The Increase in Turnover Rates and De-motivated due to Low Compensation
Name(s): Sukhraj Bhangoo, Nida Aamir, Warda Shafiq,
Date: Novemeber 12, 2010
Compensation is a form of pay and rewards received by employees on the basis of their performance. Compensation divides into two parts: direct and indirect compensation. Direct compensation includes employee wages and salaries, incentives, bonuses, and commission. Indirect compensation includes employee recognition programs, rewarding jobs, organizational support, work environment and flexible work hours to accommodate personal needs (Belcourt et.al, 370). “Wal-Mart” is the biggest retail and grocery chain in the world. Currently, Wal-Mart is an organization with revenue of $408 billion in 2010, and operates in 8,416 stores worldwide in fifteen counties with different names (http://www.wakeupwalmart.com/facts/index_alt3.html, 11/01/10). This paper analyzes compensation in Wal-Mart and, how Wal-Mart’s failure to compensate its employees, has lead to unmotivated workers, which ultimately increased the turn-over rate. According to our research, Wal-Mart has relatively weak compensation strategies in terms of how it allocates bonuses and the uneven distribution of bonus funds between executives and regular employees. Also, health insurance plans are not provided by Wal-Mart for the hourly-wage employees but executives’ health insurance plans are fully paid for. If Wal-Mart does provide regular employees with health insurance plans, employees are required to contribute some money into their own health coverage. Wal-Mart is unable to accommodate employees’ needs by providing flexible work hours, and promotions are seldom rewarded to women. These issues will be further elaborated upon in this paper.
According to The effects of performance measure and compensation on motivation and empirical study, there is a positive relationship between employees’ performance and their motivation. Through performance measurement, evaluation, and whole rewards system, employees respond to their pay and work satisfaction by lower turnover rate and lower sick leave, which could in turn improve a company’s profit and image. On the other hand, an ineffective compensation system leads to law suits and higher turnover rates. The effectiveness of a compensation system combines performance evaluations, directive and in-directive compensation, compensation equity, outside comparative facts, such as average wages in industry (http://www.springerlink.com/content/p4670737w0608880/, 11/2/10). The following will be a break down of the different direct and indirect compensation problems that Wal-Mart faces, and possible solutions.
Bonus is a form of direct compensation. Wal-Mart unevenly rewards bonuses between its executives and employees by a large margin. To further elaborate upon this issue, the article mentions how a, “…45-year-old mother of five just got her $616 bonus check from Wal-Mart Stores, her highest annual payout since starting work there nine years ago…”, where as, “Chief Executive Lee Scott received a $3.94 million bonus for the fiscal year ended in January, 2006.” (http://www.referenceforbusiness.com/encyclopedia/Per-Pro/Performance-Appraisal-and-Standards.html, 11/2/10). Wal-Mart has a hierarchical structure representing employees at various different levels in terms of their tasks, duties and responsibilities. There is no seniority system present at Wal-Mart which is evident because, employees who have been working for Wal-Mart for years and showed their commitment are treated with little recognition when compared to new executives. Under such conditions, it is understandable why there's such a high turnover rate of sixty-five percent in Wal-Mart (http://www.aflcio.org/corporatewatch/walmart/upload/walmart_wagestudy_fla.pdf, 11/2/10). The under-paid personnel are no longer motivated to be part of such a...