Basic Compensation Plan for Wal-Mart in China

Wal-Mart is one of the largest retailers in the USA, which has expanded successfully its business internationally. In actuality, it is one of the largest employers in the USA (Trevor, 2005), while its international market expansion is one of the major strategies of the development of the company. In fact, Wal-Mart views international market expansion as an integral part of its marketing strategy in a long-run perspective.

In such a situation, the company focuses on markets of developing countries, which are particularly prospective due to the significant potential of these countries and their markets. In this respect, such country as China is one of the major target markets for Wal-Mart, because the national economy of China is growing steadily. In such a context, investments in Chinese economy can be highly beneficial, although China is a country with a very specific mentality and business traditions. As a result, Wal-Mart can face considerable difficulties, while entering Chinese market. In this respect, the company needs to elaborate the compensation plan that will take into consideration local specificities of business and human resource management in China.

Analysis of the current position of Wal-Mart

On analyzing the current position and policies of Wal-Mart, it should be said that the company confronted a serious criticism for its human resource management. The company’s attitude to its employees was a subject of criticism because employees working in the USA, as well as abroad were not fully protected socially and the personnel turnover was very high in Wal-Mart compared to its major rivals in the USA (Hulme, 2006). The company tended to negligence of interests and needs of its employees, focusing on the maintenance of the stability within the top executive branch of the company, while ordinary employees were unimportant for the company (White, 2006). In this regard, it is worth mentioning the fact that the level of wages of Wal-Mart’s employees was traditionally lower compared to rivals of the company. At the same time, the gap between top executives and employees was large and the company made little efforts to bridge this gap.

In such a context, the development of business in China may considered quite perspective in terms of the strategy of using low-cost labor force because China is traditionally characterized by the low cost of the local labor force that can be employed by Wal-Mart. In such a way, the company can save costs on local employees. On the other hand, the expansion of the business in China will meet the traditional strategy of Wal-Mart to spend minimal financial resources on wages.

Weaknesses and challenges

However, it is obvious that the company is likely to confront serious challenges which reveal existing weaknesses of the company. Firstly, the company can face a risk of the high personnel turnover (Hulme,, 2006), which can prevent the company from the steady development in China, where people are very concerned with their workplace environment and, what is more, Chinese employees pay a lot of attention to their contribution to the development of the organization, where they work, while the risk of losing a job will discourage them to work efficiently and productively.

Another weakness of Wal-Mart is the lack of knowledge of cultural specificities of Chinese employees. For instance, the system of bonuses and privileges is widely spread in China, while the official level of wages may vary insignificantly, the gap between top executive and ordinary employees is enormous due to the system of bonuses and privileges, which the company may be not fully aware of. In addition, the high level of corruption in China raises the problem of certain compensations which should be spent to maintain normal relationships between the company and the local authorities.



Nevertheless, the company has consistent strengths, including the internationally renowned brand and extensive experience of operations in the retail industry. In addition, the company is one of the major players in the world market that can attract the Chinese authorities and employees to cooperation with the company in order to stimulate the economic development in China and provide new jobs for local employees (Johnson, 2006). The latter is particularly important, because many Chinese employees are willing to work at such companies as Wal-Mart, which are based abroad, because they expect higher wages compared to Chinese companies.

Compensation plan

In such a context, the development of the compensation plan should be focused on balancing traditions existing within Wal-Mart, its organizational culture, on the one hand, and the traditional Chinese culture, on the other. The former will meet needs and traditions of top executives and managers transferred to China from the USA or other countries, where Wal-Mart operates, while the latter will meet needs and wants of local employees. The major principle of the compensation philosophy will be the adaptation of the corporate compensation strategy to local traditions, which means that the company need to establish the organization hierarchy according to which employees, managers and executives will get compensations, including special bonuses and rewards, along with certain privileges which are applied in China, such as transportation charges of executives or employees, and other privileges.

The major objectives of the compensation program should be based on the principle of fair distribution of financial resources according to the contribution of each professional working within the company. In other words, the level of wages and bonuses should meet the contribution of each professional in the overall organizational performance. In this regard, it is important to ensure the steady increase of income of professionals working at Wal-Mart in China depending on their position in the organizational hierarchy. In this respect, it is important to meet local traditions, when the formal gap between top executives and managers and between managers and employees is not very significant. On the other hand, there is a system of bonuses which widens the gap between different layers of the organizational hierarchy substantially. This gap widens due to certain privileges and system of bonuses. Employees should have the minimal bonuses and privileges since they have the lowest status in the organizational hierarchy. Such a decision is logical, taking into consideration cultural traditions of Chinese people. They will perceive a few bonuses for employees and a lot of bonuses for top executives as a norm. In addition, the system of bonuses should not be obligatory transparent as it is in developed democratic countries. In China, it is possible to make such a system a part of the organizational culture, which is not transparent and employees should not necessarily have access to information concerning bonuses of their managers and top executives, although they should be confident that promotion inevitably leads to certain bonuses.

At the same time, the compensation committee should include not only top executives but also representatives of employees in order to maintain the permanent contacts with employees. Obviously, top executives transferred from the US, for instance, will not be able to meet needs of employees, while representatives of employees could protect interests of employees. Wal-Mart is interested in meeting needs of employees because Chinese employees are very concerned with interpersonal relationships and the position of each employee does matter. Therefore, if the administration of the company fails to provide an employee with compensation, other employees are likely to support their colleague and object to the decision of the administration of the company. Therefore, each layer of the organizational hierarchy should be presented in the compensation committee.

Finally, Wal-Mart should provide both financial and non-financial compensations. Along with cash, Wal-Mart should provide its employees, managers and top executives with certain privileges, such as longer vacations, free transportation services, lodging, etc. The aforementioned privileges should depend on the status of a professional and his or her position in the company.


Thus, Wal-Mart should develop the compensation plan which meets local cultural traditions and basic corporate traditions. In such a way, it will be possible to achieve positive outcomes of the implementation of the compensation plan.

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