Reference no: EM133387572
Case Study: Home Depot
Building a better infrastructure
When Home Depot decided to change its business model from rapid growth to profitable growth, management had to re-think and re-design its compensation strategy. Leadership knew what it wanted: to attract, motivate, and retain a high-performing, diverse workforce; to be an employer of choice in the industry; and to develop future leaders from within. For the first time ever, the company would have to differentiate rewards based on business results and individual performance. To do that - and to support career development - it would need information to flexibly manage rewards and careers and to guide decision making.
Hay Group worked with Home Depot to design a pay plan that helped the home improvement chain pay people based on performance - within reasonable parameters that everyone understands. Home Depot is earning a better return on its investment in people and is transforming itself into a performance-based culture.
Among its benefits, the plan is credited with:
Improving annual turnover: Today it's half the industry average
Providing better pay guidelines: Pay is now aligned from store to store
Generating fairness and consistency: Home Depot used to reward longevity; now performance drives the culture
Remaining a market leader in compensation: As competitors have entered the home improvement space, Home Depot still attracts, motivates, and retains key talent
A snowball running downhill
With more than $70 billion in sales, 1900 stores, and 300,000 associates, Home Depot is the world's largest home improvement retailer and the second largest retailer in the U.S.
It grew up fast: 1990 saw just 145 stores and $4 billion in sales. Over the next decade, the number of stores tripled every three years and at one point it was opening a new store every 48 hours. "We were an incredible snowball running downhill," recalled Home Depot's director of compensation and performance management, Rich Johnson. "No one else was in our space. All we had to do was get the store open." With its stock price soaring through the 1990s, Home Depot had no trouble attracting high-energy, can-do people to its ranks.
Problem was, local store unit management had few tools-and fewer controls-in place when making job offers. Desirable job candidates were offered "whatever it took" to get them aboard and pay was all over the map for comparable jobs within the store unit and across store units. Home Depot lacked consistency, fairness, and equity. That created an awkward situation when multiple Home Depot stores opened in the same markets-with associates' salaries differing widely. When that happens, said Johnson, the analysts begin to look at you differently. "You can keep your arms around a few hundred stores that are geographically diverse," he said. But things started snowballing out of control.
To qualify for success
Home Depot invited Hay Group to help with a solution-one that would still give store managers' latitude in hiring, but would bring structure to the process.
The new pay plan-called Broadbanding-set minimum, midpoint, and maximum salaries for cashiers, sales associates, sales specialists, and supervisors. Managers rank employees either "outstanding," "achiever," "performer," or "needs improvement." Merit increases are distributed based on a combination of individual and store performance.
Hay Group designed clear and effective employee communications. Using colorful graphics and plain language, management can convey to employees exactly what it takes to qualify for success-and the rewards that come with it.
Hay Group consultants also developed assessment instruments to help managers note employees' strengths, key development needs, training plans, and leadership potential.
Comment on the Home Depot Case from the 1990's. What was the company's main strategic goal? Did they attain that goal? What were the negative impacts they encountered by being so focused on a single focused strategy? How did they deal with the impact that resulted.