Wal-Mart Employees experiencing Challenges with its Compensation and Benefit System
Introduction
Wal-Mart is a retail chain founded in 1962 by Sam Walton in the United States. The company owns warehouse stores and department stores not only in the United Sates but in 15 other countries such as Japan, Mexico and Canada (Appendix 1). According to a report released by Fortune 500, the retail chain is the third largest publicly owned corporation in the world, the biggest employer other than national governments globally, and the largest retail company in the world (Robert & Berg, 2012). This ranking shows that Wal-Mart receives a large volume of customers, which as a result increases the risk of its employees suffering from work-related injuries. Wal-Mart has been accused of delaying and in some instances refusing compensation for employees injured in the course of their work. A closer scrutiny of the company by several workers’ unions established that Wal-Mart’s employees were also not satisfied with the company’s benefit system (FEATHERSTONE, 2012). I intend to research on some of the challenges Wal-Mart employees experience as pertaining to the company’s benefits and compensation system. A study on this issue is essential because there have been persistent complaints against Wal-Mart’s handling of its employees.
Assessment of Wal-Mart’s Compensation and Benefit System Challenges
The challenges with Wal-Mart’s compensation and benefit system are pervasive; they range from employee intimidation to contesting and refusing to pay valid claims. Over the last two decades, Wal-Mart employees have complained of delayed compensation, reduced benefits and in some instances being barred from filing complaints with the respective authorities (Woodman, 2012). Contrary to what is expected of such a large retail brand, the company has contested all work-injury related claims even when they were out rightly legitimate. This indicates that the company has been unwilling, even in instances when it was on the wrong, to fairly compensate its workers.
Wal-Mart has been accused of delaying work-injury compensation to its employees, which in some scenarios has aggravated the extent of the injury due to delayed medical attention. In such scenarios, the financial burden of treating such employees has been transferred to the state, and consequently to the taxpayers (Woodman, 2012). This has resulted in increased negative perception towards the retail chain. Some members of the public believe the company’s erroneous compensation and benefit system is meant to increase profit margins at the expense of the well-being of its employees (Lichtenstein, 2006).
On average, a Wal-Mart employee receives $9.68 per hour which is an approximate 45% lower than the average hourly wage in the United States. According to statistics, only 45% of its workers were covered by the retail chain’s health plan by 2010 (Roberts & Berg, 2012). Studies also show that Wal-Mart spends 40% less on health benefits than the average amount spent by corporations in the United States. The retail store is able to manipulate its employees to accept all these reduced benefits and compensation by denying them the right to join workers’ unions (FEATHERSTONE, 2012). Wal-Mart has been accused of union busting and consequently weakening its employees’ opposition to some of the policies it implements that affect them.
Wal-Mart’s compensation and benefit system challenges are considered a threat not only to its employees but to all workers in the United States (Lichtenstein, 2006). This is because some firms are adapting Wal-Mart’s strategies in an attempt to achieve similar profit margins and growth as that of the retail chain.
Literature Review
Companies facing similar compensation challenges as Wal-Mart
Tesco employee compensation and benefits challenges
Tesco is a leading retail chain in the United Kingdom, and competes with Wal-Mart in various national markets (Leahy, 2012). This United Kingdom retail chain has enjoyed relatively favorable consumer attitudes until early last year. The reduction in positive consumer attitudes towards Tesco has been attributed to its laxity to expand its service-delivery resources despite its continued growth. A market survey on United Kingdom consumers showed that Tesco’s customers felt it had neglected the state of its retail stores and employees (Yeo & Marquardt, 2012). The survey showed that customers were not only unhappy with the deteriorating and shabby condition of the stores, but also with the knowledge that the company was overworking its employees.
Over the past decade, Tesco had grown the size of its stores and products offered by a significant margin; however, the company recruited new staff at a much slower rate. This resulted in the current employees being overworked without an addition in their compensation and benefit packages. One employee noted that each Tesco staff member has to cover the work of two employees (Yeo & Marquardt, 2012). This meant that the company had been operating on a human resource that was approximately 50% of what it required. Consequently, Tesco had grown its service output at a rate not proportional to its growth in human resource.
In 2004, Tesco released an internal memo indicating that the company was lowering its sick pay. The company’s management argued that this was meant to reduce the number of employees taking unplanned leave from work. This, however, resulted in some employees opting to work even when they were sick so as to avoid reducing their income (Yeo & Marquardt, 2012).
Tesco employees complained that though the company has been making significant profit margins over the last couple of years, they did not get their expected benefits as per the revenue earned. Most of the employees believed that they had been short-changed by the retail chain since despite the increase in revenue for the company, the average wages had been raised insignificantly. Tesco had managed to increase the amount of revenue each employee earned for the company; however, the company had undermined the percentage each employee got from the revenue they earned for Tesco.
In mid 2012, Tesco’s management acknowledged the human resource challenges facing it. The management team recognized that most of their workers were being overworked and underpaid. The company promised to recruit 8,000 new employees to reduce the workload of current staff members (Leahy, 2012). The management team also indicated that it was formulating an updated compensation and benefits plan for its employees.
Microsoft employee compensation and benefits challenges
In 2006, Microsoft was faced with increasing dissatisfaction of its employee compensation, benefits and appraisal systems (Yeo & Marquardt, 2012). The company’s staff members felt that their salaries had stagnated over the past couple of years. The employees’ dissatisfaction with their compensation and benefits was aggravated by the realization that other employees in competing companies were getting a higher pay. After several months of complaining without the company’s management responding, several senior engineers moved to Microsoft’s competitors where they were getting better pay (Yeo & Marquardt, 2012).
Microsoft successfully managed to solve the compensation and benefit challenges it faced through the development of a fair and just employee payment and reward system. The company recognized that the previous system was rendered ineffective due to loopholes allowing favoritism and company politics to interfere with the compensation process. Microsoft also reviewed its salaries and wages to match those of its competitors such as Google Inc. and Apple Inc.
Theories and strategies that may be used to address challenges with employees’ compensation and benefit system
5-Point Strategy
Studies indicate that a majority of managers focus on a single compensation facet whenever employees complain about their salaries (Dinkin, 2009). The 5-point strategy recognizes that firms require a total compensation plan so as to gain a competitive edge and retain their well-performing employees. This strategy is based on the recognition that an organization needs to reward its top performers while ensuring effective budgeting of limited monetary resources (Martocchio, 2004). The need for the implementation of the 5-point strategy is accentuated by the uncertain economic conditions in the global economy. In most cases, companies cancel incentive plans during economic downturns; this approach is, however, oblivious of the fact that recessions do not last forever while good employee-firm relations are integral to growth in the future (Dinkin, 2009). The implementation of a total analysis system ensures that employees receive fair but reasonable compensation and incentives during such tough periods.
A 5-step plan in solving compensation issues involves the following:
Understanding the current and retired employee population of a company
This step involves evaluating which of the company’s strategic areas are understaffed. The management is also required to establish to conduct a skill audit among its employees; this is essential in establishing whether the firm has the talents required to fulfill its customers’ expectations.
Analyzing the organization’s compensation program
Studies indicate that a majority of companies base their compensation programs on trends in the market rather than on employee performance. When applying the 5-point strategy, a firm’s management can ensure that the compensation of each employee is based on their level of performance and the future opportunities they present the company. This step of the strategy also involves adjustment of compensation strategies to fit the operations and models used by a company. For example, a company that relies on innovation should be willing to give higher salaries to employees who deliver innovative products.
Examining the firms long and short term incentive programs
This step is based on the knowledge that incentives are integral parts in a total compensation analysis. It is essential to highlight that employees should receive incentives at all possible times. A company should, therefore, increase its incentives if it increases its base compensation.
Analyzing health benefits awarded to retired and current employees
This step is essential in attracting and retaining employees, which are integral components of a company’s success. It is crucial that a company’s management team recognizes the need to brand itself as a well-compensating employer. This will help the company acquire top-performers in its industry, which consequently increases quality of the firm’s products and services. It is essential to highlight that this step is based on the knowledge that a company’s competitive edge is not only based on customer perceptions but also those of employees.
Reassessing compensation programs to ensure they comply with legal standards
This final step in the 5-point strategy is to ensure that the firm complies with all legislative policies involving compensation.
Herzberg’s 2-factor Theory
According to Herzberg, there are two sets of factors which influence employee dissatisfaction and satisfaction in the workplace (Appendix 2). In an appreciation of the complexity of employee compensation and benefits system, the theorist dedicated a section of his empirical study specifically to this issue (Gardner, 2007). The motivation theorist highlighted that unlike other primary motivators like recognition, money cannot be similarly classified as a motivator. This argument was based on the study’s findings that money-related issues were prominently mentioned in both categories of the Two-Factor Theory. Herzberg established that low wages, benefits and compensation cause job dissatisfaction when employees feel the system is unfair. For example, when an employee’s responsibilities are increased but his or her salary and compensation remains the same. Salaries, benefits and compensation were established as causing job satisfaction when an employee considered them as recognition of their efforts in a firm. Herzberg indicated that in such instances, the benefits and compensation were appreciated more for the appreciation they came with rather than their monetary value (DePoy & Gilson, 2011).
Equity Theory
According to this theory, employees’ perception towards the fairness of their employment is based on what they consider as their contribution to the company, the expected returns, and a comparison of their return-contribution ratio with other employees in the same field (Gerhart, Minkoff & Olsen, 1995, p. 6). The authors use the findings from two empirical studies to indicate the effects of perceived inequity on employee behavior. The studies indicated that in instances where companies reduced employees’ return-contribution ratio, there arose incidences of theft and neglect at the workplace. The authors, however, point out that the counterproductive aspect of such policies can be mitigated when employees are properly informed of the reasons for reduced benefits and compensation.
Expectancy and reinforcement Theories
The expectancy theory states that motivation is reliant on what rewards an employee expects from the amount of work they perform (Gerhart, Minkoff & Olsen, 1995, p. 5). In employee compensation, this means that a company’s human resource team will feel less motivated when the amount of benefits and compensation are not proportionate to their perceived contribution to the firm.
The reinforcement theory argues that an action which is appreciated with a reward has a higher chance of being performed again than when there is no reward (Gerhart, Minkoff & Olsen, 1995, p. 5). This implies that when top-performing employees are appreciated with a monetary reward, it increases the probability of such high levels of performance recurring.
Recommendations
- Wal-Mart should apply the 5-step plan in adjusting its current compensation and benefits program. This would ensure that the new program does not only make adjustments to facets of compensation but ensure a total analysis of the issue.
- Wal-Mart should allow its employees to join workers’ unions as they have a right of association according to the U.S. constitution.
- Wal-Mart should ensure that it is always offering incentives to employees to help improve their service delivery.
Conclusion
The analysis on Wal-Mart’s employee compensation and benefits challenges shows a company that is oblivious of the long-term effects of its poor compensation system. The discussion on various theories related to compensation indicates that employees’ behavior and turnover is dependent on the perceived fairness of the benefits they receive. Wal-Mart’s management may currently not notice some of these effects, but they should be ready to deal with them when they are of a greater magnitude. The retail chain may be the leading corporation in the world, but that does not give it the right to ignore the plight of its employees. It is essential to indicate that the company’s competitive edge would be greatly reduced if a competing firm established better employee compensation programs. This is because the retail store has over-emphasized on how consumers perceive it at the expense of how employees perceive it. This is counterproductive since the company’s 2,000,000 workers have the potential to taint the firm’s image to consumers (Roberts & Berg, 2012).
Wal-Mart should comply with recommended compensation standards and also allow its employees to join workers’ unions. This will help the company improve its employee attraction and retention attributes.
References
DePoy, E. and Gilson, S. (2011). Human behavior theory and applications: A critical thinking approach. New York: Sage Publications
Dinkin, E. (2009). 5 point plan. Employee Benefit News, 23(6), 32.
FEATHERSTONE, L. (2012). Change at Walmart?. Nation, 295(19), 4-5.
Gardner, G. (2007). Is there a valid test of Herzberg's two-factor theory?. Journal Of Occupational Psychology, 50(3), 197-204.
Gerhart, B., Minkoff, H. and Olsen, R. (1995). Employee Compensation: Theory, Practice, and Evidence. Cornell University. Retrieved from http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1193&context=cahrswp
Leahy, T. (2012). Management in Ten Words: Practical Advice from the Man who created one of the World’s largest Retailers. New York: Crown Business.
Lichtenstein, N. (2006). Wal-Mart: The face of twenty-first century capitalism. Boston: New Press.
Martocchio, J. (2004). Strategic Compensation: A human resource management approach. New Jersey: Prentice Hall.
Roberts, B. and Berg, N. (2012). Wal-Mart: Key insights and practical lessons from the world’s largest retailer. New Jersey: Kogan Page
Satiani, B., Matthews, M. B., & Gable, D. (2012). Work Effort, Productivity, and Compensation Trends in Members of the Society for Vascular Surgery. Vascular & Endovascular Surgery, 46(7), 509-514
Woodman, S. (2012). Labor Takes Aim at Walmart--Again. (Cover story). Nation, 294(4), 20-23.
Yeo, R. and Marquardt, M. (2012). Breakthrough problem solving with action learning. Stanford, CA: Stanford Business Press.
Appendices
Appendix 1: Wal-Mart’s Growth Rate
Appendix 2: Herzberg 2-Factor Theory
