1 | P a g e

Research paper Walmart and financial inequity Course: ADMN-3280H motivation and compensation

Presented to: Professor Geoff eve

Prepared by: Waseem Iqbal Student no: 0466064 Date: 1-03-2014

2 | P a g e

Table of content

Cover page 1

Table of content 2

Executive summary 3

Introduction 4

Analysis

Background and current compensation strategy 6

Contextual, structural variable and managerial approach 8

Compensation mix and role of compensation 9

Change of Organizational culture and motivational issues 11

Comparison of issue to other organization like Costco 13

Conclusion 14

3 | P a g e

Executive Summary:

Any organization, whether big or small has some type of compensation system. A

compensation system reflects an organization and explains how well it treats their

employees because compensation system is very important tool for employers or

business executives to shape employee behavior and to influence business

performance. However, among the many issues, one of the most popular issues is of

financial inequity which is widened gap of pay between the executive’s and the

employees of the companies. This inequity needs to be discussed as we have seen that

companies who are not performing very well currently but the top executives(CEO and

managers) earning millions of dollars annually along with making the decisions of

downsizing to minimize business expenditures instead of cutting there CEO, s and

managers annual compensation. The Wharton School of the University of Pennsylvania

published an article that illustrated the issues pertaining to financial inequities among

CEOs and frontline workers of large organizations in which they have described the

issues above mentioned. Many large organizations in Canada and America are facing

these issues in which their top executives’ making millions annually but their workers

getting minimum wage and doing strikes forming unions to get higher wages for

themselves to improve their standard of living. The organizations which are highlighted

in this research paper is Walmart how it is affected by this phenomenon along with how

their workers are suffering and affecting their perception and attitude in negative way

about the workplace because of these huge inequalities in income levels. Just to

highlight the fact employees of these companies are earning minimum wage rate to

some extent but CEO of Walmart earned 21 million dollars in 2013.

4 | P a g e

http://www.huffingtonpost.com/2013/04/22/walmart-ceo-pay-2012_n_3134515.html

Introduction:

A compensation systems main purpose is to attract qualified people to join the

organization and to retain them within the organization by helping them to achieve their

goals including both intrinsic and extrinsic benefits along with goals of the business.

Since compensation system is only a small part of the total reward system and holds

great importance for a firm like Walmart because it includes the financial benefits paid to

employee which pushes the necessary employee behavior to perform a specific task.

That is why every organization strives to be very careful when designing a

compensation strategy or system because it directly affects employee attitudes such as

job satisfaction, work motivation which affects the effective employee behavior required

by the organization.

According to above mentioned paragraph if employee perceives inequity in income as

compared with their contributions they make to the organization operation are more

likely to suffer job and reward dissatisfaction because they are not being paid according

to their worth of their job since employees play important role in success of the business

operations as they implement the decisions at workplace made by the executives of the

organizations. That is why this is one of the major controversies in the realm of

compensation is the inequity of financial compensation paid to CEO’s of large firms like

Walmart and to their employees. The Wharton School of the University of Pennsylvania

published an article that illustrated the issues pertaining to financial inequities among

CEOs and frontline workers of large organizations.

5 | P a g e

In my research paper, I will try to explain how Walmart has changed it compensation

system for their workers and their executive furthermore how it affects employee morale

at workplace along with constraints which led to change in their compensation system?

Then I will shed light on what contextual variable like strategy, environment are there

how it helps Walmart to choose appropriate managerial approach and organizational

structure? After this I will talk about what is the intended role of compensation for both

the workers and executive along with what compensation mix they are using to

compensate their executives and frontline employees; furthermore I will pay attention on

how the compensation system affects the attitude and behaviors of the employees.

Then I will explain that how Walmart’s compensation strategy has changed their

organizational culture in recent times and what are the motivational issues of Walmart

employees along with what motivational theories back this argument? Then very briefly I

will compare the Walmart compensation system issues with their main competitor like

Costco and how they value their workers? After the analysis I will conclude my research

paper with my personal reflection about the issue and why it is important that business

should take it seriously?

6 | P a g e

Analysis:

Background and current compensation strategy:

Average compensation for Canada's 50 richest CEOs is more than 235 times the salary

of the average Canadian salaried worker, a ratio that has expanded rapidly in recent

years.

http://www.cbc.ca/news/business/richest-ceos-reportedly-earn-235-times-average-

salary-1.1368720

Doug McMillon new CEO of Walmart is expected to receive 30 million dollars in

compensation including stocks cash incentives and retention awards over the span of

next three years. Whereas on the other hand employees of Walmart on average earn

very small percentage of income annually as compared with the chief executive officer.

Notably, this is a compensation issue. When there is such inequality in the rewards of

people working in a similar organization, it definitely becomes an issue for the

organization to justify. One of the things to consider here is that this is not a problem

that is linked to a particular organization or industry rather this is a normal practice for all

the organizations across the globe.

Currently Walmart’s compensation strategy is not viewed efficient enough to drive the

behavior of employees necessary for the success of the organization and workers

currently experience reward dissatisfaction because they believe that rewards which

they are receiving are not consistent with the contributions they are making to Walmart

7 | P a g e

as organization. This argument can be backed by Workers belief that Walmart policy

changed after the death of its founder Sam Walton, Walmart’s management board

solely focus is on profit making by ignoring the company’s cultural value of respecting its

employees. Currently Walmart frontline employees are receiving lower wages below 12

dollars whereas company can afford to pay them around 15 dollars by looking at their

annual profits and workers in some regions of North America live below the poverty line

because of low wages. Study found out that government of USA spend around 1 billion

dollars annually to help the lowest paid employees of Walmart and they are forced to

use government benefits like food stamps and Medicaid to top up their average salary,

moreover they receive inadequate benefits such reduced health benefits along

because of its reliance on temporary workers whose ratio has increased from 2% to

10% more recently because employees who work less than 24 hours a week they are

not eligible for health benefits, even Walmart can stretch part time workers to work

almost 32 to 40 hours of week but still don’t offer benefits. As this argument can be

backed by interview of Walmart part time employee who has worked even 40 hours with

no benefits with the status of part time worker and with lowest base wage possible.

http://www.theguardian.com/commentisfree/2013/sep/05/working-at-walmart-what-its-

like

Walmart’s flexible scheduling policy in which work hours of full time workers are

reduced which is force to designed high wage full-time workers to reduce their status to

part-time or either quit to be replaced by part time worker to save enormous amount of

money from reduced salaries and benefits paid. Under these circumstances workers are

now afraid because of job insecurity because Walmart has truly forgotten where it came

8 | P a g e

from as we look at the slogan made by Sam Walton about the employees as the asset

of business. But now Walmart management Instead of valuing workers, they brutally

restructuring the company by cutting hours for hundreds of thousands of loyal

employees which is negatively impacting customer service and destroying worker

morale; furthermore influencing the attitudes and behavior of employees in negative

way thus hampering the company performance which they faced in previous year of

2013 as profits reduced in last quarter along with fall in share value by 2%.

Contextual, structural variable and managerial approach:

Walmart whose corporate strategy is to provide low cost products and services to broad

range of customers and operates under complex and unstable environment because

company offers variety of products, services and has been successful in making profits

in recessions and successfully implemented its corporate strategy and achieved its

goals along with quickly adapts to customers change of taste. With all the new

developments in previous years it can be seen that Walmart operates under classical

management approach in which they attract the worker to work for Walmart to satisfy

their basic needs. Jobs at every Walmart store are divided into subtasks handled by

each employee, along with jobs are designed with few elements such as cashiers to

deal with customers quickly to avoid long queues and for CSR,s to meet the needs and

guide employees along with give best customer service. Duties and how the work will

be performed are explained in detail to workers by the management to have close

supervision over the employees. Leadership role at Walmart is autocratic and senior

management makes the decision, middle management transmits them to supervisor for

implementation at workplace. Workers follow the organizational policy and procedures

9 | P a g e

and they cannot make any decision at the workplace by themselves. It can be verified

that Walmart operated under this approach because they are now relying more on

precarious workers who are not eligible for indirect benefits and they just offer

necessary pay rates to attract a sufficient flow of job applicant. Walmart management

does not spend much on creating loyalty among employees to stay with the

organization to minimize turnover because they believe that workers for entry level job

can be replaced more easily and training which is to be provided to them is also cheap

since these positions require little or no work experience or technical skills as of this

reason they are cutting down the hours of fulltime workers and forcing them to become

part time along with compensating them through extrinsic benefits like hourly salary

with minimum benefits which will encourage them to enhance their task behavior.

Compensation mix and role of compensation:

Walmart offers base pay and variety of indirect benefits through health and well-being

program which include dental plan, critical illness, short term and long term disabilities

insurance along with vision plan. Walmart management believes that their

compensation strategy will be able to influence the perception and attitudes of

employees toward job satisfaction and work motivation to have specific task and

membership behaviors effective for the success of the organization.

But in reality this compensation mix and intended role of compensation looks good on

paper because employees view this mix as unfair and unjust. Since Walmart claims

that hiring of contingent workers is proof of its positive impact on the society in which

they operate not just by offering lower prices but also by providing steady. But in reality

10 | P a g e

Walmart's insistence on keeping most hourly workers part-time is to avoid providing

indirect benefits to workers thus saving costs on benefits such as medical insurance,

which are more easily accessible to full-time workers. One of the former store manager

claimed that 70 percent of the workers at his outlet were part-time just because to

minimize costs of benefits. Furthermore Walmart offers lower base pay to its workers

and according to estimate half millions of workers in USA earn less than 10 dollars per

hour along with most frontline workers of Walmart live under the poverty level and are

unable to pay their necessary bills of living from what they earn from working at

Walmart.

http://www.huffingtonpost.com/2012/11/16/walmarts-internal-compensation-

plan_n_2145086.html

but According to Walmart manifesto they claim that “working at Walmart means

opportunity to you and your career” but according to me Walmart just concentrate on

generating task behavior of employees from the current compensation strategy in which

workers will perform the task assigned to them because of their switched policy of profit

making of Walmart at the cost of workers well-being.

Full-time workers hours’ are being reduced to force them to work as part time employee

to limit their indirect benefits as result workers of Walmart suffer from violation of

psychological contract in which workers expect benefits which they will receive after

joining the organization against their contribution but now Walmart management

unilaterally changing the contract in such way that is perceived as unfair by the workers

of Walmart. Such perceived violation results in less trust between employee and

management of the company along-with decreased job satisfaction, performance,

11 | P a g e

motivational level of workers which are key attitudes to drive employees toward task

and membership behavior.

Whereas on the other side new CEO 30 million’s compensation mix involves stock,

cash and variety of indirect benefits and his compensation is linked with the company’s

overall corporate performance including operating income, shares value and etc. But at

the same time Walmart employees are struggling to get higher wages and with such a

difference in the pay scale employee’s attitude can be negatively affected. Workers feel

very inferior and left out when such things come into their knowledge. But when unions

are present, then organization has to pay the price for this difference.

Change of Organizational culture and motivational issues:

Organizational Culture is important for every business because it sets values, guiding

beliefs and ways of thinking that are shared by the members of an organization.

Doubtlessly positive culture plays a major role in shaping and directing behavior within

an organization. But if we take a look at changed strategic policies of Walmart towards

theft at stores and more reliance on temporary workers instead of full-time workers

along with paying them lower wages with no benefits; has raised so many motivational

concerns of employees. These issues affect the organizational culture of Walmart in a

negative way among its customers to whom they serve along with their frontline workers

who work at stores. Workers are demotivated because they are not earning enough

money to satisfy their needs and as result employee theft at Walmart stores has

increased in the last decade because workers are relying on alternative ways to

increase their rewards. One incident which took place on New Year’s Eve of 2013 when

6 employees were involved in theft of $6000 cash and inventory and they claimed in

12 | P a g e

the court that they were involved in theft to satisfy their needs because there was no

other option. As it is evident that employees will be motivated to work hard if their basic

necessities are met by working in the organization.

http://www.cbsatlanta.com/story/24336155/six-walmart-employees-arrested-in-internal-

theft-ring

As this incident can be backed by the Maslow’s hierarchy of needs in which he divides

the human needs into five levels and expects that human beings seek to satisfy lower

order needs first. As it is evident from the research paper that Walmart employees are

being paid lower wages which are not enough to satisfy physiological needs of food and

shelter which force them to adopt negative behavior at workplace such as shirking and

theft. . In these circumstances there is high need deprivation of incomes for Walmart

employees because of their personal circumstances such as to fulfill the basic

necessities demand of their dependents etc. and therefore high need salience, which

the current reward system of Walmart is unable to address.

Furthermore Walmart changed policy toward shop lifting has affected the organizational

culture in a negative way and North American people want Walmart to become a more

responsible and moral corporation. Sam Walton who believed in zero tolerance policy

towards shop lifting but Walmart management changed their view and policy in which

they told their workers that not stop shoplifters for items below $25 and the suspect

shoplifter age must be between 18 and 65 years.

http://www.nytimes.com/2006/07/13/business/worldbusiness/13iht-wal-

mart.2190898.html?_r=0

13 | P a g e

Walmart’s reward system to some extent is unable to address the concerns of

employees and this policy further demotivated them because instead of addressing the

serious issue of theft, Walmart management directing its workers to let go off

shoplifters. As reported in New York Times Walmart loss prevention director admitted

that company making these changes of reduced indirect benefits of its frontline workers

and more hiring of part time workers as cost saving measures. This can lead to reduced

job efforts by the employees and they will not contribute as much because of lack of

positive reinforcement in which rewards follow after positive behavior adopted at the

work place. Workers feel that after working hard there is still a lingering sense of job

insecurity and wage increases is capped by maximum increase by 60 cents after

working hard for many years.

Comparison of issue to other organization like Costco:

Walmart concentrates on hiring more part time employees to minimize cost of indirect

benefits, but paying its CEO highest pay for the job. Whereas workers are demotivating

because of job insecurity, lower wages with adequate indirect benefit along with

reduced work hours of full time employees. Whereas situation is apposite in the case of

Costco where frontline worker are happy and satisfied with their job and workplace and

earn 17 dollars per hour on average along with variety of bonuses on achieving their

targets at workplace; furthermore 92% health premium is paid by the Costco and almost

88% of employees are covered by health insurance plan as compared with Walmart

whose figure is 48%. Costco paid its CEO around $800000 in salary and bonuses in

2013, furthermore stock awards based on company performance whereas CEO of

Walmart in 2013 made almost 21 million dollars. Costco considers workers their real

14 | P a g e

asset who earns money for them and their turnover of employees far lower than

Walmart. Costco’s management believes that workers should have share in profits

which they generate as this the key to retain employees within the organization.

http://www.dailykos.com/story/2013/03/08/1192632/-Hail-to-the-Chief-Executive-Officer-

Craig-Jelinek-of-Costco

Conclusion:

The way in which the compensation systems are set up in the organization today is very

upsetting because employees perceive this as unfair and unjust since the vital aim of

any compensation system is to reward employees in a way that they are satisfied with

their jobs. But we have seen that Walmart management claims that they are serving

communities by hiring more contingent workers but in reality their aim is to minimize

cost to earn more profits by not valuing their fulltime loyal frontline workers who are

being forced to work as part time so that they cannot be eligible for indirect benefits like

health and disability services. As this issue needs to be addressed soon because

business whose operations rely on employees can face serious consequences in the

form of reduced sales and reduced goodwill of the business which they have suffered in

past. Reputation of Walmart is being destroyed because workers have formed unions to

fight for their rights and they are protesting on roads along with in front of the stores on

special events and using media people to show their customers that businesses whose

manifesto is to provide cheapest goods to their customers and they are providing these

services at the cost of their employee’s well-being. The business which has been one of

largest retailer in world and their claim that their employees are their assets but I don’t

15 | P a g e

see any improvement in the attitudes of Walmart’s senior management towards their

low level employees because Walmart is making billions of dollars every year in profits

and it is their responsibility to take care of their workers who help them to make their

operations successful.

Reward system is made to hold organizational justice in keeping in view both procedural

and distributive justice. In this scenario it can be interpreted that there is lack of

procedural justice. People at lower hierarchy are dissatisfied with the rewards they are

getting. It seems that the boards of directors think that by providing higher monetary

benefits to the CEO they are boosting the whole organization’s morale whereas they are

neglectful towards the people working on the grassroots’ level. Big businesses like Wal-

Mart are paying very less to the people who are working to make things possible for

them i.e. employees. What could be some ways that organizations change this to better

compensate their employees? To answer this question the organization must first

analyze their current compensation system and “fill the gaps” where employees feel

they are not being compensated enough.