The opening case deals with unique compensation at Wegmans. Students can utilize the book and other sources for more in-depth research to answer the case ending questions. The paper should be 2-3 pages not including the title and reference page. Please post papers before 11:55 pm on the due date.
Please read and answer the questions in APA formatting. Do not write the questions and the provided the response under. Incorporate the questions and answers in the paper. The paper needs to reflect the junior/senior level of the class.
Unique Compensation at Wegmans
If you’re looking for the best Parmesan cheese for your chicken parmigiana recipe, you might try Wegmans, especially if you happen to live in the vicinity of Pittsford, New York. Cheese department manager Carol Kent will be happy to recommend the best brand because her job calls for knowing cheese as well as managing some 20 subordinates. Kent is a knowledgeable employee, and Wegmans sees that as a key asset. Specifically, Wegmans believes that its employees are more knowledgeable than are the employees of its competitors.
Wegmans Food Markets, a family-owned East Coast chain with more than 80 outlets in six states, prides itself on its commitment to customers, and it shows. It consistently ranks near the top of the annual Consumer Reports survey of the best national and regional grocery stores. But commitment to customers is only half of Wegmans’ overall strategy, which calls for reaching its customers through its employees. “How do we differentiate ourselves?” asks Danny Wegman, who then proceeds to answer his own question: “If we can sell products that require knowledge in terms of how you use them, that’s our strategy. Anything that requires knowledge and service gives us a reason to be.” That’s the logic behind one of Kent’s recent assignments—one which she understandably regards as a perk. Wegmans sent her to Italy to conduct a personal study of Italian cheese. “We sat with the families” that make the cheeses, she recalls, “broke bread with them. It helped me understand that we’re not just selling a piece of cheese. We’re selling a tradition, a quality.”
Kent and the employees in her department also enjoy the best benefits package in the industry, including fully paid health insurance. And, that includes part-timers, who make up about two-thirds of the company’s workforce of more than 37,000. In part, the strategy of extending benefits to this large segment of the labor force is intended to make sure that stores have enough good workers for crucial peak periods, but there’s no denying that the costs of employee-friendly policies can mount up. At 15–17 percent of sales, for example, Wegmans’ labor costs are well above the 12 percent figure for most supermarkets. But according to one company HR executive, holding down labor costs isn’t necessarily a strategic priority: “We would have stopped offering free health insurance [to part-timers] a long time ago,” she admits, “if we tried to justify the costs.”
Besides, employee turnover at Wegmans is about 6 percent—a mere fraction of an industry average that hovers around 19 percent (and can approach 100 percent for part-timers). And, this is an industry in which total turnover costs have been known to outstrip total annual profits by 40 percent. Wegmans employees tend to be knowledgeable because about 20 percent of them have been with the company for years, and many have logged at least a quarter century. Says one 19-year-old college student who works at an upstate New York Wegmans while pursuing a career as a high school history teacher, “I love this place. If teaching doesn’t work out, I would so totally work at Wegmans.” Edward McLaughlin, who directs the Food Industry Management Program at Cornell University, understands this sort of attitude: “When you’re a 16-year-old kid, the last thing you want to do is wear a geeky shirt and work for a supermarket,” but at Wegmans, he explains, “it’s a badge of honor. You’re not a geeky cashier. You’re part of the social fabric.”
“We would have stopped offering free health insurance [to part-timers] a long time ago,” she admits, “if we tried to justify the costs.”Footnote
— WEGMANS HR MANAGER
Wegmans usually ranks high on Fortune magazine’s annual list of 100 Best Companies to Work For. “It says that we’re doing something right,” says a company spokesperson, “and that there’s no better way to take care of our customers than to be a great place for our employees to work.” In addition to its health-care package, Wegmans has been cited for such perks as fitness center discounts, compressed work weeks, telecommuting, and domestic partner benefits, which extend to same-sex partners.
Finally, under the company’s Employee Scholarship Program, full-time workers can receive up to $2,200 a year for 4 years and part-timers up to $1,500. Since its inception in 1984, the program has handed out $80 million in scholarships to more than 24,000 employees. Like most Wegman policies, this one combines employee outreach with long-term corporate strategy: “This program has made a real difference in the lives of many young people,” says President Colleen Wegman, who adds that it’s also “one of the reasons we’ve been able to attract the best and the brightest to work at Wegmans.”
Granted, Wegmans, which has remained in family hands since its founding in 1915, has an advantage in being as generous with its resources as its family of top executives wants to be. It doesn’t have to do everything with quarterly profits in mind, and the firm likes to point out that taking care of its employees is a long-standing priority. Profit sharing and fully funded medical coverage were introduced in 1950 by Robert Wegman, son and nephew of brothers Walter and John, respectively, who opened the firm’s original flagship store in Rochester, New York, in 1930. Why did Robert Wegman make such generous gestures to his employees way back then? “Because,” he says simply, “I was no different from them.”
Think It Over
Why does Wegman’s approach to compensation seem to work so well?
In your opinion, why don’t other grocery chains use the same compensation model as Wegman’s?
Chapter Review 9
Learning Objectives/Key Terms/Key Legislation
9-1
Describe the basic issues involved in developing a compensation strategy.
Compensation and benefit programs have several fundamental purposes and objectives. One fundamental purpose is to provide an adequate and appropriate reward system for employees so that they feel valued and worthwhile as organizational members and representatives. Firms, however, can adopt one of three basic strategies when it comes to compensation: pay above-market compensation rates, pay at-market compensation rates, or pay below-market compensation rates. Several different factors contribute to the compensation strategy that a firm develops. The critical source of information that many organizations use in developing compensation strategies is pay surveys.
Compensation
Benefits
Internal equity
External equity
Pay surveys
Wages
Salary
maturity curve
9-2
Discuss how organizations develop a wage and salary structure.
After an overall strategy has been chosen, human resource (HR) managers must determine what any given job should be paid. The starting point in this effort is job evaluation, which is a method for determining the relative value or worth of a job to the organization so that individuals who perform that job can be compensated adequately and appropriately. Several job evaluation techniques and methods have been established, although alternative approaches to compensation such as pay for knowledge and skill-based pay are increasingly popular.
Job evaluation
classification system
point system
point manual
factor-comparison method
Pay for knowledge
Skill-based pay
9-3
Identify and describe the basic issues involved in wage and salary administration.
Continued administration of the wage and salary structure in an organization requires consideration of how to deal with such things as pay secrecy and general market conditions, including those resulting in pay compression.
Wage and salary administration
Pay secrecy
Pay compression
pay inversion
9-4
Discuss the basic considerations in understanding benefit programs.
Benefits take up an ever-larger portion of employers’ total compensation costs. Organizations sustain these costs because they believe that competitive benefits packages attract better applicants and help the company retain the employees they have already hired. Although benefits costs are high in the United States, levels of mandated benefits are much higher in Europe and elsewhere. The kinds of benefits that are attractive or appropriate to employees around the world differ considerably. Several laws provide guidelines for how benefits plans should be administered.
9-5
Identify and describe mandated benefits.
Additional laws mandate that all employees must have certain benefits such as Social Security, unemployment insurance, and workers’ compensation. In addition, many organizations offer optional protection plans such as health and dental insurance coverage and private pension plans. The recent passage of the Affordable Care Act has, in essence, made health insurance a mandated benefit as well.
Unemployment insurance
Social Security
Workers’ compensation
9-6
Identify and describe nonmandated benefits.
Paid time off is another important benefit. The most common forms of paid time off are vacation time, holidays, religious days, sick leave, and personal time. This benefit, in particular, varies widely from country to country. Organizations are also becoming more likely to offer benefits in areas such as wellness programs, child care, elder care, and employee assistance programs (EAPs). Finally, some benefits provided by organizations are services and perks that the employee would otherwise have to pay for.
Private pension plans
Defined benefit plans
Defined contribution plans
Wellness programs
Cafeteria-style benefits plans
9-7
Discuss contemporary issues in compensation and benefits.
Because needs and preferences differ, some organizations offer cafeteria-style benefits plans in which the employee gets to pick and choose the benefits desired. These programs are expensive to run, but they result in employees getting exactly what they want, which makes the benefits program more cost-effective. Executive compensation issues have attracted considerable attention in recent years. This attention was increased when executives in the financial sector received substantial bonuses even after their firms received large infusions of government bail-out funds in 2009. There are also numerous ongoing legal issues that confront managers as they manage their organizations’ compensation and benefits programs. Given the enormous cost of compensation and benefits packages to an organization, it is clearly important that managers also carefully assess the advantages of those packages to the organization. In other words, they need to assess the effectiveness of the firm’s compensation structure to ensure that organizational and employee interests are optimized.
Vesting rights
Key Legislation
Affordable Care Act of 2010
The Employee Retirement Income Security Act of 1974 (ERISA) guarantees a basic minimum payment that employees could expect to be paid upon retirement.
The Equal Pay Act of 1962 states that men and women who perform essentially the same job must be paid the same.
The Fair Labor Standards Act (FLSA) established a minimum hourly wage for jobs and further stipulated that wages for hourly workers must be paid at a rate of 1.5 times the normal rate for work in excess of 40 hours per week.
The Social Security Act of 1935, among other things, provides social welfare and social insurance coverage for retired workers.
Key Points for Future Managers
Critical strategic decisions relate to determining what should be paid to employees and what that rate should be relative to market rates.
The decision concerning what to pay employees for is probably the most critical, and new pay-for-knowledge and skill-based pay systems advocate paying employees for what they know rather than what they do.
All decisions to pay wages and salaries at rates below, above, or at the going market rate should be made with full knowledge of the implications of each decision.
Indirect compensation and benefits represent a large portion of total compensation costs. Many of the benefits are required by law; others (e.g., vacations and medical insurance) have become such a strong part of employee expectations that they cannot easily be eliminated.
Cafeteria-style benefits plans may allow the company to spend its benefits dollars so that the plan has the greatest impact on employee satisfaction, although these plans have some disadvantages.
Executive compensation and the legal context of compensation and benefits are important issues that affect businesses.
Communication is a key part of the indirect compensation strategy, but the link between indirect compensation and organizational-level outcomes is unclear.
