Chapter 12 The Reading ; For Prof. Xavier MANAGING TALENT: How Wal-Mart Is Setting Pay at the Top ... and Bottom By any measure, the chief executive officer of Wal-Mart Stores, Mike Duke, has a huge job. In the highly competitive retail industry, Wal-Mart operates more than 10,000 stores in more than two dozen countries, generating sales in the hundreds of billions of dollars. For that responsibility, Duke is highly paid. In 2011, he received a base salary of $1.3 million, stock awards valued at $13.1 million, and a cash bonus of $2.9 million. Duke’s salary and stock awards were each 3% larger than in the previous year, but his bonus was 25% smaller because the company failed to meet goals for operating income. His total compensation of $18.1 million made Duke the 82nd-highest paid chief executive in the United States, according to Forbes magazine. Another change that took place in Duke’s compensation was in the measures used for setting his incentive pay. In the past, Wal-Mart used a metric common to retailers: same-store sales, meaning sales volume at stores that have been open for one year or longer. By looking at same-stores sales, a company can determine whether its activities are making its stores more successful over time. Wal-Mart, however, decided to base Duke’s incentive pay on the total sales for the entire company. The change came after Wal-Mart’s same-store sales had been falling for two years as recession-strained consumers switched to dollar stores or put off purchases altogether. In its official explanation of the change, Wal-Mart said it would “align our performance share goals more closely with our evolving business strategy, which emphasizes productive growth, leverage and returns.” Several years earlier, in contrast, Wal-Mart had said it measured same-store sales because that metric “is a key driver of shareholder returns” and investors view it “as an important measure of performance in the retail industry.” The change from same-stores sales to total sales as the basis for incentive pay followed another change in performance targets. Two years earlier, the company switched the time frame for measuring performance. In the past, Wal-Mart executives had to meet three-year goals before receiving incentives. Beginning in 2009, they began receiving their incentive pay for meeting one-year goals. The company said the change would make the goals more current and realistic. Lower in the corporate hierarchy, Wal-Mart has made very different decisions about compensation. The average wage for an hourly Wal-Mart employee in the United $12.40 per hour. An average employee with a fulltime schedule (many work part-time) would earn about $25,800 per year. Like Duke, wage earners at Wal-Mart are eligible for incentive pay, but the scale of the incentive pay is far smaller. Under the company’s founder, Sam Walton, Wal-Mart set up a profit-sharing program, which Walton in his autobiography called “the carrot that’s kept Walmart headed fo.

1. Chapter 12 The Reading ; For Prof. Xavier
MANAGING TALENT: How Wal-Mart Is Setting Pay at the
Top ... and Bottom
By any measure, the chief executive officer of Wal-Mart Stores,
Mike Duke, has a huge job. In the highly competitive retail
industry, Wal-Mart operates more than 10,000 stores in more
than two dozen countries, generating sales in the hundreds of
billions of dollars. For that responsibility, Duke is highly paid.
In 2011, he received a base salary of $1.3 million, stock awards
valued at $13.1 million, and a cash bonus of $2.9 million.
Duke’s salary and stock awards were each 3% larger than in the
previous year, but his bonus was 25% smaller because the
company failed to meet goals for operating income. His total
compensation of $18.1 million made Duke the 82nd-highest
paid chief executive in the United States, according to Forbes
magazine.
Another change that took place in Duke’s compensation was in
the measures used for setting his incentive pay. In the past,
Wal-Mart used a metric common to retailers: same-store sales,
meaning sales volume at stores that have been open for one year
or longer. By looking at same-stores sales, a company can
determine whether its activities are making its stores more
successful over time. Wal-Mart, however, decided to base
Duke’s incentive pay on the total sales for the entire company.
The change came after Wal-Mart’s same-store sales had been
falling for two years as recession-strained consumers switched
to dollar stores or put off purchases altogether. In its official
explanation of the change, Wal-Mart said it would “align our
performance share goals more closely with our evolving
business strategy, which emphasizes productive growth,
leverage and returns.” Several years earlier, in contrast, Wal-
Mart had said it measured same-store sales because that metric
“is a key driver of shareholder returns” and investors view it “as

2. an important measure of performance in the retail industry.”
The change from same-stores sales to total sales as the basis for
incentive pay followed another change in performance targets.
Two years earlier, the company switched the time frame for
measuring performance. In the past, Wal-Mart executives had to
meet three-year goals before receiving incentives. Beginning in
2009, they began receiving their incentive pay for meeting one-
year goals. The company said the change would make the goals
more current and realistic.
Lower in the corporate hierarchy, Wal-Mart has made very
different decisions about compensation. The average wage for
an hourly Wal-Mart employee in the United $12.40 per hour. An
average employee with a fulltime schedule (many work part-
time) would earn about $25,800 per year. Like Duke, wage
earners at Wal-Mart are eligible for incentive pay, but the scale
of the incentive pay is far smaller.
Under the company’s founder, Sam Walton, Wal-Mart set up a
profit-sharing program, which Walton in his autobiography
called “the carrot that’s kept Walmart headed forward” These
payments have represented up to 4% of employees’ pay. The
money was deposited in a fund that employees could cash in
when they retired. In 2010, Wal-Mart paid its employees $1.1
billion in profit sharing and contributions to employees’ 401(k)
retirement funds. However, that was the last year for the
program. After 39 years, beginning in 2011, lower-level
employees are no longer eligible for profit sharing. The
company will instead increase its spending on quarterly and
annual bonuses and medical insurance, and it will continue
matching employees’ contributions to their 401(k) plans, up to
6% of their pay. A company spokesperson noted that employees
would be able to spend their bonuses immediately, rather than
waiting for their retirement, as they did with the profit sharing.
(Noe 395)

3. Noe, Raymond. Fundamentals of Human Resource Management,
5th Edition. McGraw-Hill Learning
Solution
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