Michelle Holman Course September 6, 2015 Compensation Strategy Analysis: Costco v. Target Costco’s compensation strategies offer greater benefits than companies like Target due to an “efficiency wage” (Lutz, 2015, ‘Why Wal-Mart’) a strategy that attempts to lower turnover ratios by paying employees a wage above the industry standard. In turn, this compensation strategy attempts to value employees higher, also implementing a standard of operation that promotes performance and identifies employees who excel. In comparison, Ungar (2013) notes that focusing on the internal workings of the company may have placed Costco at even greater advantage, considering that they reported an 8% rise in profits while Target “experienced [less than] …show more content…
Not only does this create significant problems internally, but also problems within the organization which will determine the organization’s ability to maintain sustainability or growth in external markets. The internal labor market, which is determined by employees and the “pressure” (Lazear & Oyer, 2004, p. 2) applied within the working environment itself, changes based on factors of compensation; most notably when the environment is competitive or employees feel they are being treated unfairly for work …show more content…
Further, Suttle (2010) separates consumers based on “psychographic, behavioralistic, and geographic characteristics” (‘Characteristics’). Consumers, based on these factors, will show preference to either Costco or Target depending on their nature, purpose for shopping, and items sought during the shopping process. As internal, external, and capital markets have all been defined in relation to how Costco or Target compensates their employees, the consumer market can be equally defined in that consumers intend to make their purchases quickly, with or without assistance, and without difficulty finding their preferred products. An organization that struggles internally, externally, or in retaining their human capital will likewise have difficulty satisfying and retaining their consumer
Customers often have substantial power to affect the competitive environment. This power can take the form of easy consumer access to several retail outlets to purchase the same or similar products or services (Pearlson & Saunders et al., 2009). L.L.Bean has, from the beginning, recognized that the customer has many options in spending. This recognition of the power the customer holds is reflected in
In the case presented both AFLAC and L.L. Bean had their own distinctive ways of utilizing their products in order to enhance the total compensation for its employees. The factor that has deterred more employees away from their current employer is that of benefit packages, and reward systems. As stated by () “compensation affects a person economically, sociologically, and psychologically. For this reason, mishandling compensation issues is likely to have a strong negative impact on employees and, ultimately, on the firm’s performance” (p.313). Many felt just a bump in pay wasn’t enough to substantiate their hard work or the efforts that the performance efforts provided to their organization. As stated by () “the right total rewards system a blend of monetary and non-monetary
carefully planned out and considered, the total closure or failure of the organization could be at hand in the near future. In our modern age, employers know that salary is not the only factor that should be considered and that salary alone will not lead to better or more highly profitable workers alone. This is why compensation planning is important and why pay should have some connection between performance and compensation. This is why the human resources department should consider many monetary and non-monetary factors when considering how to properly compensate and motivate employees (Dessler, 2013).
The first lesson we learnt was the importance of treating employees fairly, especially in terms of wages. Employees who are content and treated fairly are productive and will evidently drive the bottom line of the company. Their productivity will be high, knowing their wage is reflective of their work and they feel valued in the company. Not only did employees experience pay dissatisfaction if they perceived their pay as unfair, they were also less motivated to achieve the organization’s goals. (HRM 212) In Quarter 6, we increased the wages for Level 3,4, and 5 workers. However, we received feedback that notified us that our Level 1 workers
“Compensation represents both the intrinsic and extrinsic rewards employees receive for performing their jobs.” Martocchio, J.J. (2013) A Human Resource Management Approach. Compensation as most know is the hourly or annually paid. Compensation consist more of just hourly or annually pay. Organizations create monetary compensation process to reward their employees for their job performance. Monetary compensation is the core of
Holmes, S. & Zellner, W. (2004). The Costco Way: Higher wages mean higher profits. But try telling Wall Street. Retrieved September 19, 2016 from
When making compensation decisions, whether it is internal or external, comparisons must be considered. However, employers must carefully balance pay structures, because internal and external comparisons may not converge. Therefore, employers may differ in the way they place priorities on internal and/or external comparison data when they are developing pay structures.
A well-articulated compensation philosophy drives organizational success by aligning pay and other rewards with business strategy. It provides the foundation for plan design and administration and anchors current and future plans to the company's culture and values (Kaplan, 2006, p.32). Recognizing and rewarding achievement is the cornerstone of the company A’s compensation philosophy. The mission of the company is to attract, select, place and promote all individuals based on their qualifications. The company believes that performance-based compensation helps attract, develop and retain talented professionals. In addition to base pay which based upon local market conditions and targeted to be above market, the company provides the following types of potential compensation to reward performance:
Craig Jelinek, the CEO of Costco Wholesale, maintains a ninety-two percent approval rating from not only his employees but his executives (Peterson). This shows that Costco would create not only more jobs here in Longview/Kelso but good sustainable jobs. He believes that, “If you treat consumers and employees with respect, good things will happen” (Stone). This shows immensely when simply walking through a Costco. As a costumer of Costco, people notice that employees of this corporation always have a smile on their face. One employee even said, “I am grateful to come and work here everyday” (Stone). Happy employees mean effective workers, and that is shown on each face in the warehouse. Statistics show that only less than five percent of employees leave after working there a year and less than one percent leave in the executive branches (Stone). Employees that work at Costco are happy to be there and potentially can get an even better job inside the corporation. It is said that Costco likes to hire executives from the inside. Seventy percent of the executives at Costco were once warehouse workers (Stone). This means that anyone that gets a job there has a seventy percent chance to move up in the ranks of the company, make more money, stay there longer, and
Does Costco pay its employees too much? Does it make sense for Costco to compensate its employees so much better than the employees at Wal-Mart/Sam’s Club? Why or why not?
The success of companies in today's market place is a process that involves the way business practitioners manage its workers and the financial resources and structures. The management of employees, structures, and financial resources includes the development and establishment of effective compensation strategy. Actually, the lack of a sound compensation system has negative impacts on the company's ability to recruit and retain competent and best-qualified employees. Consequently, compensating workers represents an important practice of a company's human resource management (Martocchio, 2013). Wal-Mart is not only a cultural but also a business phenomenon that operates in a competitive environment that is very unique. The company has grown steadily since its inception to an extent that it has become the number one ranked firm on Fortune 500 for four consecutive years. The success of the company is attributed to sound business practices and strategies throughout the years. Currently, the firm has over 1.3 million employees in America, making it the largest employer in the United States. In addition to being the biggest corporation worldwide, Wal-Mart's ability to attract and retain qualified employees is based on its compensation strategy.
Organizations that are committed to retaining good workers must also provide adequate compensation that allows employees to feel the organization cares about their needs. In order for Wal-Mart to remain competitive they must offer a compensation package that employees feel is fair and comparable to other organizations. If employees feel that the organization does not care or place any value on their individual needs employees may not remain with the organization and/or adapt the desired behaviors the organization requires, to provide superior customer service.
Although research generally confirms that pay-for-performance plans can influence greater outcomes, it is unclear how effective different pay plans are relative to each other (Park, 2012). Like most things in business, compensation is something that requires evaluation, study, assessment, strategy, modeling and integration. Achieving a pay for performance culture does not happen without paying attention to the behaviors, activities, rewards and motivations that have to be linked and reinforced through a well engineered and successfully executed process. Actually if that process does not tie rewards to shareholder financial objectives, employ the proper mix of compensation elements, result in meaningful dollars, embrace performance that employees can impact and are effectively communicated and reinforced, then the results it produces will likely fall short (Vision Link Advisory Group, 2013).
In today’s competitive workforce, compensation and benefit packages plays a crucial role on recruitment and retention for both the organization and the employee. Bumpbie finds itself in a situation where it could positively affect its employee’s morale, turnover rate and longevity; by making a strategic decision to implement compensation and benefit packages that will encourage current workers to stay and entice new applicants. Money is not always the inherent reason businesses experience high turnover rate, the constant shifting in the job market will always be a contributing factor as well as employee’s moral. Mayhew, R. (2016), explains that an “employee compensation plan” refers to all the components offered as well as the way in which they are paid, and the reason behind the employees getting the compensation case bonuses, salary increases and incentives. The fact that there are voluntary and mandatory benefits that organization provides to their employees give employees the freedom of choice, as well as the option to make the whether to stay with or leave an organization based on the benefits it provides. Variable Pay is also an option that some employers offer their employee which is performance based or results oriented. Whether it is profit sharing, merit based programs or incentive bonuses; it all comes down to which organization can provide employees with the compensation or benefits packages that best satisfy their needs.
Keeping employees motivated in addition to creating incentives and/or additional ways for employees to receive more compensation will create better performance overall within an organization. Contrary if company B gives their employees incentives to perform, without any motivational tactics they probably will not have as many top performances as company A, in addition the company may only seek short term rewards verses have long term success. Lack of motivation for employees within an organization, can cause long term damage for the company’s success. Different things motivate everyone; therefore there should be a system in place to keep employees motivated for the long term success of the company. In the MBM textbook under the concept of incentives, compensation, and motivation, there are a couple of different views of how it should be applied within an organization. We will discuss The Social Role of Profit, Personal Profit and Losses, and the way Market-Based Management view how incentives, compensation, and motivation should be applied and the things that effectively drive employees’ actions while at work.