Performance and Compensation Strategy at Wesfarmers Limited - Case Study Example

PERFORMANCE AND COMPENSATION STRATEGY AT WESFARMERS LIMITED By Name Course Instructor Institution Location Date Table of Contents Table of Contents 2 Executive Summary 3 Introduction and Background 3 Overview of the company 4 Company history 5 Organizational structure 5 Identification of key issues, analysis and evaluation 7 Financial performance 7 Compensation strategy and practices 9 Competitive pay and benefits 10 Recommendations 11 Conclusion 12 Bibliography 13 Performance and compensation strategy at Wesfarmers Limited Executive Summary Compensation is a very critical element of the entire human resource management as it affects employees’ behavior, which can affect the organization’s performance (Divanna & Rogers 2005). The employee is the most critical asset in a company and thus a lot has to be done so as to motivate them and help keep the best talent within the organization (Gomez-Mejia & Balkin 2002). For a company to be as effective as possible, compensation must be perceived by employees as fair and at the same time as competitive in the market. This report highlights the performance and compensation strategy of the Wesfarmers Limited, which is an ASX listed public company. In addition, various recommendations are given at the end and these recommendations are aimed at improving the pay structure at Wesfarmers and ensure that if executed, the company remains one of the best in Australia, not only in terms of performance but also as one of the best employers in the region. Basically, this paper will be researched based on various parts which include history of the company, the organizational structure and the performance and compensation strategies of the company. Introduction and Background Performance and compensation is one basic aspect of an organization that determine the profitability and the competitiveness of a firm in a given industry (Gomez-Mejia & Balkin 2002). This paper focuses on assessing the performance and compensation strategy at Wesfarmers, which is one of the oldest and most successful and profitable diversified companies in Australia. Wesfarmers was founded in 1914 as a cooperative society for small-scale farmers and its main purpose was to provide agricultural products and services to the Western Australia’s agricultural population. Since its inception in 1914, the company has grown into a big and profitable organization with around 210,000 employees, and this rates Wesfarmers as one of the largest private employer in Australia (Wesfarmers Sustainability Report 2012). As a result, researching on the compensation strategy in this company means that it was the right decision as this company can be termed as one of the best employers in the country. According to media reports as well as interviews with current and previous employees at Wesfarmers, this company is one of the various companies that have a good, competitive and favorable pay structures (Thompson 2014). Overview of the company Since its inception in 1914 as a Western Australian farmers’ cooperative society, Wesfarmers has grown and expanded through new products and services to become one of Australia’s listed companies (Wesfarmers Public listing 2016). Wesfarmers has its headquarters in Western Australia and covers various operations and areas which include supermarkets, hotels, liquor business, home improvement, supplies of office materials and services, departmental stores, as well as an industries division with various businesses in chemicals, fertilizers and energy, as well as dealing with industrial and safety products and coal. At the moment, Wesfarmers is one of the largest employers in the private sector in Australia and employs around 210,000 employees. The company has a shareholder base that is approximately 500,000. The main objective of Wesfarmers is to ensure that its shareholder enjoy a satisfactory return of their money through various ways which include customer satisfaction through the provision of competitive goods and services, provision of a safe working environment for its employees and ensuring that employees are well compensated for their good performance, contributing to the welfare of the nations where the company operates in, responding well to the expectations of the community and protection of the environment, and finally ensuring that the aspects of integrity and honesty are well taken care of in daily activities (Wesfarmers Public listing 2016). Company history Wesfarmers was founded in 1914 as a cooperative society for small-scale farmers and its main purpose was to provide agricultural products and services to the Western Australia’s agricultural population (Thompson 2014). As at 1919, the farmer’s limited company had more than 65 co-operative companies acting on its behalf. As at the 1940’s, the company had various businesses which included being merchants in wheat, being the main country’s distributor for Commonwealth Oil Refineries Ltd, being fruit and grain exporters, being insurance underwriters, and had various premises within the Perth Central business district. In 1984, the Farmers’ Co-operative society restructured from being a co-operative society into a public company and was listed for the first time in the Australian Stock Exchange on the 15th of November 1984 (Wesfarmers Public listing 2016).Wesfarmers became a freely-traded publicly listed company in 2001 with open ownership (Thompson 2014). Organizational structure Wesfarmers Limited is headed by the Chief Executive Officer who is at the top of the organizational structure. The company also has a board headed by the chairman of the board. The CEO reports to the chairman of the board. At the top of the management, there are also several directors who head the respective areas and sections that the company runs. These directors run and manage the following businesses under Wesfarmers: Coles Wesfarmers purchased the Coles Group retail business back in 2007 at a record fee of A$ 20 billion. This was the largest ever successful take-over in the corporate history of Australia. Coles is a national supermarket in Australia but also deals in fuel and liquor business. As at 2013, the company operated 756 supermarkets, 636 fuel and convenient stores, 810 liquor outlets and 92 hotels. Coles Company employs approximately 105,000 employees (Wesfarmers 2015). Home improvement and office supplies This division is mainly composed of two sections: office works and the Bunnings warehouse. Officeworks deals in the supply of office products meant for home, business and education within Australia whereas Bunnings Warehouse deals in home improvement products, outdoor living products, and servicing home within Australia and New Zealand (Wesfarmers 2015). Department stores In February 2016, Wesfarmers restructured its department store business and formed a single division which they called the Department stores(Wesfarmers 2015). Kmart This is a department store retailer located in both New Zealand and Australia and offers automotive services as well as tyres business and repairs within these two countries and employs more than 30,000 employees (Wesfarmers 2016). Target This is a department store retailer located only in Australia and employs more than 24,000 staff (Wesfarmers 2015). Industries In 2015, Wesfarmers restructured its three industrial businesses, Chemicals, Energy and Fertilizers into a single business unit (Wesfarmers 2016). Resources Wesfarmers Resources operates cola producing resources in Australia and also has a Curragh in Queensland responsible for the production of coals for exports and also for use in domestic power generation. It employs more than 650 members of staff (Wesfarmers 2016). Industrial and safety This section of the Wesfarmers deals in industrial and safety products and services, both in Australia and in New Zealand. In 2014, Wesfarmers industrial and safety acquired the Workwear Group of the Pacific Brands Limited. Businesses covered by the Wesfarmers industrial and safety include Blackwoods, NZ Safety, Bullivants, Coregas, Safety Source, Protector Alsafe, King Gee and Total Fasteners (Wesfarmers 2016). Other businesses and activities Wesfarmers owns 50% of the Investment House Gresham Partners and also has the same interests in Wespine, a plantation softywood sawmill. In addition, Wesfarmers has 100% interest in other subsidiaries in various countries including the Harris Technology, Loyalty Pacific, and Morley Shopping Centre among other subsidiaries (Wesfarmers 2015). Identification of key issues, analysis and evaluation Financial performance Through its many subsidiaries and activities, Wesfarmers has enjoyed a good financial performance that has kept in at the top. Wesfarmers has been able to maintain a competitive edge in the corporate sector within Australia among various competitors including the Woolworth Company (Wesfarmers 013). As at March 2016, Wesfarmers was reported to beat out Woolworth and is now the largest company in Australia. This was after Wesfarmers’ revenues rose by 4% in the 2016 financial year. At the same time, its main competitor, Woolworths posted a $972 million loss but still maintained its second place spot. Thus, Wesfarmers is the biggest company in Australia in terms of revenues. In terms of revenues, Wesfarmers has seen a positive growth in sale revenues within the last 5 years. For instance, in the financial year ending 2011, the sales revenues for the company was reported at $54,513 million, which increased to $57,685 million in the year 2012 (Richards 2016). The company has maintained this growth and as at the end of the financial year 2015, the sale revenues was reported at $62,129 million (Wesfarmers 2015). This indicates clearly that the financial performance of Wesfarmers has been on a positive note and has created value for its shareholders and financiers. In addition, this growth can be attributed to the performance of employees who work in various departments and subsidiaries of the company(Wesfarmers 2013). The performance and compensation strategy applied at Wesfarmers is competitive and this means that the comp any has been able to recruit and maintain high quality and skilled employees within its premises and that the rate of employee turnover has been minimum (Richards 2016). As stated by the top management, the great financial performance at Wesfarmers has been driven by an innovative, highly resourceful and a creative team of people who make up the workforce of more than 200,000 employees who are distributed across all the subsidiaries (Wesfarmers 2013). Wesfarmers believes that its success of their operations lies in the hands of the people who have the right skills required to maintain a true competitive advantage as well as sustainability within the company. Wesfarmers Human Resource Department acknowledges that their biggest challenge has been to attract and retain quality team members of the workforce, but still has been able to maintain a good and an effective team of employees (Wesfarmers 2013). Compensation strategy and practices Wesfarmers has a dynamic workforce that has a total of more than 210,000 employees across its many subsidiaries not only in Australia but also in other countries such as in New Zealand (Wesfarmers Sustainability Report 2012). The Human Resource department at Wesfarmers is responsible for the process of staffing and ensuring that the company is well staffed across its subsidiaries. At Wesfarmers, competitive compensation strategies are applied whereby various factors are considered when determining an individual employees’ pay. Such factors include years of experience, academic qualifications as well as performance, and these are the main factors that determine pay structures within the company. In most of its subsidiaries, the company makes use of Personal Development Plans which give a framework of the key performance indicators and measure individual employees’ performance throughout the year (Wesfarmers 2016). Compensation strategy as well as promotions at Wesfarmers are mostly based on performance. There are appropriate targets agreed upon by the HR in conjunction with other stakeholders and are reviewed at certain dates. Employees work hard towards meeting and exceeding these target so as to secure chances of promotion and salary increment across all the subsidiaries. Another strategy applied at Wesfarmers and that motivates the employees to an extent, is the fact that most vacancies are advertised internally and this allows the employees an opportunity to grow and advance in their careers within the group. As a result, an individual employee grows through the ranks, provided that their individual performance keeps on increasing and at the same time advancing in their educational qualifications. Thus, the performance and compensation strategy is based upon the aspect of performance(Wesfarmers 2016). For instance, an employee may begin his or career as a clerk or a casual employee at any subsidiary of the Wesfarmers Group Limited with very little salary even with no benefits. However, this particular employee is given a chance to grow their career and advance in terms of salary increment(Wesfarmers 2013).This particular entry level employee joins the company at the lowest set salary range, but if he or she takes advantage of the compensation strategy at the company, then chances of leaving the company are very minimal. As a result of this strategy, Wesfarmers has been able to attract and maintain an effective team of employees who make up the workforce of more than 210,000 employees who are distributed across all its subsidiaries (Wesfarmers Sustainability Report 2012). Competitive pay and benefits The main reason why Wesfarmers has been able to maintain a strong workforce within its subsidiaries is the fact that it offers market competitive salary packages as well as benefits for all permanent employees(Wesfarmers 2016). All permanent employees of Wesfarmers qualify to join and participate in various incentive schemes within the group responsible for rewarding the best performers in the business. All permanent employees are also eligible to apply for educational assistance from the organization once they enroll in any professional course(Wesfarmers Sustainability Report 2012). This also forms part of the entire performance and compensation strategy since the company encourages its employees to advance their educational qualifications and be able to secure higher position internally and hence enjoy further benefits as well as increased salaries. There are other benefits that accrue to permanent employees at Wesfarmers and also form part of the performance and compensation strategy (Wesfarmers 2016). These benefits include paid maternity leave, employee discounts on some most popular products manufactured and sold through the company, flexible work options, reward and recognition, as well as an employee assistance program (Wesfarmers 2013). Reward and recognition also forms part of the performance and compensation strategy at Wesfarmers. The company believes in celebrating the achievements of individual employees through offering various rewards to outstanding employees including the ‘STARS of the year’. The most outstanding performers as well as those who demonstrate the best behaviors in the workplace are also awarded (Wesfarmers Sustainability Report 2012). Recommendations Despite the fact that Wesfarmers has one of the most competitive pay and compensation strategies within the corporate market, there are still various recommendations that can be applied to the current strategy and help perfect it(Divanna & Rogers 2005). This section describes various recommendations that can be applied by Wesfarmers Company so as to perfect its performance and compensation strategy. A successful performance and compensation strategy allows should be in a position to allow the company to effectively compete in the market for retaining the best employees in the industry(Shields 2007). It is recommended that Wesfarmers should cement its decision to base promotions and salary increments on performance, rather than on other factors such as educational qualifications or even other demographic factors such as age and working experience (Adeniji & Osibanjo 2012). When employees understand that the only way to earn a salary increment or a promotion is to perform at higher standards, then these employees are highly motivated and are in a position to work extra hard so as to secure such benefits. Based on the current performance and compensation strategy at Wesfarmers, the company can be advised to have a more flexible and collaborative work options and ensure that employees enjoy ways and work options that improve as well as balance their work-life. This offers the employees the ability to have a flexible work schedule that takes care of the personal well-being (Shields 2007). Conclusion This paper has discussed various aspects on Wesfarmers Limited including the overview and history of the company as well as its financial performance in comparison with competitors. Majorly, the paper has discussed on the performance and compensation strategy at Wesfarmers, as well as recommendations on improving the efficiency of the current performance and compensation strategy at Wesfarmers. Employee compensation strategy determines how employees are paid and the kind of employees that need to be attracted in the company (Adeniji & Osibanjo 2012). A compensation plan strategy comprises of various aspects which include pay scales, reward and recognition programs, benefits packages as well as company perks (Branham 2012). Bibliography Adeniji AA & Osibanjo AO., 2012, Human resource management: Theory and practice, Pumark. Branham, L 2012, The 7 Hidden Reasons Employees Leave: How to Recognize the Subtle Signs and Act Before It's Too Late. AMACOM, New York City. Divanna, JA & Rogers, J. 2005, People – the New Asset on the Balance Sheet. New York. Palgrave Macmillan. Gomez-Mejia, LR & Balkin, DB 2002, Compensation organizational strategy and firm performance. Cincinnati: South-Western. Guthrie JG 2001, ‘High involvement work practices, turnover, and productivity: evidence from New Zealand’, Academy of Management Journal, Vol. 44, No. 1, pp. 180-190. Richards RR, 2016. Wesfarmers beats out Woolworths to become Australia’s largest company. Available from: http://www.smartcompany.com.au/finance/65445-wesfarmers-beats-out-woolworths-to-become-australias-largest-company/ [8 March 2016]. Shields, JS 2007. Managing Employee Performance and Reward: Concepts, Practices, Strategies. Cambridge University Press, Cambridge. Thompson, P 2014, Wesfarmers 100: The People's Story 1914-2014 Perth, W.A Wesfarmers 2016, Company structure. Available from https://www.wesfarmers.com.au/about-us/company-structure.html Wesfarmers Public listing 2016, Wesfarmers Limited. Available from https://www.wesfarmers.com.au/about-us/our-stories/item/147-public-listing.html [3 May 2016]. Wesfarmers Sustainability Report, 2012. Wesfarmers. Available from: http://media.corporate-ir.net/media_files/IROL/14/144042/WFL017_Wes_Sustainability_Report.pdf Wesfarmers, 2013, Wesfarmers, 2012 Reconciliation Action Plan Progress Report, 2013 Reconciliation Action Plan: Available from http://media.corporate-ir.net/media_files/IROL/14/144042/Wesfarmers_RAP_2013.pdf Wesfarmers, 2015. Five Year Financial History. Available from https://www.wesfarmers.com.au/investors/shareholder-information/five-year-financial-history.html Wesfarmers, 2016. Our Businesses. Available from: https://www.wesfarmers.com. Wesfarmers, 2016. Wesfarmers benefits. Available from https://www.glassdoor.com.au/Benefits/Wesfarmers-Australia-Benefits-EI_IE18089.0,10_IL.11,20_IN16.htm Read More