Thesis on "Walmart's Compensation and Benefits Employee"

Thesis 6 pages (2134 words) Sources: 4 Style: APA

[EXCERPT] . . . .

Wal-Mart's Compensation And Benefits

The logistics, marketing, and supply chain processes that Wal-mart relies on to obtain such drastic cost and time efficiencies relative to competitors forces its Associates to have multiple job descriptions, work varying shifts, and often fit within a part-time work schedule. The intent of this paper is to evaluate Wal-Mart's employee compensation and benefits programs. As Wal-Mart operates using the SuperCenter as the center of their approach to organization and staffing, this analysis is presented from the standpoint of a typical super store location. Extrapolating these results across the approximately 550 stores in the U.S. is a reasonable assumption given the standardization of processes the company has achieved.

Central to the compensation and benefits programs at Wal-Mart is the increasingly reliance on having stores open 24 hours a day. It is thought by senior management that this type of around-the-clock availability is a major differentiator in terms of service. Based on this strategy, the staffing, compensation, and benefits model emerges for any given 24/7 SuperCenter that focuses on having Associates have multiple roles even during a part-time working shift. With 36% of any given SuperCenter's employee base dedicated to keeping their supply chains moving but also being given the tasks of assisting with logistics and order management, the remaining 64% of the employees must be distributed across many departments. As a key assumption of Wal-Mart's financial planning and forecasting for any given SuperCenter, the assumption is that made the majority of employees will work full-time yet have multiple roles through the store, from supply chain tasks to retailing. This equates to significantly less in compensation and benefits expenses as each employee has multiple roles, which as a result leads to greater pressure to keep payroll and benefits costs as low as possible (Adamy, 2008).

Staffing Strategies Define Compensation and Benefits Costs

Wal-Mart specifically focuses on how to distribute workers across departments so that compensation and benefit costs can be minimized. Paradoxically Wal-Mart staffs those departments that get the most in-bound shopper traffic with the least employees and instead concentrates on having up to 120 overnight associates who unload trucks and stock shelves. This illustrates the point of Wal-Mart relying on their workforce to both contribute to the "last mile" of their supply chain, or the fulfillment, stock and replenishing of its stores. In effect Wal-Mart is paying these 120 overnight associates to have dual roles, that of warehouse worker as they unload trucks and semis, retail detailer, as they stock shelves with products, and 24/7 support for supply chain coordination to the store level. Table 1 compares the size of the store, average annual sales, operations expense and % of workforce that is full-time.

Table 1: Comparing Store Statistics

Store Type

Division

Average size (in Square Feet)

Annual Sales per Store (U.S.$Millions)

Operations Expense (% of Store Sales)

Average Number of Employees (Estimate) of Workforce full-time

Discount Stores

Division One

Wal-Mart SuperCenters

Division One

SAM's Club

SAM's

Loal Markets

Division One

Sources: Wal-Mart Annual Reports; SEC Filings from discount chains

Table 2 provides insight into the number of associates needed by department, supervisors needed, associate and supervisor wages as well. This further underscores the point of how critical it is to have employees in multiple roles.

Table 2: Staffing and Wage Levels by Department

WAL-MART DEPARTMENTS

ASSOCIATES NEEDED BY DEPARTMENT

SUPERVISORS REQUIRED BY DEPARTMENT

ASSOCIATE WAGES PER WEEK BY DEPT (40 hrs x avg. wage x # associates)

SUPERVISOR WAGES PER WEEK BY DEPT (40 hrs x avg. wage x # associates)

OVERNIGHT ASSOCIATES

NIGHT RECEIVING

DAY RECEIVING

SERVICE DELI

MERCH DEPTS

INFANTS/TODDLERS

DOMESTIC GOODS

FRONT END

HORTICULTURE

OPTICAL PROFESSIONAL

RECEIVING

SECURITY

TOYS

PRODUCE

SPORTING GOODS

BACK OFFICE

AUTOMOTIVE

DAIRY PRODUCTS

HARDWARE

HOUSEWARES

MAINTENANCE

PAPER GOODS

PHARMACY

PIECE GOODS

SHOES

DEMOS

HEALTH AND BEAUTY AIDS

PETS AND SUPPLIES

STATIONARY AND BOOKS

GROCERY DRY GOODS

JEWELRY

BAKERY

CANDY, TOBACCO, COOKIES

ELECTRONICS

HOSIERY

LADIES SPORTSWEAR

MEAT

MENS WEAR

Compensation Spending Analysis

The average Wal-Mart Associate earns $9.70 per hour nationwide, and this per-hour rate has been used for calculating the weekly Associate labor cost of $209,520 for 540 Associates. For 89 Supervisors and Managers at an average rate of $11.68 per hour the cost for a 40-hour week is $41,580. Table 2 provides a department by department analysis of both Associate and Supervisor wages and provides the foundation for calculating what level of Sales the SuperCenter must attain to accomplish the target of $60 per square foot for the 190,000 square foot store, or $11,400,000 (SEC, 2009). Taking the weekly Associate labor cost of $209,520 and multiplying by 52 weeks yields a yearly figure for Associate salaries alone of $10,895,040 with an additional $2,162,201 for the annual salaries of Supervisors and managers. Taken together, this translates into a total annual cost for labor, Associates, Supervisors, and managers of $13,057,241 in a typical SuperCenter. Now considering that the targeted profit of the store is $11,400,000 or $60 per square foot for 190,000 square foot store, and the challenges of ensuring quick and profitable inventory becomes critical.

With both of these goals in mind - paying the Associates, Supervisors and Managers even the median levels of hourly wages and accomplishing the profit objective of $60 per square foot taken together sets the goal of $24,457,241 just for these two objectives. This translates into a run rate of $470,331 per week just to cover these two objectives. As this is as much as some local competitors accomplish in a year, it's clear why Wal-Mart's SuperCenters must devote the majority of their key departments to keeping the supply chain, logistics, and fulfillment processes moving rapidly to rapidly turn inventory and also aggressively manage pricing, a point of contention in many of the Wal-Mart's management teams as the focus on being the loss-leader is difficult to reverse once fully in place. All of these factors contribute to the need for trimming benefits and compensation costs as much as possible to ensure the breakeven point is achieved on a weekly basis.

Benefits Analysis

Across much of the work completed by Dr. Richard Drogin there is a common theme of quantifying the benefits expenses paid per Associate, Supervisor, and Manager of Wal-Mart. In his analysis he states that Wal-Mart pays $1.00 on average per Associate labor hour worked, which equates to $40 per week worked by Associates. For Supervisors and Managers, Dr. Drogin calculated $1.50 per labor hour (Drogin, 2003).

Using these assumptions as the basis of calculating the total benefits costs for a SuperCenter for a months' operation, Associate's benefits cost is $21,600 per week, or $1,123,200 per year. For Supervisors and Managers, the costs are much less due to the fact there aren't that many of them in the SuperCenter, only 89 total. The cost per week for their benefits is $5,340 per week or $277,680 per year. Total benefits costs for the SuperCenter is $1,400,880 per year. Adding this into the $24,457,241 already needed for wages and minimum profit expectations of $60 per square feet takes the break-even point for the SuperCenter to $25,858,121 or $497,271 per week to cover these costs and attain the gross margin target that Wal-mart has for all SuperCenters. As Wal-Mart continues to have political and social pressure to increase its benefits, the costs per labor hour for both Associates and Supervisors is expected to increase significantly, up to $3 per hour worked, which is what many critics content is necessary for Wal-Mart to deliver suitable benefits for its employees. A summary of these and other costs are now provided in this next section.

Summary of Wage and Benefits Costs

The following table summarizes the wage costs per week for Associates and Supervisors on both a weekly and yearly basis, in addition to benefits.

Costs Per Week

Costs Per Year

Wages

Associate Wages

Supervisor Wages

Benefits

Associate Benefits

Supervisor Benefits

Associate Total Costs

Supervisor Total Costs

With 540 employees and 89 supervisor and managers staffing a Wal-Mart SuperCenter open on a 24/7 basis open 365 days a year the cost would be $14,458,080.

When considering the costs in addition to the minimum gross margin requirements of $60 per square foot for a 190,000 sq. foot store of $11,400,000, the total operating cost of $25,858,121 needs to be used for calculating part of the total operating pro forma budget for the store. The bottom line is that the efficiency of SuperCenter from a supply chain standpoint is going to be critical for the store accomplishing its profit objectives, and that given the pressure Wal-Mart is increasingly coming under for increasing benefits, these total costs will likely increase significantly in the coming decade. As a result of these pressure Wal-Mart's manager have at times yielded to unethical strategies to keep these costs in line (Adamy, 2008) from hiring illegal immigrants to clean stores to practicing wage discrimination (Drogin, 2003).

Analysis of Benefits and Compensation Programs at Wal-Mart

In a typical SuperCenter, there are on average 540 associates, with less than 24% being from minorities (Drogin, 2003) with 135 employees… READ MORE

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