The Compensation Crisis in Walmart

The Compensation Crisis in Walmart

Executive Summary

Wal-Mart found that it is facing a high turnover of entry-level employee, which will generate extra cost to the company because it have to spend time and resources to train new employees more frequently. The reason for high turnover rate is employee’s dissatisfaction with the job.

In this report, our analysis focus on Wal-mart’s existing compensation crisis with entry-level employee. The purpose of this report include reviewing the company overview, conducting a SWOT analysis, pointing out the two issues of wage, proposing the strategies and advising Wal-mart the best practices regarding the survial of compensation crisis.

Basen on the finding, Wal-Mart has two main issues of compensation casuing a high employee turnover. Specifically, Wal-Mart is facing pay discrimination with female employee and low wage complaint with entry-level workers. These two issues hamper Wal-Mart’s progress and cause a reputation problem. Finally, three recommendations are made in this report to help Wal-Mart Human Resource to solve the compensation issues for entry-level employee.

• Decrease manager’s base compensation and apply gainsharing method so that the company can keep a reasonable balance payment between manager and entry-level workers.
• Use point method to evaluate entry-level workers’ wage
• Use three stages process to estimate the pay rate to avoid pay equity issue

Company Overview

Founded in 1962 by Sam Walton in Rogers, Arkansas and incorporated on October 31, 1969. Headquartered in Bentonville, Arkansas, United Stated. Wal-Mart is an American multinational retail company that operates chains of discount department stores and grocery stores.  The company operates more than 11,000 retail stores in 27 countries worldwide and e-commercial sites in 11 countries with 2.2 million employees worldwide (Wal-Mart: History Timeline, 2014). The company has grown into the world’s largest company by revenue, which was able to make $476,296 million in total revenue in 2014, with 1.6% increase from year 2013 (Wal-Mart: AR, 2014). Nearly 140 million customers served each week. Wal-Mart’s mission statement is “Saving people money so they can live better.” The company aim to maintain low prices of goods and service through cost reduction in advertising and minimizing employees’ wages.

SWOT Analysis

Strengths

Wal-Mart is the largest retailer in the world with providing a wide range of products than any other retailers. Including grocery, clothing, furniture, electronics and many other categories. The company can share the fixed costs with many products, so that it is able to keep the selling price lowest in retail market. Also, a great variety of products with lower price can attract more customers to Wal-Mart.  It is able to require a lower price from supplier, due to its size and huge demand on different products.

Low cost leadership, Wal-Mart is customer-focused company, it aim to provide lowest price possible to customer. The company offers about 12% lower price than market, this strategy enables Wal-Mart stay in a competitive position in the retailer market and successfully build customer loyalty.

Weaknesses

Wal-Mart has high employee turnover, which is the percentage of workers who have an organization and are replaced by new employees (Smallbusiness). Higher employee turnover will increase the cost-of-hire, since it has to train new employees frequently.

Opportunities

As the growth of online shopping, Wal-Mart reported that 21% increase in online sales in its fiscal third quarter in 2014 (internetretailer). By providing the lower prices and more convenient way for customer’s online experience, it will be a huge opportunity for Wal-Mart to expand their online store.

Threats

The company is facing a highly competitive market. Competitors like Costco, Target, which are also seeking a low cost strategy. Also, Wal-Mart faces competition from many local supermarkets in different courtiers.

Problem Definition&Analysis

Criticism for Walmart’ s low wage

According to glassdoor.ca, the average wage for entry level of Walmart employees like cashier is  only $11.12. This is about less than a half of the average of Canada, which is around $25/hr according to statistics Canada.

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 According to statistic Canada the Low income cut off for 2014 is as shown:

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The lowest LICF line for family with 3 person in 2014 is $19,987/year. Walmart’s entry level employees annual salary is around $19000/year and is below the LICF line, which means people who work in Walmart cannot afford a 3 persons household and have to live in poverty.

Another big retailer Costco has average wage of 13.68/hr for cashier, which is around $23000 /year. Their wage is above the LICF line in 2014 and their maximum wage for cashier is $7/hr more than Walmart. Across the industry, Walmart still has relatively low wages.

 Walmart uses a combination strategy of cost leadership and differentiation. Specifically for  HR strategy, they focus o employees to reduce expenses. (Cite:How Wal-Mart Minimizes Risk by Aligning Business Strategies with HR Practices) Since they have a large portion of workers working at entry level, they tend to press their wages to obtain low cost.

However, this strategy has several negative effects. For entry level workers, they live in poor living conditions with approximately minimum wages in Canada. For the whole community, every time a Walmart store is open, there is a downward push for the economy. According to The Impact of Walmart Stores on Retail Wages and Benefits, every time there is an entry of single Walmart store open, the country level average wage decreases by 0.5%-0.9%. For the retail sector especially, the wages decreases by 1.5%. For the company itself, employees tends to have higher turnover and it is hard to attract new applicants for job in the company. In the long term, the company can lose competitive advantages in the industry.