employee relations – The OM Blog by Heizer, Render, & Munson

OM in the News: Walmart’s New Approach to Increasing Productivity–Pay Employees More

A Walmart trainee perfecting a cereal display in Fayetteville, Ark. — A Walmart trainee perfecting a cereal display.

“WalMart is discovering that, sometimes it is in an employer’s best interest to pay more than necessary to get a worker into a job,” reports The New York Times (Oct.16, 2016). The 18th-century economist, Adam Smith, described the need to pay a goldsmith particularly well to dissuade him from stealing from you. More recently, economists have found evidence that people are more productive when they are paid above the market rate. An employee making more than the market rate, after all, is likely to work harder and show greater loyalty. Workers who see opportunities to get promoted have an incentive not to mess up.

There is evidence of this in practice. Higher pay at New Jersey police departments, for example, led to better rates of clearing cases. At the San Francisco airport, higher pay led to shorter lines for passengers. Among British home care providers, higher pay meant less oversight was needed.

Why a change of heart at Walmart? Because just a few years ago, shoppers were fed up. They complained of dirty bathrooms, empty shelves, endless checkout lines and impossible-to-find employees. Only 16% of stores were meeting the company’s customer service goals. Sales fell for 5 straight quarters, and shareholders were screaming. As an efficient, multinational selling machine, the company had a reputation for treating employee pay as a cost to be minimized. So Walmart turned to the idea of “efficiency wages,” namely, pay workers more than the going rate will get more loyal, harder-working, more productive employees in return.

First Walmart planned 200 training centers to offer a clearer path for hourly employees who want to get on the higher-paying management track. Then it raised its hourly pay to a minimum of $10 for workers, and to $15 an hour (from $12) for department managers. Third, it offered more flexible and predictable schedules to workers. Average pay for a nonmanagerial employee is now $13.69 an hour, up 16% since 2014. The results: this year, the proportion of stores hitting their targeted customer-service ratings has rebounded to 75%. Sales are rising again.

Classroom discussion questions:

Discuss the pros and cons of efficiency wages.
What impact will Walmart’s changes have on the entire retail industry?

OM in the News: A New Concept–The “Firm 40” Workweek

Employees at United Shore stream out at closing time

At exactly 6 p.m. on any given weekday, the exodus begins at United Shore Financial Services in Troy, Mich. By 6:05, the parking lot of the mortgage lender is pretty much empty. United Shore is among a group of small firms trying a radical management idea notable for just how un-radical it is: a 40-hour workweek, writes The Wall Street Journal (Oct.14, 2015). Leaders say the “firm 40” makes employees more efficient by forcing them to focus on work while they are in the office—and unplug fully when they leave.

United Shore’s CEO demands his 1,350 employees work hard—he likes to remind staffers that 5:55 p.m. on a Friday is no different from 10:55 a.m. on a Tuesday—taking no breaks for Facebook or online shopping. But once the day is done, employees are off duty until the next morning. A finite workday feels increasingly rare for many U.S. workers, for whom the lines between work and home have blurred in recent years. The “work-life integration” policies touted by some companies enable people to head out early for personal needs, so long as they monitor emails late into the night.

“Workers need time to recover from work,” says a Stanford U. prof. whose research found that employees who put in too many hours in a week or work too many days in a row become less productive over time, with output per hour falling as workers put in more than 48 hours during a given week. People say they are working longer these days, but the truth is murky. A recent survey found that about half of managers said they work more than 40 hours a week, and 39% reported that their hours have increased in the past 5 years. Professionals tend to remember their most hectic weeks as typical. “We all think we’re working around the clock,” adds one time-study expert.

Classroom discussion questions:

Why do so many managers think they are working long hours?
What happens in a manufacturing facility when workers have consistent overtime?

OM in the News: Want an 80-Hour Workweek? Try Amazon!

A company picnic. Some fathers said they considered quitting because of pressure from bosses to spend less time with their families. “Nearly every person I worked with, I saw cry at their desk.” states a former marketing exec.

On Monday mornings in Seattle, recruits line up for an orientation intended to catapult them into Amazon’s singular way of working. They are told to forget the “poor habits” they learned at previous jobs. When they “hit the wall” from the unrelenting pace, there is only one solution: “Climb the wall.” To be the best Amazonians they can be, they should be guided by the leadership principles, 14 rules inscribed on laminated cards. At Amazon, workers are encouraged to tear apart one another’s ideas in meetings, toil long and late, and held to standards that the company boasts are “unreasonably high.” The internal phone directory instructs colleagues on how to send secret feedback to one another’s bosses.

Most of the newcomers filing in on Mondays will not be there in a few years. Losers leave or are fired in annual cullings of the staff — “purposeful Darwinism,” says former HR director. Some workers who suffered from cancer, miscarriages and other personal crises said they had been evaluated unfairly rather than given time to recover. “When you’re not able to give your absolute all, 80 hours a week, they see it as a major weakness,” stated one former employee. “Amazon is in the vanguard of where technology wants to take the modern office: more nimble and more productive, but harsher and less forgiving,” writes The New York Times (Aug. 16, 2015).

“You can work long, hard or smart, but at Amazon.com you can’t choose two out of three,” says Jeff Bezos. If Amazon becomes the country club like Microsoft, “We would die,” he adds. The firm retains new HQ workers in part by requiring them to repay a part of their signing bonus if they leave within a year, and a portion of their hefty relocation fees if they leave within 2 years. The median employee tenure is 1 year, among the briefest in the Fortune 500. Only 15% of employees have been at the company more than 5 years.

Classroom discussion questions:

Would the Amazon model work in the typical firm?
Why do employees seek out Amazon jobs?

OM in the News: Google-Style Perks Go Mainstream

Alterra Pest Control's full-size basketball court is one of several perks — Alterra Pest Control’s full-size basketball court is one of several perks

Alterra’s offices house an NCAA-regulation-size basketball court, a TruGolf simulator and a 90-inch TV tuned to ESPN. Food trucks come to treat the staff to lunch, and fridges stocked with free bottles of Propel water dot the office. Alterra doesn’t make software, computer chips or driverless cars. The Utah company sells pest-control services. But its managers want employees to feel as cosseted as any in Silicon Valley. As companies try to put themselves on a path to faster growth, reports The Wall Street Journal (Aug. 5, 2015), some are mimicking the workplace practices—and lavish perks—at technology behemoths like Google Inc. and Facebook.

In industries as varied as insurance, electrical contracting and auto loans, managers are spending millions on office upgrades and amenities like free food and comped vacations, claiming that such trappings elevate jobs in unglamorous sectors, helping to recruit employees and to convince high performers to stay. Employers have begun paying more attention to their workplaces over the past two years, adding amenities that wouldn’t have occurred a decade ago.

Alterra now invests more than 10% of profits in food, events and amenities each year, and claims it is paying off. Employees hailing from competing pest-control companies increase their sales by 70% in their first full year at Alterra, and 96% stay at the company for at least a full year. The firm says the writings of Zappos.com CEO Tony Hsieh prompted its focus on employee happiness, which Hsieh claims breeds corporate success. “It’s not fair that they have all the fun,” says Alterra’s chief executive.

Classroom discussion questions:
1. Do rock climbing walls, bean bag chairs, and free mochas make a company more productive?

2. What alternative incentives can companies offer?

OM in the News: Paying Employees to Stay, Not to Go

This new In-N-Out Burger in Encinitas, CA, pays well above the state's $9 minimum wage, and the federal $7.25 minimum — This new In-N-Out Burger in Encinitas, CA, pays well above the state’s $9 minimum wage, and the federal $7.25 minimum

In-N-Out Burger, the chain based in California, pays all its employees at least $10.50 an hour, while Shake Shack, the trendy, lines-out-the-door burger emporium, has minimum pay of $9.50. Moo Cluck Moo, a fledgling company with two hamburger joints in Michigan, starts everyone at $15. “The No. 1 reason we pay our team well above the minimum wage is because we believe that if we take care of the team, they will take care of our customers,” said the CEO of Shake Shack.

The nation’s fast-food restaurants, which employ many of the country’s low-wage workers, are at the center of the debate over low pay and raising the federal minimum wage — fueled by protests demanding that fast-food chains establish a $15 wage floor, writes The New York Times (July 5, 2014). McDonald’s was pilloried last year for a hotline that advised employees how to seek food stamps and public assistance for heating and medical expenses.

Fast-food industry officials have long contended that raising the minimum wage would result in fewer jobs and higher prices. Complaining of low profit margins that generally accompany inexpensive menu items, most fast-food restaurants try to keep wages down — the median hourly wage for fast-food workers nationwide is $8.83, compared with $11.50 at Boloco and $10.70 at Shake Shack. In 2002, when the minimum wage was $5.15 an hour, Boloco raised its minimum pay to $8. It also began subsidizing commuting costs, providing English classes to immigrant employees and contributing up to 4% of an employee’s pay toward a 401(k). A major benefit of paying $15, said the owner of Moo Cluck Moo, is “we don’t have any turnover. We don’t have to train people constantly.”

Classroom discussion questions:

1. Why are these wages an operations issue?

2. How does this article relate to the human resource strategy we discuss in Chapter 10 on page 398?

OM in the News: Walmart vs. Walmart

Although I am not a big fan of shopping at our nearby Walmart Superstore, I respect the company from an OM perspective. It has become a leader globally in sustainability (see the case study in Ch.7) and its feats in supply chain management and logistics are legendary (a fact we discuss in Ch.11). Further, my ever-budget conscience niece continually praises the store for its across-the-board low prices.

But as Businessweek (Dec.14-21, 2012) points out in its recent cover story, the company does not always have its employees best interests at heart. Walmart has been vilified by activists who say the company’s relentless growth has come at the expense of its workers and the law. Since 2005, it has agreed to pay about $1 billion in damages in six different cases related to unpaid work. The largest private employer in the U.S., with nearly 1.4 million workers in 4,602 stores and sales of $464 billion, Walmart’s operations management efficiency has remade the retail industry. Its decisions about workers’ schedules, wages, and benefits likewise ripple through the industry.

Here is a brief history of labor disputes in the company:

1970 Walmart’s lawyer calls Missouri clerks “blood sucking parasites” to stop their union drive.

1992 Sam Walton writes in his autobiography: “I have always strongly believed that we don’t need unions.”

2000 Butchers in a Texas Walmart vote to unionize, spurring votes at other stores. Two weeks later, Walmart closes its 180 meat counters and switches to prepackaged cuts only.

2001 A class action suit claims gender discrimination. Walmart fights the case for 10 years, finally winning a Supreme Court ruling by a 5-4 vote.

2003 Walmart is caught using illegal immigrants to clean stores in 21 states. It pays an $11 million fine.

2004 Workers at a Canadian Walmart unionize. Walmart closes the store the next year.

2005 A California jury fines Walmart $172 million for failing to provide meal breaks to 116,000 workers.

2006 A Pennsylvania judge orders a $188 million payment for Walmart’s failure to pay 187,000 workers for “off-the-clock” work. Weeks later, Walmart settles 63 other class actions over unpaid work for $640 million.

2009 Walmart pays 87,000 Massachusetts workers for shortened breaks and “off-the-clock” unpaid work.

2010 Walmart pays $86 million for failing to pay vacation wages to 232,000 California workers.

Discussion questions:

1. Why does Walmart fight to keep out unions?

2. What issues regarding Chapter 10’s discussion of human resource strategy arise from this article?