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Wal-Mart’s Compensation Strategy: Analysis and Recommendations

Summary of the Company Situation

Compensation for workers is an important aspect of business because it partly determines the amount of money that is utilized for expenditure. The business management is aimed at acquiring the least costly compensation scheme possible to keep at minimum the company expenditure. At the same time, companies are aimed at introducing the best compensation schemes and strategies to retain the best staff, as well as attract the same. Compensation is one of the important factors that determine the retention and attraction of competent staff. An important aspect of compensation for workers or employees is that a company could be rated low in the public domain if it has a poor compensation scheme or low compensation rates. This leads to poor performance from a general perspective. Wal-Mart has not been spared by such, for example, it has been a target by liberal activists. Wal-Mart has been indicated as being a market player through innovating in the market.

Analysis of the Company’s Basic Operations/Overall Strategy

There have been efforts by several governments to introduce minimum wages for employees to shield them from exploitive companies. Several companies have faced public wrath and outcry because of poor rates of compensation and pay.

Although the minimum wage has been regarded as beneficial in ensuring that the companies do not exploit workers, a complaint is that the poorest of the poor are kept out of the labor market by setting the price of low-skilled labor to artificially high by the introduction of the minimum wage. Imposition of minimum wages leads, sometimes, to unemployment because the company would afford to hire a lesser number of workers. For example, raising the minimum wage would cause more damage to the 5% (the number of unemployed in 2005) of Americans rather than the 2% who were making the minimum wage (Kane, 2010). Another problem with high minimum wage is that it forces businesses to struggle and at times to close. What is needed is a strategy to retain and attract the best workforce in the labor market, gain or retain good publicity, as well as ensure worker trust. Wal-Mart has been faced with criticism before, regarding its health benefits which forced them to introduce techniques to counter-attack. It called for the government to regulate the compensation of its competitors as well as proposing socially conscious policies.

Companies need to aggressively subsidize the government’s efforts such as disability income, unemployment compensation, and social security payments to support the economy. Wal-Mart has participated in the development of the American economy even through employee compensation. Employees have been able to benefit from healthcare coverage although for example in 2005, 46% of the children belonging to Wal-Mart workers could not access coverage with programs such as Medicaid and food stamps. The supporters of the company have argued before that the big share of subsidies through Medicaid benefits the low-wage earners at the corporation.

Wal-Mart has been accused of poor compensation that undermines its workers (Bernstein, & Bivens, 2006). A study discovered that Wal-Mart could raise compensation without increasing prices for commodities, pointing to the fact that a price rise must not be associated with rising minimum wages. One of the compensation strategies assumed by Wal-Mart has been to provide workers with healthcare benefits, housing among others. These have been aimed at either retaining employees or attracting more labor. Findings for a study by Dube (2005) and Neumark (2005) (cited in Bernstein & Bivens, 2006) have supported the fact that workers have received depreciated earnings across the stores of its expansion, as well as the earning of the workers for competing retailers. Workers were found to receive increment on expenditure for transportation of family members, housing, and healthcare which took away the benefit presented by the ability to buy food, furniture, and other goods at a reduced cost. There has been studying evidence that lowering the profit margin can lead to the availability of more funds for the compensation plan by Wal-Mart. Low prices that would be necessary for competing with rivals would be ensured even when workers were well compensated.

Three Most Critical External Environmental Factors

Many external environmental factors affect the Wal-Mart compensation strategy. Over many years Wal-Mart Corporation has faced stiff competition from other corporations and firms. Through operations and distribution strategies Wal-Mart has managed to remain in a competitive edge over its rivals through price reduction. In general merchandise retailing, Wal-Mart’s primary competitors are Target and Kmart. In addition, retail Superstone such as Circuit City and Bed also provide retail competition. In the warehouse segment, Wal-Mart’s Sam’s Club competes harshly with Costco (Case Study 2, n.d.).

Government taxes and regulations have also been a factor influencing Wal-Mart operations. Over the recent years, the US government has been increasing taxes on corporations. Due to high taxes, Walmart Corporation has not been able to maximize earned Revenue. An increase in governmental taxes may force the company to increase the prices of its commodities and this would lead to low sales. The result would be fewer funds available for compensating workers. The existing law in the US government has also limited the corporation in compensating workers as it wishes. Wal-Mart has to adhere to minimum set compensation plans for each class of workers. This, therefore, means that the compensation available for workers will be protected by the government if the corporation intends to lower its compensation to the workers

Changing consumer preferences and tastes have greatly influenced Wal-Mart’s performance in the industry. Over time, Wal-Mart products have been gaining popularity and great demand due to the unique features of the products stocked by Walmart. Due to this, the corporation has been able to expand into new markets and penetrate the existing ones. Consumers’ loyalty has also been a strength in Wal-Mart operations because consumers can not be switched to consume from products of other firms with new brands. As a result, Wal-Mart has been able to increase profit from its operations and hence establishing a suitable financial position in meeting both its short term and long term obligations like the workers compensation

Critical Internal Factors That Will Affect the Company’s Compensation Strategy

Apart from external factors, internal factors have also a great stake in influencing the compensation strategy in Wal-Mart. These are the factors that arise or exist within the corporation.

Workers’ motivation will greatly affect their compensation plan. Workers that feel less motivated and inadequately rewarded for their effort will regularly demand an increase in their compensation. The corporation therefore may be forced to allocate more funds in meeting the worker’s demands of increased compensation.

Working conditions have also to be considered in determining their compensation. Workers in challenging and more demanding lines of duty will need a higher compensation compared to their colleagues in less challenging conditions. Either the workers may consider the current working conditions as not matching the current pay or compensation, or demand better conditions about the compensation provided.


  • The compensation strategy should reflect the worker’s preference to minimize the level of complaint within the firm. This will increase satisfaction among the workers and therefore increase retention of competitive labor.
  • The compensation should ensure fairness by determining compensation in terms of the amount of labor or workload. This will also ensure that the workers do not complain and remain in the company for long. The publicity of the company will also be saved as a result of minimal complaints.


Bernstein, J., & Bivens, J. (2006). The Wal-Mart debate: A false choice between prices and wages. EPI Issue Brief, 223. Web.

Case Study 2: Walmart. 2010. Web.

Kane, T. (2010). Wal-Mart’s Perverse Strategy on the Minimum Wage. The Heritage Foundation. Web.


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