Compensation Plan of Wal-Mart - Case Study Example

Compensation Plan Outline of the assignment: Evaluation of the existing compensation plan of Wal-Mart. The current compensation plan of Wal-Mart is developed on the basis of the deferred compensation matching plan and is monitored and reviewed by the Global Compensation Committee (GCC) of the Board. Earlier, Wal-Mart used the officer deferred compensation plan which was replaced by the deferred compensation matching plan in the year 2012. The Global Compensation Committee of Wal-Mart has been developed as the primary committee for administering the compensation systems as formulated for paying the NEOs of the business and also for managing both the cash incentive and equity incentive compensation systems of the company for all the NEOs as well as the associates of the business. The compensation plan of Wal–Mart is a sustainable and all encompassing plan which takes into consideration the different facets associated with the internal and external conditions and requirements of compensation and remuneration design in the company. The primary components of the compensation packages of the employees of different level are decided on the basis of a fir and per0ofmence based factors. The main strategies of compensation planning in Wal-Mart include practices like mitigation of risks, absence of employment contracts, enhanced compensation recoupment policies, removal of any kind of unapproved trading policies, establishment of independent compensation consultants in the company, use of rigorous benchmarking system in the compensation plan design, and management, suitable stock ownership guidelines, system of annuals shareholders’ “say on pay” and designing the compensation packages on the basic policy of pay based on the performances of the employees. All of the policies of compensation planning are highly effective and sustainable systems which have made the compensation planning of Wal-Mart one of the best in the industry. Additionally, the company pays considerable attention to ensure that any kind of redundant policies and systems are removed from the current compensation planning system of the business. For example, Wal-Mart has taken suitable steps to keep redundant policies like hedging, speculative trading and control agreements like “golden parachute” at bay so that the compensation outlines are clearly and fairly developed and that these plans cater to the needs of all the stakeholder groups of the company in a sustainable and compliant manner (Upadhay, 2009). 2. Ratio of internally consistent and market consistent compensations systems for Wal-Mart The pay mix ratio is one major determinant of the compensation plans of domestic and international companies. The most useful ratio of market consistent and internally consistent compensation system of Wal-Mart is the pay mix ratio. The pay mix ratio can be determined on the basis of the compensation based on the volumes of sale achieved, performance of the employees and on margin, quota attainment and profits over a particular period of time. The pay mix ratio of Wal-Mart is found out to be 63: 37 which suggests that the company is much efficient in managing the way the compensations and remunerations are designed for the employees and associates in a fair and just manner (The United States Securities Exchange Commission, 2014). the high compensation ratio of Wal-Mart also suggest that the company uses an effective and beneficial compensation management and design plan which creates value for the employees, shareholder, owners as well as the other stakeholder groups of Wal-Mart. 3. Evaluation of the current pay structure used by Wal-Mart The internal compensation related documents of Wal-Mart signify that the company is prepared for systematic advancements in the area of compensation and remuneration package designing. The company uses the standardized systems and policies as the guideline for developing suitable compensation plans. The performance share program employed in the company is one of the most renowned systems of compensation plan designing. In this system, if the company is able to attain the objectives of crossing the pre decided threshold performance standards then, 50% of the performance shares are awarded based on the three year period cycles. The deferred compensation plan helps the officers, associates and executives of the company to defer up to 100% of their basic salary and the annual incentives as per the Management Incentive plan employed in the company. The interests are accrued in the amounts of money which are deferred at a pre-defined interest rate which is set on a yearly basis by CNGC. Generally, this interest rate is set on the basis of the ten year treasury rate in the county plus 270 basis points. The deferred compensation plan acts as an efficient system of compensation plan design because it provides for the incentive payments as rewards for the entities that have remained with the company and also participated in this compensation plan for a period of 10 or more than 10 consecutive years. At the end of the tenth year in the compensation deferral system, Wal-Mart credits the deferred money along with an increment of 20% of the total principal amount deferred plus the accrued interest in the first six years of the deferral period. The deferred principal amount is limited to a maximum value of 20% of the basic salary of the executives or associates of the company. The accrued interest amount is calculated as 20% of the increment values. After the 10th year, the 20% increment amount is credited on the basis of the amount deferred as of five years earlier. Additionally, in the fifteenth year of the compensation deferral plan, the company also credits 10% of the principal amount deferred 10 years earlier (The United States Securities Exchange Commission, 2014). The Wal-Mart Stores Inc. has employed the Deferred Compensation Matching Plan from February 1, 2012as a major initiative to respond adequately to the concerns of the executives and associates rearguing the issues with the traditionally used Officer Deferred Compensation Plan in the company. The contributions of the employees have been significant in the compensation plan designing of Wal-Mart. The problems recognized and faced by the employee of Wal-Mart regarding the compensation, pay packages and remuneration systems of Wal-Mart forced the company to shift from the redundant systems of Officer deferred compensation plan to the more contemporary and beneficial yearly deferred compensation plan. The company being one of the largest employers in the United States of America, the number of people employed in the different stores and units of the business is huge and thus, the employee groups of Walmart plays a crucial role in the compensation designing and planning process followed in the business. The company has shown concern over adhering to the state defined system for compensation management to the reactions of the employee groups related to cutting down on pay packages by Wal-Mart in 2012. It can be identified that after facing the negative responses of the employees and associates, Wal-Mart has become more considered about developing and managing sustainable and effective compensation plans which has helped to develop higher levels of employee commitment as well as enhanced the reputation of the company as a key employer. 4. Recommendations for improving the effectiveness of the discretionary benefits provided by Wal-Mart Though the compensation management plan of Wal-Mart has improved significantly in the last 3-4 years, yet the development of a strategic compensation management with more innovative and value adding pay policies is necessary to ensure the enhancement of the brand reputation. The discretionary benefits form an important part of the compensation management plan of a company. The discretionary benefits account for a major part of the compensation and benefit packages of corporates. However, it can be identified from the SEC filings of Wal-Mart that the discretionary benefit practices of Wal-Mart do not seem to be much advanced in nature and are somewhat lacking in terms of human resource management and corporate governance because of the non-employment of contemporary discretionary benefit systems of the compensation plan development. A major way in which Wal-Mart can enhance the effectiveness of the discretionary benefit system is by employing the most valuable discretionary benefits like health benefits and retirement plans for the employee groups (Chinos, 2002). This is because; the employees of every company seem to be more concerned about the heath related benefits and the retirement benefit schemes which help to develop security for contingencies and the future. The company already employs the health insurance and employee discount systems which add to the commitment of the employee groups and mirrors the concern of Wal-Mart about its employees. However, the addition of more profound discretionary benefits is needed to survive in the intensely competitive retail environment. Apart from employing suitable health benefit schemes, stock purchase and retirement schemes, the company should also focus on exploring innovative compensation plan designing practices that would ensure that the discretionary benefit systems employed by the company are providing the employees with adequate levels of service satisfaction, protection and balance of work and life experiences. Establishment of profit sharing plans would be another way to improve the discretionary benefit systems used by the retail giant in its compensation plans. 5. Evaluation of the employer-sponsored retirement plans and health insurance programs provided by Wal-Mart as compared to the major competitors. The health insurance schemes and the employer sponsored retirement benefit schemes provided by Wal-Mart have recently been worked upon, thereby making them much effective as compared to the way these plans worked earlier for the employee groups of Wal-Mart. In spite of this, it can be identified that the top competitor companies of Wal-Mart including Carrefour, Costco Wholesale Corporation and Target Corporation are much more effective and foresighted than those used by Wal-Mart. The leading retail companies in the United States of America like Carrefour and Costco Wholesale Corporation have been practicing compensation planning strategies that are more advanced and consistent in nature; In contrast, Wal-Mart has been facing major problems related to the loopholes and drawbacks in its traditional compensation planning systems. The health benefit programs and retirement benefit schemes that have recently been introduced in the compensation plan of Wal-Mart are expected to bring about revolutionary changes in the consistency and effectiveness of the discretionary benefits and other components of the compensation management plan of the company. Nevertheless, the health benefit schemes of Carrefour and Target Corporation are all inclusive in nature and cover a wide range of health areas whereas that of the Wal-Mart is limited to certain specific health areas. This makes the discretionary benefit systems of the company weaker in comparison to that of the competing retail companies. The consideration of wider areas of health and retirement benefit schemes and the employment of new, innovative discretionary benefit schemes can help to further improve the image of the company as a potential employer in the retail industry of the United States of America. References Chingos, P. T. (2002). Paying for performance: a guide to compensation management. New Jersey: John Wiley & Sons. The United States Securities Exchange Commission. (2014). Wal-Mart: Notice of 2014 Annual Shareholders’ Meeting. Retrieved from http://www.sec.gov/Archives/edgar/data/104169/000130817914000196/lwmt2014_def14a.htm#lwmta030. Upadhay, S. S. (2009). Compensation management: rewarding performance. New Delhi: Global India Publications. Read More