Wal-Mart has started operations in a big way in China and the company has opened thirty-one outlets in fifteen Chinese cities and has 16,000 employees. Though company officials do not give the exact figures, there is boom time for the company and reports suggest that the total revenues in China are about 1 billion USD. Wal-Mart has a history of paying its employees ‘rock bottom wages’ and in China also, workers are paid very low wages in a bid to keep the overheads low so that lower rates can be given to customers. This paper examines various issues related to compensation at Wal-Mart in China and recommends a compensation structure that can be used for various levels in the company.
A basic analysis is performed in this section.
Wal-Mart’s strengths and weaknesses regarding compensation
The main strengths of the compensation is that all of Wal-Mart’s Chinese workers get retirement benefits, medical insurance, workers’ compensation, maternity and paternity leave, paid holidays and annual health checks and according to the company officials, the benefits are not only competitive in the retail industry, but in all industries of China. Though the company is not the leading retailer in China and is behind Carrefour, the French chain of mega-stores. But it has huge plans to expand over the next five years, seeking to hire 150,000 people to add to the 28,000 it employs now. By the end of 2006, it had plans to open 20 more stores. It is also a huge customer of Chinese-made goods and last year, Wal-Mart imported $18 billion of Chinese merchandise to U.S. shores. (Johnson, 2006).
Weakness of Wal-Mart are the low wages it pays to its employees, the long hours without overtime wages it makes the workers put in and the resistance to forming unions among the workers. According to Miller (2006), in China, the company pays around $84 to $96 a month. The amount is just about enough to provide spending money for a young person who does not have any dependents, but anyone trying to support a family on that wage would indeed be existing in a most basic fashion. Wal-Mart’s wage strategy sets it apart from many US and foreign firms in China, which tend to pay somewhat above local standards in order to attract and retain good workers. The company hires far fewer people and each person does the work of three and the productivity is much higher.
Issues regarding compensation plans for international companies in China
According to White (2006), international companies have several problems when it comes to compensation and handling local workers. In the countries from where they originate, they have very strict issues related to compensation, providing benefits, equal opportunities for minority groups and hiring people from the less privileged groups.
According to Hulme (2006), the huge number of foreign companies heading to China, the expansion of foreign companies already there, and the fact that top local companies are bringing their management systems up to international standards mean that demand for talent is strong. Companies have different categories of hires and corresponding compensation packages. These include full expatriate, local Chinese, and a variety of hybrid categories and packages that may apply to foreigners already living in China at the time of hire, returnees, and overseas Chinese. With such strong demand for qualified and experienced managers, fair compensation is necessary, but not sufficient, to keep these prized employees. The key drivers of employee commitment in China are high job satisfaction, effective communication, inspiring leadership, positive teamwork, and a healthy, safe work environment. Having clear career development paths for employees is important. Reforms in finance, medical care, and pensions should also allow companies to choose from a broader range of offerings when designing compensation packages.
Implications of unionization on Wal-Mart’s compensation plans in China
Johnson (2005) has reported that employees in Wal-Mart China have decided to form unions and the main thing is that the government controls these unions. On the face of it, the conflict between the global retailer and the world’s biggest labor group, the All-China Federation of Trade Unions, might seem of epic potential. But less is here than meets the eye, the federation’s not a union alliance in the Western sense. It’s controlled by the ruling Communist Party, allows no competing labor unions, rejects free elections of its leaders and often goes to bat on the side of management over workers under the guise of harmonious economic development. So Wal-Mart is not very sure of how the government controlled union would react when and if the company decides to lay off workers, make them work extra without overtime and so on. While the government with an eye to encourage FDI would ensure that there are no strikes and lockouts, one never knows how far this sentiment would carry and protect Wal-Mart from its exploitive policies towards the employees.
Basic elements of suggested compensation plan
In this section, the basic elements of a compensation plan for Wal-Mart has been suggested.
Objectives that you recommend for the compensation program
According to the HR Guide (2000), “Compensation is a tool used by management for a variety of purposes to further the existence of the company. Compensation may be adjusted according the business needs, goals, and available resources”. Objectives that the compensation program should address include:
- Recruitment and retaining of qualified employees.
- Motivate and increase or maintain the morale and satisfaction.
- Rewarding and encouragement to bring out the peak performance.
- Achieve equity in internal and external issues.
- Reduce the employee turnover and encourage company loyalty among the employees.
- Negotiate, educate and modify practices and behavior of unions.
Recruitment and retention of qualified employees is a common goal shared by many employers. To some extent, the availability and cost of qualified applicants for open positions is determined by market factors beyond the control of the employer. While an employer may set compensation levels for new hires and advertise those salary ranges, it does so in the context of other employers seeking to hire from the same applicant pool. Morale and job satisfaction are affected by compensation. Often there is a balance (equity) that must be reached between the monetary values the employer is willing to pay and the sentiments of worth felt be the employee. In an attempt to save money, employers may opt to freeze salaries or salary levels at the expense of satisfaction and morale. Conversely, an employer wishing to reduce employee turnover may seek to increase salaries and salary levels. Compensation may also be used as a reward for exceptional job performance. Examples of such plans include: bonuses, commissions, stock, profit sharing, gain sharing (HR Guide, 2000).
Who should be involved in overseeing the program’s design and implementation
The compensation plan design and implementation program would involve not only the HR staff but other senior members of the staff also. While HR can gather the current compensation details of competing industries in the same sector, help should be taken from managers and line supervisors to find out the top performers in a department. Compensation should be equitable and while laggards and shirkers should be penalized by giving them lower increments and wages, the top performers should be encouraged by giving them appropriate rise, bonus and incentives. Senior staff at the level of department heads and managers should also be involved in framing the policy decisions for compensation (Carlson, 2006)
Carlson (2006) has argued that one of the elements of what effective firms do with people is the use of incentive pay. The design of compensation systems in terms of the form of incentive compensation used is critical to the success of the organization. In examining human resource practices, the use of incentive compensation is positively related to organizational performance. The theory suggests that using incentive compensation better motivates individuals to perform than by simply relying on fixed rewards. Low performing firms use higher fixed salaries and fewer incentives while high performing firms use lower fixed salaries and a greater percent of overall compensation is incentive pay. This would suggest that higher performing firms are using various forms of incentive compensation such as cash incentives, non cash incentives, and benefits and perks more than low performing firms.
- Compensation committee: The compensation committee should involve the HR staff headed by the HR head, department heads and this team would in turn report to the senior managers of the company. The team should use the following components to determine the compensation package: Job Descriptions; Job Analysis; Job Evaluation with four main techniques of Ranking, Classification, Factor Comparison, and Point Method; Pay Structures; Salary Surveys and Policies and Regulations (HR Guide, 2000)
- Differences in pay structures: A full expat package is expensive. First, because only top positions are filled by full expats, who usually have a great deal of experience, the base salary is quite high, on par with salaries in the expat’s home country. In addition, the company usually pays for housing, car and driver, health insurance and retirement plan, children’s schooling of $10,000-$20,000 per year, and tax equalization. Under a tax equalization policy, a company makes sure expats pay the same amount in taxes as when they were working in the home country. If actual taxes are higher, the company pays the difference. If actual taxes are lower, the expats pay the difference to the company. Local hires and hybrid workers are PRC nationals. But as China becomes an increasingly attractive place to do business, and as companies try to cut expenses by reducing the number of people on full expat packages, many young foreigners eager to obtain work experience in China have been hired on local packages. Local packages vary by company. Most MNCs prefer to pay a higher salary, without extra allowances for items such as housing, meals, and transportation. Chinese companies often pay slightly lower salaries, but then pay allowances, a carryover from the days when the state work unit provided much more than just the standard salary and benefits. In the last decade, however, housing, formerly provided by the work unit, has largely been privatized. There needs to be subtle differences between hourly workers and regular full time employees as regular workers would be expected to be much more responsible in their work attitude that hourly workers (Hulme, 2006)
- Salaries Standards: It is a good idea to set salaries above the local standards of China since such a move would reduce turnover of experienced employees to local or other Chinese companies. Paying international levels of salaries is not feasible since salaries in US are much higher than the ones paid in China were a Wal-Mart employee typically is paid about $84 to $96 a month while a worker in US is paid about 6 $ per hour and with a 8 hour shift and 2 working days, this comes to about 1150 $ per month. This is more than the annual salary of the Chinese employee and the international firm would not make any profits with such high overheads (Miller, 2006).
- Types of compensation should be included in the plan: In addition to the regular salary, employees should be given retirement benefits, medical insurance, workers’ compensation, maternity and paternity leave, paid holidays and annual health checks. This holds true for the regular employees and hourly employees and temps may not be eligible for these benefits. Incentives should include cash incentives, non-cash recognition awards such as best worker awards, gift vouchers, paid vacations for the worker and family and other forms of recognition. These incentives should be based on the kind of initiatives and motivated outlook that the employee shows (Carlson, 2006).
As discussed in the case, Wal-Mart is facing increased threats in the form of competing companies such as Carrfour and other retailers that would be willing to pick up experienced employees from the retailer. There is also the threat of unions operated by the government. The company should in addition to giving optimum compensation should also take up tasks that would lead to career growth prospects for the employees and increase their loyality. Simply paying higher compensation does not guarantee that the employee would be satisfied and not change jobs. But if sufficient avenues for career growth, training and development are shown, then the employees would be more loyal and this would help the company to grow.
Carlson, D. S., Upton, N., & Seaman, S. (2006). The impact of human resource practices and compensation design on performance: An analysis of family-owned SMEs. Journal of Small Business Management, 44(4), 531-543.
HR Guide. 2000. HR Guide to the Internet: Compensation: Outline and Definitions.
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Miller, J. (2006). What’s good for Wal-Mart. Dollars & Sense. Somerville: pp. 12-15.
Morgenson, G. (2006). Outside advice on boss’s pay may not be so independent. New York Times (Late Edition (east Coast)), p. A.1.
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White, E. (2006). Theory & practice: Opportunity knocks, and it pays a lot better; Workers cite compensation as a key reason they quit, contrasting company line. Wall Street Journal (Eastern Edition), p. B.3.