Management communicate the fairness of its pay structure

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Reference no: EM132254208

How Target Is Aiming for Competitive Wages

Until 2015, entry-level workers at Target earned the federal minimum wage, or $7.25 per hour. In April of that year, Target announced that it would raise its lowest pay to $9 an hour. And a year later, the retailer announced another increase, to $10. For workers already making $10 or more, the retailer said they would be eligible for merit-based pay increases as well as promotions to a higher pay grade based on their experience.

Raising wages cuts into profits, so why did Target make these changes? One reason, observers say, is that the company has a reputation to maintain in the labor market. It is seen as a better employer in the industry, in part because employees can earn more than at other retailers. Officially, Target said only that its pay is competitive and based on the local market. For example, in some areas, including New York and Los Angeles, pay is higher than the company’s minimum.

It’s likely that Target indeed is keeping an eye on major competitors for labor. Wal-Mart Stores, the world’s largest retailer, had announced in February 2015 that it would increase its lowest wage to $9 with an increase to $10 an hour by 2016. Therefore, Target’s increases are a way to keep up with Wal-Mart at a time when unemployment rates are falling, so employees can be choosier about where they work.

These changes have, however, had an unintended consequence. Current employees observe that they started at lower pay and worked for years to earn the $10 rate. Some have complained that paying this much to starting employees is unfair. The same thing occurred at Wal-Mart when it announced its pay increases. Like Target, Wal-Mart had to consider other workers when it increased pay rates at the bottom; it increased the pay for higher-level jobs and the maximum pay for all positions. The challenge for stores like Target and Wal-Mart is to make a convincing case that the raises going to new hires won’t be paid for with shorter hours and smaller raises for everyone else. Their workers, like their customers, are looking for good deals.

Questions

Summarize how economic forces are influencing Target’s decisions about pay.

If you worked in Target’s HR department, how would you recommend that management communicate the fairness of its pay structure?

Reference no: EM132254208

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