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Question:

Compare the impact of incentive pay on the total compensation of Wal-Mart’s CEO and the company’s average workers.

 

Answer:

Amidst extreme competition in retail industry, Wal-Mrt operates in more than 10,000 stores and around 24 countries earning huge revenues. It has designed a pay structure and an incentive plan and has also developed performance system for the CEO and the employees of the organization to give the motivation to enhance sale and revenue for the company(Chemmanur et al., 2013).

Compare the impact of incentive pay on the total compensation of Wal-Mart’s CEO and the company’s average workers

Mike Duke, the chief executive officer of Wal-Mart Stores, has given enormous responsibilities to generate huge revenue and is one of the highest paid employees in the organization. In 2011, Duke's salary was $1.3 million, his bonus was $ 2.9 million, and stock awards estimated to $ 13.1 million. The company has increased Duke’s salary by 3% compared to the previous year, but the company has given a low bonus that is 25% lesser compared to last year as the company fails to generate adequate revenue. The total compensation of Duke is around $18.1 million which made the Duke’s rank 82 as the highest paid chief executive as per Forbes magazine, whereas an average full timer can earn $12.40 hourly. Moreover, some incentives vary between Duke and the rest of the employees. The difference in pay structure attributes to the job responsibility that is assigned to Duke and other lower level employees. Since the CEO of the company is the primary responsible person who sets the objectives of the enterprise, and the bottom level of employees implement the strategies developed by the CEO, Duke, so there is a significant difference in pay structure and compensation between the two concentrations in the company (Bremer et al., 2015).

The difference between the workers totals compensation and Mike Duke's Total compensation

Wal-Mart has made different incentive programs for the employees at the lower level of corporate hierarchy.  The wage for Wal-Mart employees is united $12.40 per hour. The full-time employees would earn around $25,800 per year. Wal-Mart has planned the incentive of Duke is based on the total sale of the company and the total compensation of Duke is around $18.1 million which made the Duke's rank 82  as a highest paid chief executive as per Forbes magazine. Moreover, all the wage earners are eligible to earn incentives like Duke, but the amount is comparatively low and it varies with the performance (Gupta & Shaw, 2014).

Compare the effective performance management techniques for the CEO and the average workers

The change in performance management system comes when Wal-Mart has experienced the downfall in sales due to a recession which has impacted the customers' purchasing decision.  Consequently, Wal-Mart has changed its previous strategy to operate the retail stores. It has taken a strategy to align the performance standard with the changing business strategy in order o raise the productivity, return on investment and achieve growth (Miller & Babiarz, 2013). In contrast to this, few years back, the company has standardized the entire retail which is a key factor that is giving shareholders returns. The performance management technique focused on the total sales based on which the incentive plan is structured and target is set for performance. Previously the company had set a goal for three years to achieve incentives. In 2009, the company had set a one year target to meet goal and incentives (Shanafelt et al.,2014). The company has asserted the fact that the new change will help the employees to meet the target and will make the goal more realistic. In addition to that, Wal-Mart has represented a profit-sharing program; the payment has reflected up to 4% of employees pay. The money will be deposited in the employee’s fund which they can get back after retirement. The case study has revealed that in 2010 as part of profit sharing programs the company has distributed to its employees $1.1 billion to contribute to employees’ 401(K) retirement funds. However, the lower level employees are no longer eligible for profit sharing. Instead of that, the company will provide quarterly and annual bonuses and medical insurances in order to match employees’ contributions to 401(k) plans, which is around 6% of the pay. It further added that employees can spend the bonus without waiting until retirement. The CEO who shoulders the major responsibility for formulating strategy of the company and to meet the goal draws more incentive, pay package compared to other workers whose incentives and compensation are low. The CEO, Duke plays the lead role to generate profit for the company and ensures growth and success for the company (Goodman & Turner, 2013).

 

Reference List

Bremer, R. W., Scholle, S. H., Donna Keyser, M. B. A., Houtsinger, J. V. K., & Harold Alan Pincus, M. D. (2015). Pay for performance in behavioral health. Psychiatric Services.

Chemmanur, T. J., Cheng, Y., & Zhang, T. (2013). Human capital, capital structure, and employee pay: An empirical analysis. Journal of Financial Economics, 110(2), 478-502.

Goodman, S. F., & Turner, L. J. (2013). The design of teacher incentive pay and educational outcomes: Evidence from the New York City bonus program.Journal of Labor Economics, 31(2), 409-420.

Gupta, N., & Shaw, J. D. (2014). Employee compensation: The neglected area of HRM research. Human Resource Management Review, 24(1), 1-4.

Miller, G., & Babiarz, K. S. (2013). Pay-for-performance incentives in low-and middle-income country health programs (No. w18932). National Bureau of Economic Research.

Shanafelt, T. D., Raymond, M., Kosty, M., Satele, D., Horn, L., Pippen, J., ... & Sloan, J. (2014). Satisfaction with work-life balance and the career and retirement plans of US oncologists. Journal of Clinical Oncology, JCO-2013.

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