After Coles, Walmart announced a shift in the way some of its employees are compensated, sparking a debate over the prudence of whether these cost optimization methods are warranted.
Most companies specifically in the retail sector have had to cut or freeze pay in order to remain sustainable. Employees have had to struggle through these changes and prepare for an uncertain future related to their financial position. But there are some exceptions who have decided to give a rise after an initial round of restructuring.
As per BloombergOpens a new window , Walmart has just announced that it is introducing a “team-based operating model†in its supercenters. Associates moving into the newly-formed roles in these supercenters will receive higher compensation. This covers approximately 165,000 hourly associates, which makes up 11% of Walmart’s workforce.
While the company might be implementing this as a tool to retain employees and also provide direction in terms of their career development, there are some lacunae that are emerging from a pay rise that is restricted to a small minority and also the change in overall compensation packages.
Pay Rise Is Not Uniform
The positions of Co-Manager, Assistant Manager, and Department Manager will transition into roles with greater responsibility and will be known as Store Lead, Coach, and Team Lead, respectively. Their pay will also be revised accordingly. It is also important to note that the pay increase is due to a structural change in compensation. Therefore, while associates in the new roles will receive annual pay increases in October, which is six to eight months earlier than what they have earlier received, these workers will not be eligible for quarterly bonuses.
There are two issues emerging from this – one, that the pay increases affect a relatively small percentage of Walmart’s total workforce and that is worrying as per the worker advocates. The second is that this diversion of bonus towards pay increases might result in lack of clarity about how performance will be rewarded.
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Could This Approach Backfire?
What are the chances that such an approach could backfire? They are significant because this change seems to a step for the organization to protect its own revenues as well as optimize cost.
Small Set of Employees Covered
In a scenario where almost 90% of the workforce is facing a pay cut or freeze or even a job loss, the increase in pay for a small set of employees, even though it is linked to a change in role can lead to widespread disengagement. The larger majority is likely to feel neglected considering that they have been struggling with financial concerns too. Also, the absence of a clear path for their careers within the organization can further amplify the issue of demotivation. Shifts such as these can also result in turnover of some roles where those who are not covered might decide to leave. This is not an isolated case for Walmart. Recently, ColesOpens a new window also rewarded its store employees, who are deemed essential workers, with a pay rise to acknowledge their role as one with risks. But the repercussions of raises provided only to a small segment of employees could be adverse.
Diverting Bonus Into Pay Increase
Bonuses are a key component of pay because they are usually linked to performance, joining, or retention. All these aspects are important, particularly performance. While companies are not stating it clearly that they are diverting their bonus funds towards pay rise, it is evident that this is the approach being followed. If employees who are receiving a pay increase are not eligible for the bonus, the message sent by the firm to its workforce is confusing. While on one hand, it is creating career paths for the promotion of high potential employees, on the other hand, it is not rewarding them for their high performance. It is understandable that in the current scenario companies might not be able to provide both due to challenges arising out of financial constraints. However, perhaps finding a balance in terms of the rate of pay increase and the percentage of bonus payout might be a better approach.
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As companies create new talent management strategies and roadmaps, for the post-pandemic world, they need to incorporate all elements that are fundamental to employee engagement – career development, fair pay, and performance-based recognition.