Design a Basic Compensation Plan for Wal-Mart in China

Essay by kjncowboyUniversity, Master'sB+, July 2007

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The benefits and costs of Wal-Mart's expansion have been hotly debated. Critics of the retailer have documented the extent to which Wal-Mart uses its market power to undermine its workers' compensation, squeezing suppliers and hurting local economies along the way. Supporters of Wal-Mart counter that the lower prices offered by the company more than compensate consumers for any depressing effect the company's expansion has on wages.

A key concern in the debate over the economic consequences of Wal-Mart's expansion is the effect this has on workers' wages. Most would grant that prices are lower at Wal-Mart than in many competing stores (although the magnitude of this price difference is often less than implied by company defenders). A critical question, however, is whether the benefits of lower prices are implicitly clawed back when Wal-Mart drives down wages not just of its own workers, but throughout the retail sector as a wholeOther issues make the narrow "wages vs.

prices" debate described before particularly uninformative. One side of the debate assumes that the cost of higher compensation to employees at Wal-Mart is higher prices to consumers. This isn't necessarily the case-some (or all) of the costs of increased compensation could come from reduced profit margins, raising the living standards of Wal-Mart employees while preserving the benefits from low prices.

Wal-Mart could definitely raise compensation for its workers and still have lower prices than its competitors. Note that labor costs for its non-supervisory staff account for less than 7% of its total sales. If Wal-Mart's price advantage relative to its competitors is even in the neighborhood of what its defenders claim, consumers would still find Wal-Mart's prices lower. To believe otherwise is to believe that Wal-Mart's price advantage comes completely from substandard worker pay and not through any cost...