has increased. This year my profit sharing amounts to $475,000. I had originally planned to retirethis year, take my bundle and bail out. But I'm only forty, and I've decided to hang in here for a while. I'mnot sure what we'll do with the money. It's for retirement, of course. But I think we'll also buy a pianoand maybe someday build our dream house. But I'm keeping this stock a long time."JEAN KELLEY, ASSOCIATE IN THE GENERAL OFFICE, WHERE SHE SUPERVISESCARGO CLAIMS:

"I grew up on a farm in Mexico, Missouri, and went to work in store number 25 there when I wastwenty years old. When I came to Bentonville, there were nine people in the traffic department, and nowthere are sixty-one of us. My brother tried to talk me into quitting back in the beginning. He said I couldgo anywhere other than Wal-Mart and make more an hour. Well, in 1981 I had $8,000 in profit sharing.

In 1991, I had $228,000. I told my brother to show me anywhere else I could go and do that, and Iwould change jobs. If you have faith in this company, it's amazing how your loyalty pays off. I'm so glad Istuck to it. My money is going to send my daughter, Ashley, to college."Those are some of my partners, and we've come a long way together. About the same time we startedprofit sharing, we cranked up a lot of other financial partnership programs. We've got an employee stockpurchase plan so associates can buy stock through payroll deductions at a discount of 15 percent offmarket v............