Read the case “Managing Talent: How Wal-Mart Is Setting Pay at the Top…and Bottom” at the end of
Chapter 12. Answer the questions below (not the questions at the end of the case study in the text) in
a 2-3 page APA-style paper. Note that the questions in this Assignment relate to both Units 6 and 7. Compare the impact of incentive pay on the total compensation of Wal-Mart’s CEO and the
company’s average workers. Does the difference in the way pay is structured at these two
levels make business sense? Why or why not? Explain how Wal-Mart’s store workers might judge the equity of the difference between their
total compensation and Mike Duke’s total compensation? Describe and compare effective performance management techniques for the CEO and for
average workers.
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MANAGING TALENT: How Wal-Mart Is Setting
Pay at the Top … and Bottom
By any measure, the chief executive officer of Wal-Mart Stores, Mike Duke, has a huge
job. In the highly competitive retail industry, Wal-Mart operates more than 10,000
stores in more than two dozen countries, generating sales in the hundreds of billions of
dollars. For that responsibility, Duke is highly paid. In 2011, he received a base salary of
$1.3 million, stock awards valued at $13.1 million, and a cash bonus of $2.9 million.
Duke’s salary and stock awards were each 3% larger than in the previous year, but his
bonus was 25% smaller because the company failed to meet goals for operating income.
His total compensation of $18.1 million made Duke the 82nd-highest paid chief
executive in the United States, according to Forbes magazine.
Another change that took place in Duke’s compensation was in the measures used for
setting his incentive pay. In the past, Wal-Mart used a metric common to retailers:
same-store sales, meaning sales volume at stores that have been open for one year or
longer. By looking at same-stores sales, a company can determine whether its activities
are making its stores more successful over time. Wal-Mart, however, decided to base
Duke’s incentive pay on the total sales for the entire company. The change came after
Wal-Mart’s same-store sales had been falling for two years as recession-strained
consumers switched to dollar stores or put off purchases altogether. In its official
explanation of the change, Wal-Mart said it would “align our performance share goals
more closely with our evolving business strategy, which emphasizes productive growth,
leverage and returns.” Several years earlier, in contrast, Wal-Mart had said it measured
same-store sales because that metric “is a key driver of shareholder returns” and
investors view it “as an important measure of performance in the retail industry.”
The change from same-stores sales to total sales as the basis for incentive pay followed
another change in performance targets. Two years earlier, the company switched the
time frame for measuring performance. In the past, Wal-Mart executives had to meet
three-year goals before receiving incentives. Beginning in 2009, they began receiving
their incentive pay for meeting one-year goals. The company said the change would
make the goals more current and realistic.
Lower in the corporate hierarchy, Wal-Mart has made very different decisions about
compensation. The average wage for an hourly Wal-Mart employee in the United $12.40
per hour. An average employee with a fulltime schedule (many work part-time) would
earn about $25,800 per year. Like Duke, wage earners at Wal-Mart are eligible for
incentive pay, but the scale of the incentive pay is far smaller.
Under the company’s founder, Sam Walton, Wal-Mart set up a profit-sharing program,
which Walton in his autobiography called “the carrot that’s kept Walmart headed
forward” These payments have represented up to 4% of employees’ pay. The money was
deposited in a fund that employees could cash in when they retired. In 2010, Wal-Mart
paid its employees $1.1 billion in profit sharing and contributions to employees’ 401(k)
retirement funds. However, that was the last year for the program. After 39 years,
beginning in 2011, lower-level employees are no longer eligible for profit sharing. The
company will instead increase its spending on quarterly and annual bonuses and
medical insurance, and it will continue matching employees’ contributions to their
401(k) plans, up to 6% of their pay. A company spokesperson noted that employees
would be able to spend their bonuses immediately, rather than waiting for their
retirement, as they did with the profit sharing.
Questions
1.
Compare the impact of incentive pay on the total compensation of Wal-Mart’s
CEO and the company’s average workers. Does the difference in the way pay is
structured at these two levels make business sense? Why or why not?
2.
How do you think Wal-Mart’s store workers would judge the equity of the
difference between their total compensation and Mike Duke’s total
compensation? Do you think the difference would motivate them to work hard to
move into management positions? Why or why not?
3.
What, if any, changes would you recommend that Wal-Mart make to its policies
for incentive pay so that its compensation better supports its strategy?
SOURCES: Wal-Mart Stores, “About Us,” http://www.walmartstores.com,
accessed April 24, 2012; Anne D’Innocenzio, “Wal-Mart’s CEO Paid $18.1 Million in
2011,” Bloomberg Businessweek, April 16, 2012,http://www.businessweek.com;
Susanna Kim, “Pressure on SEC to Implement Rule Disclosing CEO to Median Worker
Pay,” ABC News, March 13, 2012, http://abcnews.go.com; Gretchen Morgenson,
“Moving the Goal Posts on Pay,” The New York Times, May 7, 2011; “Wal-Mart to End
Profit-Sharing in Benefits Switch,” Reuters, October 8,
2010,http://www.reuters.com.
Running head: NAME OF CASE
1
Name of Case Study
Student Name
AB203: Human Resources Management – Section Number
Instructor Name
Month Date, Year
NAME OF CASE
2
Introduction
This is generally one paragraph. The easiest way to explain this section is to think of it like a
brief overview of the topics you will be discussing in your paper. The introductory paragraph is
designed to set up the rest of the paper by offering your reader a glimpse of what is to come. The
goal here is to grab your reader’s attention and make him/her want to read the rest of the paper.
Type your paper in the third person (no I, my, we, you, our, your, etc.).
Review/Analysis of the Case
Answer to question #1 with supporting arguments in a minimum of one paragraph. Your
response should be written in your own words, using your own thoughts, ideas, and opinions.
Include information from the chapter reading assignment and the case study to help support your
points. Be sure to let your reader know where you got your supporting information by including
a citation afterward. An example of the first citation for your textbook is (Gerhart, Hollenbeck,
Noe, & Wright, 2009). All subsequent citations of your textbook should end with the
parenthetical citation as follows (Gerhart et al., 2009).
Answer to question #2 with supporting arguments should also be a minimum of one paragraph.
Your response should be written in your own words, using your own thoughts, ideas, and
opinions. Include information from the chapter reading assignment and the case study to help
support your points. Be sure to let your reader know where you got your supporting information
by including a citation afterward. An example of a citation for your textbook, after your first
citation, is (Gerhart et al., 2009).
NAME OF CASE
3
All subsequent questions should be addressed in a similar manner as the example questions
above until all questions in the assignment have been answered fully.
Summary and Conclusions
This is generally one paragraph. The easiest way to explain this section is to think of it like a
closure for the topics you discussed in your paper. The concluding paragraph is designed to wrap
up the paper by offering your reader a review of what he/she just read. The goal here is to
summarize your own responses to the case study questions, while at the same time providing
your reader with some points to consider after reading the paper.
NAME OF CASE
4
References
Gerhart, B., Hollenbeck, J., Noe, R., & Wright, P. (2009). Fundamentals of human resource
management. (3rd ed.). New York, NY: McGraw-Hill.
…
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