Free Custom «Compensation Practice at Wal-Mart Stores Inc.» Essay Paper

Introduction

Wal-Mart Stores Inc is a family-owned business majoring in retail business. It has over 8500 outlets in over 15 countries across the globe. Founded in 1962, Wal-Mart has risen through the years to now and became ‘the largest retailer in the world.’ Sam Walton, the founder of Wal-Mart stores inc., believed in that efficient leadership entirely depended on cooperative service. The business was, thus, founded and built on this belief, meaning that to this day, the leadership of Wal-Mart has its focus on the welfare of its associates. With over two million employees, this company has a huge work force, thus the need to employ an effective compensation strategy that will ensure job satisfaction, employee motivation and retention, consequently optimizing performance.

As an organization, Wal-Mart has a culture based on a number of values and beliefs. While being a customer- oriented business, Wal-Mart retail chain focuses more on its service team assuming that effective leadership is only as good as the desire to work in the serving associates. All the associates of Wal-Mart live by service to customers, respect for individuals and striving for excellence in terms of customer service. The values include honesty, fairness and objectivity. This ensures that the employees have a set of rules to live by, thus, ensuring respect and harmony are maintained even in cases of conflict (Henry, 2008). Respecting and understanding needs of individuals lead to an easier formation of bonds that ensure a team spirit amongst the associates. But to live and work by these standards, the associates need to be duly compensated for their commitment and dedication to the company.

 

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Wal-Mart’s Compensation Strategy

The compensation strategy employed by Wal-Mart stores inc. is based on competitiveness. The company remunerates its employees based on their competencies, skills, talents and performance. This basically means that the company offers a basic salary that is determined by the associate’s position and job description in the organization. The rewards are then offered based on the employees’ talents and efforts with regards to the company’s collective performance. Also, the company has a number of performance based incentives that are paid to the associates based on their performance as registered in the company’s annual, biannual or quarterly performance review or appraisals.

Best Practices

The company’s best practices in terms of compensation include their career growth initiatives and talent recognition policies. All associates at the Wal-Mart stores are eligible for promotion based on their qualifications. They are, therefore, encouraged to advance themselves academically while on the job so as to gain the required skills and competencies that will qualify them for better positions such as a store manager or a supervisor or even to more senior positions. The talent recognition policies at Wal-Mart stores are designed to recognize talents to ensure that associates are placed where they can best serve the company using their talents.

Challenges

The main challenges faced by executives at the Wal-Mart stores with regards to performance management through compensation programs is how to grade the employees skills and talents especially for the jobs that are technology based. For example, getting to know the best cashier would be difficult because the speed is not entirely determined by the cahier but also by the machines.

Another challenge is determining which creativity has added value to the company’s performance. While creativity is part of the job description at Wal-Mart, it is difficult to determine the exact effect of this factor and the magnitude of its effect on the company’s performance.

An Analysis of Wal-Mart’s Compensation Practices

Wal-Mart’s compensation practices are mainly aimed at attracting and retaining the best workforce. This is in keeping up with its policy of successful internal marketing as a business strategy to improve organizational performance. The company’s compensation strategy is meant to create a competitive environment that will challenge its associates to work harder and produce better results.

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Remunerations based on job description and responsibilities ensure that the company gets the value for its money. When an associate is duly compensated for the efforts that are required of him by the company, he or she is less likely to have complaints and, thus, better performance and increased possibility for job satisfaction. Knowing that one is receiving a specific amount of compensation for his or her level of work motivates the associate to aim at getting a promotion so as to earn better pay. This increases the employee’s motivation to work harder, consequently affecting the company’s output which in this case translates to more sales and higher levels of customer satisfaction. This, therefore, has a positive impact on the company and its stakeholders as it not only ensures that they get their money’s worth, but also guarantees them more profits from the hard work and ambitiousness of the associates.

Among its performance linked incentives, the company offers bonuses to its associates based on the financial results posted by the company. This implies that good results are rewarded effectively. This serves to further motivate the associates and create a working environment that appreciates good work. These bonuses are offered on the condition of improved organizational performance, thus, the company doesn’t have to necessarily spend extra resources that may affect its annual budget. The company manages to encourage its employees to work together towards improved organizational performance without having to cut down on its operational budget or profit margin.

For the stakeholders and the company itself, this practice has a positive impact and is important towards the realization of overall organizational efficiency.

Among the benefits associated with working at Wal-Mart stores, the health insurance scheme is the most significant. All employees of Wal-Mart are provided with a health insurance cover that is co-sponsored by the company. The associates pay for the health policy through a percentage deduction from their salaries for the full time workers. Their policy is however cheaper than the standard policy as the company caters for the remaining percentage. In doing this, the company offers a form of security to its employees, thus, providing them with the peace of mind that enables them to carry on with their work without having to worry about their medical costs. While this could be expensive given that the company is not in the health care sector, it plays a vital role in the company’s performance (Adamson, 1994). Health care compensation is a part of the employee motivation strategy that eventually results in high levels of job satisfaction and employee retention. Both of these translate to better results in the organization’s output.

Basically, Wal-Mart’s compensation practices are all tailored to benefit not only the associates, but also the company and its stakeholders as well, in order to ensure the organizational efficiency through optimized operations and to cut costs without compromising on the quality of services.

Factors Affecting Wal-Mart’s Compensation Practices

The compensation practices, and particularly the remuneration and benefits at the Wal-Mart stores have been shaped by three main factors. These are the laws, the market and labor unions. These have mainly affected how the company treats its part time workers who cannot be paid like their permanent counterparts. The part time workers are remunerated on an hourly basis and their wages are determined by the laws and the labor unions.

Labor Laws

One law that greatly determines the compensation given to part time workers in the Wal-Mart stores is the Davis- Bacon Act which sets the prevailing wage. The Fair Labor Standards Act is responsible for setting the minimum wage that should be complied with from the national level while the states use the Davis – Bacon Act or its equivalent. This means that the company must meet certain specifics to avoid being at loggerheads with the authorities as well as labor activists.

Labor Unions

The company has been known for its negativity towards unionized workers. The company has numerous anti- union strategies that are intended to ensure that the associates approach the management directly to air their grievances. This, however, doesn’t mean that the labor unions have no effect on the company. There have been several complaints launched by labor unions to protest against poor pay and bad working conditions suffered by the Wal-Mart employees. To counter this kind of negative publicity, the company was forced to increase the hourly pay and provide health insurance for all its part time employees after only six months of service. The labor unions, thus, affect the company’s compensation practices even though it has successfully kept its workers out of the unions.

Markets

Wal-Mart stores inc. has a policy of performance based incentives that include bonuses paid after the financial results have been posted. These bonuses are paid based on how well the company has performed during that financial period. The basis of this strategy is that the company’s performance directly reflects how hard the associates have worked during that period. However, Wal-Mart Stores Inc. is a retail business that depends heavily on the market for its performance. When the inflation is high, or market prices go up, the company suffers as well. However, since it majors in the sale of basic commodities that are unavoidable, the company still makes profits even during difficult financial times. Thus, the market does not necessarily dictate the compensation practices as such, but it could have a bearing on the performance based incentives in severe cases.

Effectiveness of Traditional Bases for Pay

The traditional bases for pay at the Wal-Mart Stores Inc are performance, skills, and competitiveness. Associates are awarded benefits or recognition based on their skills, competencies and ratings relative to their colleagues. This means that the company appreciates individuality, but values collective progress more.

Over the years, the company has posted great financial results which shows good organizational performance. However, the company has low levels of employee retention despite its efforts to up hold employee motivation and promote job satisfaction levels. This set back is countered by employing many school children in its part time program, thus, curbing any possible shortage of personnel (Hitt, Ireland & Hoskisson, 2012). However, recruiting and training new staff on a regular basis can prove to be quite costly even for a company as successful as the Wal-Mart Stores Inc. Thus, the company’s traditional bases of pay may be effective for ensuring high organizational performance, but not effective enough to promote its employee retention capacity.

Conclusion

Wal-Mart stores Inc is a successful company by any standards. With its large customer base, and even larger market share in the retail industry the company is a force to reckon with. However, it still has a lot of work to do in terms of compensation practices as it has failed to retain its employees using its current policies. The company, thus, needs to investigate what makes their employees unhappy and try to rectify it as employee retention is not only beneficial to the output, but also cost cutting for the company.