Walmarts Compensation in China - Business Plan Example

Walmart’s Compensation plan in China Walmart’s compensation policies are currently the of debate and the Company has been accused of unnecessarily undermining worker compensation. Bernstein and Bivens (2006) point out that WalMart is in a position to raise the wages and benefits of its non supervisory employees by more than 2000$ in 2005, without having to resort to raising prices and while still maintaining its profit margins of 50% over its competitor, Costco. 46% of its employees are uninsured and use public aid programs such as Medicaid and food stamps. Walmart’s low wages has also depressed wages of workers across the retail sector. It has been pointed out that raising wages does not necessarily run hand in hand with higher prices, rather a wage increase can be financed out of reduced profit shares for the Company.(Berbstein and Bivens, 2006),. While Wal Mart has brought productivity and is leaner than many Companies and thereby gained a substantial competitive edge, this need not be achieved through unfairly low compensation. Wal-Mart’s pay schemes for its top executive is very generous and a strongly motivational factor in the performance of employees in the top bracket. Its CEO earned 17 million dollars in 2004, which is almost twice the average CEO salary in most US companies.(Anderson, 2005). Another aspect where Walmart has been praised is in achieving lower prices for customers and its supply chain inefficiencies that have allowed it to gain a strong competitive advantage in the market (Hughes et al, 2006: 4). Since Wal-mart has gained such a degree of dominance in the world marketplace, it is in a position to demand cost cuts from its suppliers which translates into cost efficiency. Most of Wal-Mart’s suppliers are located in China, which supplied about $18 billion worth of goods in 2004. As Anderson (2005) points out, there are rampant violations of worker rights in Chinese factories that produce goods for Wal-Mart, with workers being treated unfairly and harsh working conditions. Studies that have been conducted in China’s Guangdong province where toys are manufactured for Walmart, revealed that the workers sometimes work up to 130 hours per week for a wage of only 16.5 cents per hour which is below the minimum wages prescribed in that country and workers are not provided any medical insurance either (Anderson 2005). Workers in other countries such as Bangladesh also toil in the same way to meet Wal Mart’s production quotas. Union movements existing in China, grouped under the All China Federation of Trade Unions seek to safeguard the interests of workers and to protect their rights, including their rights to a decent wage and fair hours of work.(www.aftcu.org.cn). Walmart has, in principle, been against unions and in the United States, has sought to use underhand tactics to bust unions to deny worker rights (Anderson, 2005). In China however, the state run labor union has threatened legal action against foreign businesses that do not allow their workers to organize themselves into unions, so that they can go on strike over pay issues and abuse of their rights in the workplace. As a result, Walmart has agreed to allow its workers to organize themselves into unions to press for their rights, since Wal-Mart’s non union policies have been found to perpetuate low wages for workers. (BBC report, 2004) Compensation Plan: On the basis of the above, it may be noted that there is a need for Wal-Mart to improve the wages being offered to Chinese workers since 16.5 cents per hour and a 130 hour work week amounts to exploitation of the workers. Wal Mart needs to cut down working hours and provide insurance and compensation schemes, including overtime pay and bonuses for workers who perform exceptionally well. The major objectives that must be addressed by the compensation plan are: (a) Highly hourly wages that are on par with or above minimum wages prescribed by the Chinese Government and the action of unions. (b) Reduction of working hours to 40 hours per week (c) Allowing at least 20 paid leave days in a year (d) Introduction of basic health insurance for workers and other forms of insurance, including disability insurance. (e) Introduction of bonuses, contingent and flex payment schemes The compensation plan should be headed up by a three member team comprised of one top American executive of Walmart, two top executive from China as well as two or three Wal mart employees from the Chinese worker unions. It is also suggested that an employee of the Chinese Government be invited to sit in on the negotiations while the initial compensation plan is drawn out. By including employee-workers, there will also be input into the compensation plan from the employee standpoint while the presence of the Government official will ensure that there is also a neutral person who can monitor the process. The philosophy behind the compensation should be to provide a fair and reasonable package of wages and benefits to workers of Wal Mart. It is suggested that the current gap that exists between wages of top employees and workers be reduced by designing a pay scale that will consist of different pay ranges that are more equitably distributed. Employees can then be paid according to their level in the organization; workers will be paid along the lowest scale on a hourly rate basis while salaried employees, sales employees and other professional employees are paid salaries that fall within the higher ranges. For those employees who are paid an hourly wage, provision must also be made for payment of overtime wages at the rate of one and half times the normal pay. While hourly rates can be established along minimum wage rates in China, salaries for executive employees can be more competitive and based upon international rates prevalent in USA, which is likely to enhance performance of employees to very high levels. Allowing a salary range also helps to set a lower and a higher level in pay, so that when an employee rises to a new executive level, he/she starts off with the salary at the lowest range and receives increments until his salary reaches the highest figure on the range. By providing yearly or bi-yearly increments in this manner, there is an added incentive for workers to perform well. Similarly improved performance can also be achieved by paying bonuses to those employees who perform exceptionally well. Most importantly however, Wal Mart needs to design a package of insurance for its employees that will cover medical costs, unemployment insurance for a period of six months to a year, accident and disability insurance in the event the workers are injured at work. This will provide some protection for worker rights and provide them with some basic rights and resources in an emergency. Workers can be further motivated by offering them contingent pay schemes. A contingent pay scheme works on the basis of making the allocation of rewards contingent upon performance – some of its trendier forms include competence based pay and team based pay. (CIPD Symposium Report, 2005:7). On this basis, payment of bonuses, etc are made contingent upon performance rather than being supplied automatically. Flex reward schemes may also be considered by Wal Mart. These schemes do not pay the employees only in terms of specific allocations for salary and for perks, rather employees are given their money and they may use their salary as they wish, purchasing only the benefits or perks that they need in accordance with their requirements (Taylor, 2006). Moreover, flexible benefit plans are based upon “salary sacrifice” and as a result of the online management of benefit schemes, both employers and employees are able to benefit – employers by using national insurance savings to manage risks, while employee benefit arrangements are streamlined and tailored to their individual requirements rather than being generated on a rigidly compartmentalized basis. While cash incentives may also be used, flex pay schemes may be more attractive for top executives who are able to tailor their earnings according to their needs. Conclusions: By implementing such changes in its wage plans, Wal Mart is likely to be able to address much of the criticism about its wage schemes, notably the low wages, the lack of insurance and the wide gap between pay of its top executives and its workers. Moreover, it will also be able to satisfy the concerns of the Chinese Government and Union workers and continue to be able to run its operations successfully in China without its current bad reputation of exploitation of its workers. References: * All China Federation of Trade Unions. [online] available at: http://www.acftu.org.cn/about.htm * Anderson, Sarah, 2005. “Wal Mart’s Pay Gap” IPS Report [online] available at: http://www.wakeupwalmart.com/facts/Wal-mart-pay-gap.pdf * BBC Report, 2004. “Wal-Mart approves unions in China” November 24, 2004 [online] Available at: http://news.bbc.co.uk/2/hi/business/4037423.stm * Bernstein, Jared and Biven, Josh L, 2006. “The Walmart debate: A false choice between prices and wages.” EPI Issue Brief #223, June 15, 2006. [online] available at: http://www.epinet.org/content.cfm/ib223 * CIPD Symposium report on reward Management, 2005. [online] available at: www.cipd.co.uk/subjects/pay/general/_rwrdmngt.htm * Hughes, Susan B, Caldwell, Craig B, Paulson-Gjerde, Kathy A, 2006. “Promoting Investments in intangible Organizational assets through aligned incentive Compensaiton Plans.” Management Accounting Quarterly, 7(4) Summer 2006. * Taylor, Vicki, 2006. “Looking to the future….” [online] available at: http://www.employeebenefits.co.uk/item/10/23/301/3 Read More