Wal-Marts Business Practices - Case Study Example

Wal-Mart’s Business Practices: The Value of a Good Compensation Plan A Case Study Abstract Wal-Mart is regarded as one of the biggest employers in the United States. Its business framework has traditionally depended on rigidly regulated costs of labor—forceful prevention of collective bargaining with its workers, negligible benefits, and low compensation rates. Being the biggest private-sector employer in the United States, the business framework of Wal-Mart pushes down wage rates all over the retail market and the larger economy. This essay thoroughly analyzes the compensation plan of Wal-Mart and proposes solution and implementation strategies to resolve this issue. Introduction Wal-Mart is considered as one of the biggest American companies. It provides a comprehensive selection of products and services. It offers almost all the things that a customer would ever want or need to purchase, such as furniture, toys, books, gadgets, clothing, etc. Wal-Mart promotes its low prices. However, to produce its products, it keeps a massive labor force, majority of whom serve as warehouse operative, stocker, cashier, and salesperson that demand low level of expertise (Brunn, 2006). Employees of Wal-Mart are not unionized in the United States. Numerous of its employees get quite low wages and benefits. Similar to any major company, Wal-Mart has become a target of scrutiny and criticism. And one of the highly criticized business practices of Wal-Mart is its wage and benefit plan. Wal-Mart’s wage rate and benefits, by any standard, are very low (Peeples, 2013). This paper analyzes one of the weakest components of Wal-Mart’s business model—its compensation plan. Overview of the Problem Wal-Mart has forcefully justified itself in a number of national TV adverts that emphasized employee satisfaction with how they are valued and managed. Also, the company consistently appears to be capable of hiring a sufficient labor force. However, this is a problem that will stay for long. A government report reveals that a large number of Wal-Mart workers are qualified for and use various government welfare services (Peeples, 2013). An associated reproach is that because Wal-Mart is a very massive employer, its wage and benefit plan becomes the existing benchmark in the local labor market. In short, everybody shoulders the effects of the low wage rate of Wal-Mart. Some people suggest boycotting Wal-Mart by not patronizing its products. Seemingly under the strain of downward profitability, Wal-Mart will act in response by increasing wages and benefits as a PR move, otherwise as a sign of apology (Fishman, 2006). Some people are worried about how the compensation plan of Wal-Mart negatively affects society as regards government spending. However, there was no discussion of what will happen if Wal-Mart were to increase its wage rate and benefits. If the company decides to raise wages, it is probable that its production costs would increase and that would unavoidably result in increased prices, at the expanse of numerous individuals and households of middle- to low-income who buy at Wal-Mart exactly due to its low prices. Some argue that Wal-Mart could increase wages but not their prices since the wealthy individuals who own the company would simply agree to weaker profitability. Perhaps, but it is not a closely owned firm. Wal-Mart’s stock is owned by a huge number of individuals either directly or as portions of pension structures. Numerous of these stockholders belong to the middle- to low-income groups (Fishman, 2006). A reduction of stock values would adversely influence them. In other words, there is always a consequence. Wages cannot be increased without having an effect on a large number of people, majority of whom belong to the middle- to low-income strata (Brunn, 2006). The corporate representative of Wal-Mart verified the presence of the compensation manuscript. He stated that Wal-Mart gives reasonable wages while offering major prospects for driven, diligent individuals to be promoted to higher-paying positions. As declared by the Wal-Mart’s director of National Media Relations, Kory Lundberg, “In order for Walmart to attract good people we need to offer competitive wages and benefits, and we do” (Personnel Research Federation, 2006, 128). She further said, “We offer pay and benefits that meet or exceed the majority of our competition in every location we operate, and that includes unionized competitors. We’re clearly offering jobs that people want, because last year Walmart received more than 5 million applications come work in our stores” (Hines & Wilkie, 2012, para 9). The compensation document composed of 33 pages of texts is written as a consultative manuscript for corporate managers. Although it is intended for Sam’s Clubs—a department that has a tendency to draw somewhat higher-income consumers—various Wal-Mart workers verified that the plan is also relevant to Wal-Mart stores (Hines & Wilkie, 2012, para 9-10). Originally developed to assist in standardizing labor rules in reaction to expensive litigations, Wal-Mart’s compensation plan has assisted the company in lowering its costs by regulating employee movement and restricting increases in the company. This strategy has profited corporate shareholders—the company’s profits increased 9% in 2012 (Hines & Wilkie, 2012, para 10-11). Yet the compensation policy for hourly employees sheds light on why numerous average employees feel a sense of oppression for it seems they have been deprived of portions of the company’s profits (Peeples, 2013). The compensation plan of Wal-Mart is structured around seven stages of work difficulty for hourly employees, referred to as Position Pay Grades (PPGs) (Hines & Wilkie, 2012, para 15): Level 1 is composed of cart-pushers; Level 3 are the cashiers; Level 4 are the cake designers; and Level 6 are the customer service managers. Every succeeding salary grade gives 20-40% higher than the earlier level, as stated in the compensation plan. This implies that the base salary rate for an upper hourly job at Wal-Mart, such as a counter supervisor, is $1.70 higher than that of the lowermost position (Hines & Wilkie, 2012, para 15-16). Workers can get yearly salary increases for good performance, limited to 60%. Wages can also rise when management makes a decision to change the base compensation of a store to satisfy market demands (Hines & Wilkie, 2012, para 16). Promotions for hourly workers—described in the compensation document as progressing in a salary grade—occur rarely. In 2011, promotions were given to 180,000 hourly workers, or 18% of the overall population of Wal-Mart’s hourly store employees in the U.S. Half of the total population of hourly workers of Wal-Mart in the U.S. receives lower than $10 per hour (Hines & Wilkie, 2012, para 19-20). Longtime employees are severely affected by another part of the hourly wage plan—salary caps. Salaries are capped at a specific point by grade, irrespective of quality performance. Moreover, Wal-Mart demands maintaining the part-time position of most hourly employees, in order to bypass various benefits given to full-time workers (Peeples, 2013). Wage immobility and widening income inequality endanger the future of the middle class in the United States. Although company profits are very high, the portion of national income flowing to the wages of employees has touched lowermost levels. Wal-Mart occupies a major part in this narrative. Its business framework has traditionally depended on rigidly regulated costs of labor—forceful prevention of collective bargaining with its workers, negligible benefits, and low compensation rates (Peeples, 2013). Being the biggest private-sector employer in the United States, the business framework of Wal-Mart pushes down wage rates all over the retail market and the larger economy. This business model has mushroomed all over the industry. Although employers similar to Wal-Mart strive to gain substantial profits via the reduction of costs of labor, the social implication of such low-cost model become external. Low salaries not just hurt employees-- they burden taxpayers (Griffin & Moorhead, 2013). When negligible salaries make Wal-Mart employees incapable of buying even the most basic needs, taxpayers fill the gap. Tax-subsidized public benefit services fill the gap between the low wage rates of Wal-Mart and subsistence costs. Such public funding of the low-wage structure of firms such as Wal-Mart attracted considerable attention in the past decade (Personnel Research Federation, 2006). With income inequality, wage immobility, and federal budget shortages of growing interest for public policymakers, this problem merits reevaluation. Three Solutions Basically, the problem identified here in the case of Wal-Mart is its wage and benefit policies, or, more generally, its compensation plan. Three strategies can potentially minimize or eradicate this problem: (1) strategic compensation; (2) greater incentive pay; and (3) improved benefits packages. (1) Strategic Compensation Similar to numerous other components of an organization’s model of organizational behavior and employee management, compensation can enable the attainment of numerous strategic goals. Wal-Mart should more and more adopt a strategic model of compensation planning. This implies that the company should compensate its workers in ways that improve efficiency, productivity, growth, and motivation while, simultaneously, it harmonize its operations with its culture, values, and goals. A strategic model of compensation planning does not merely involve establishing what market rates to compensate workers—even though market rates are a component of the process of planning compensation—to firmly connecting compensation to the Wal-Mart’s overall corporate goals and mission. When workers perform well, their performance evaluations could merit a higher wage rate. Therefore, Wal-Mart must create a formal employee management program to handle compensation planning. If possible, a reward or compensation structure must harmonize individual objectives with vital strategic objectives of the company. However, for many companies, like Wal-Mart, the reality is far from such ideal. The development and implementation of a compensation structure comprises one of the most difficult tasks for which HR managers are accountable. In spite of this difficulty, present-day companies, especially Wal-Mart, should manage compensation systems in ways that create employee motivation and empowerment. Since a huge amount of organizational resources are used for compensation-related operations, it is vital for managers to identify the ‘strategic’ match of compensation with the organization’s objectives and strategies (Nelson & Campbell, 2007). Ever more, companies are realizing that compensation ideals should be reformed alongside transformations in the international marketplace for products/services. Wal-Mart, specifically, has to alter its pay principle from compensating a particular position to rewarding workers based on their inputs to the company’s profitability. Hence, Wal-Mart’s compensation system should be adjusted to the demands and requirements of its workers. Value-added compensation is the most suitable way for Wal-Mart to manage compensation. A value-added compensation system involves the elements of the pay package, such as incentives and benefits, which generate value for the workers and the company (Nelson & Campbell, 2007). Payments that do not promote or benefit either the company or the worker should be taken out from the compensation system. (2) Incentive Pay A crucial contemporary phenomenon in strategic compensation management is the growing popularity of incentive plans, or known as ‘variable pay programs’, for workers all over the company. Variable pay programs determine a ‘baseline performance level’ or ‘performance threshold’ a worker or team of workers should attain so as to become entitled for variable pay (Sims, 2002, 273-4). A compensation scholar has currently stated that “the performance threshold is the minimum level an employee must reach in order to qualify for variable pay” (Sims, 2002, 274). Wal-Mart should develop and implement its own variable pay program or incentive plan. Such incentive plan stresses a collective focus on the company’s goals by widening prospects or chances for incentives to workers all over the company. An incentive plan will build within Wal-Mart a working environment that promotes an ideology of collective obligation through the assumption that every person is important to the company’s success. Here are some of the most important benefits that an incentive pay program can bring to Wal-Mart (Zoltners et al., 2006): (1) Incentives cultivate division solidarity and cooperation when payments to workers are according to group outcomes; (2) Incentives are a means to grant success to those workers who contributed much to that success; (3) Incentive payments are variable costs associated with the attainment of objectives. Base wages are fixed costs mostly separate from or not related to output; (4) Incentive pay is strongly associated with working performance. If performance targets or goals are achieved, incentives are given. If not, incentives are held back; and (5) Incentives concentrate the efforts of workers on certain performance goals. They create genuine motivation that generates crucial organization and employee objectives. So why should Wal-Mart adopt an incentive pay program? The company is one of the biggest employers in the United States and it definitely requires a system that could help it sustain employee motivation and teamwork. Because the company relies on it massive workforce, it is simply sensible to recognize well performing employees through incentives or rewards. (3) Benefits Package So as to sustain a profitable, successful enterprise, it is critical to have not just a wide selection of products/services, but also be capable of hiring and maintaining a pool of efficient, high performing workers. There are numerous aspects required in order to achieve these objectives, yet one particularly is frequently taken for granted—a suitable benefits package. A benefits plan is seriously lacking in Wal-Mart. Creating the most appropriate benefits package for Wal-Mart’s workers can make a considerable effect on the company’s success. A good benefits package will be competitive in a marketplace where firms are providing more and more improved plans to attract the most skilled employees. Nevertheless, it is also critical to make sure that the plan is cost-effective. Demands of employees for a good benefits package keep on growing, as employee satisfaction and good benefits become ever more interconnected. Although numerous employers provide the usual health insurances, an increasing number of organizations are branching out into other forms of compensation plans (Burrow et al., 2007). Hence, it is crucial for Wal-Mart to develop its benefits plan thoroughly to make sure that it stays faithful to its offerings or business model while still selecting a package that suits its financial plan. It is not easy to find the appropriate benefits plan for Wal-Mart’s workers. Aside from the usual health insurances, numerous employers are currently providing a broader array of extra, improved packages, such as tuition support, retirement plans, and life insurance. The most appropriate plan for Wal-Mart is essential, and is most probable to attract or please their workers. So as to develop a good benefits package, it is vital for Wal-Mart to take into consideration the demands and needs of its workers; since the company gives lower wages it is logical or favorable to enhance specific benefits. There are two major variables that Wal-Mart should consider in developing its benefits plan—gender and age. At present, women make up a large portion of Wal-Mart’s workforce. This makes it imperative to take into consideration the needs and demands of female workers more thoroughly at present than could have been required beforehand. Another important variable for Wal-Mart to consider is age; it should determine how different workers may need different benefits. The company should provide long-term care and improved retirement savings for its older employees. Implementation Strategy It is not unusual for companies to create particular objectives for integrating their corporate goals into their compensation plan. In the case of Wal-Mart, formalized compensation objectives will function as guiding principles for its management to guarantee that wage and benefit plans attain their intended objective. So how should Wal-Mart implement its strategic compensation plan? Wal-Mart should carry out the following (Burrow et al., 2007): (1) Presenting and explaining to workers and other stakeholders the main goals of the company like customer service, quality, and so on by stressing these via compensation; (2) Conforming to government policies; (3) Drawing and sustaining the skills the company requires; (4) Rewarding the past performance of workers; (5) Regulating the compensation funds; (6) Building and sustaining wage equality among workers To attain these objectives, rules should be made to help management make decisions. Formalized documents of compensation rules should be developed by Wal-Mart. The company’s formalized documents of compensation rules should include the below aspects (Sims, 2002): (1) The wage rate within the company and whether it is to be higher than, lower than, or at the existing market rate; (2) The capacity of the compensation plan to acquire employee approval while encouraging workers to perform well; (3) The salary grade at which workers may be employed and the wage differential between new and older workers; (4) The intervals at which increases in salaries are to be given and to the degree to which tenure and/or performance will affect the increase; (5) The wage levels required to enable the attainment of a strong financial status with regard to the products/ services provided. Similarly, to attain the maximum advantage of incentive plans according to efficiency or performance, Wal-Mart’s incentive package should be thoroughly developed, implemented, and sustained. There are three vital implementation strategies that Wal-Mart should adopt in relation to its incentive plan (Zoltners et al., 2006): (1) The overhead costs related to the management and implementation of the plan should be identified. These could comprise the cost of determining performance criteria and the additional expense of record maintenance. The time and effort needed in presenting and explaining the plan to the workers and resolving any issues regarding it should be added in these costs; (2) Yearly wage funds should be sufficient enough to reward, promote, and strengthen quality performance. When a compensation plan is designed to guarantee that salary raises do not go beyond specific boundaries—usually determined as a fraction of sales or payroll—these limitations could prevent rewarding well performing employees or teams; (3) Incentive programs are successful only when the management is eager to give incentives according to differences in organizational, group, or individual performance. Letting incentive pays to become wage ensures the loss of the incentive’s motivational aspect. The main objective of an incentive package is not to compensate under nearly all situations, but instead to encourage quality performance. Hence, if Wal-Mart’s incentive plan is to become successful, low-quality performance should be unrecognized or unrewarded. Lastly, for the benefits package to work, Wal-Mart should implement the following benefits as determined from the best practices of most successful corporations across the globe (Griffin & Moorhead, 2013): (1) Education benefits. Almost all companies compensate workers for holding degrees or trainings that contribute to the success of the company; (2) Profit sharing. Many companies share approximately 3 to 5 per cent of their profits. (3) Retirement benefits. (4) Disability insurance. (5) Paid time off (PTO). Wal-Mart should offer substantial holiday packages or other leisure benefits. (6) Dental benefits. (7) Full health insurance for the workers. All such benefits should be offered by Wal-Mart since majority of its workforce belong to the low-income group. Strategic compensation plan, incentive plan, and benefits package will not only bring advantages to Wal-Mart, but also to communities and the entire country. Conclusions Wal-Mart at present exists in a setting typified by major challenges—like lower profitability and greater competition—as well as huge prospects. To overcome the challenges and maximize the opportunities, Wal-Mart must comprehensively evaluate all domains of its business model that will push their success onward, and try to enhance their strategies and procedures. However, it is the compensation plan of the company that seems to be the weakest component of the business model. Compensation is the most successful instrument of employee recruitment, motivation, and retention. Hence, compensation becomes a determinant of Wal-Mart’s existing competitive status and financial situation, as well as its building of distributable value. The three solutions discussed—strategic compensation plan, incentive plan, and benefits package—can help Wal-Mart attract and retain the most qualified workers. A quality compensation plan, especially benefits, is a usually disregarded instrument for guaranteeing the success of an organization. Via thorough development of a tailored, cost-effective plan, Wal-Mart can employ the best workforce, make sure current workers stay satisfied and efficient, and stay highly competitive in the market. References Brunn, S. (2006). Wal-Mart World: The World’s Biggest Corporation in the Global Economy. New York: Taylor & Francis. Burrow, J. et al. (2007). Business Principles and Management. Mason, OH: Cengage Learning. Fishman, C. (2006). The Wal-Mart Effect: How the World’s Most Powerful Company Really Works—and How It’s Transforming the American Economy. New York: Penguin. Griffin, R. & Moorhead, G. (2013). Organizational Behavior: Managing People and Organizations. Mason, OH: Cengage Learning. Hines, A. & Wilkie, C. (2012, Nov 16). Walmart’s Internal Compensation Documents Reveal Systematic Limit on Advancement. Huffington Post. Retrieved from http://www.huffingtonpost.com/2012/11/16/walmarts-internal-compensation-plan_n_2145086.html Nelson, D. & Campbell, J. (2007). 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