Question

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. The following years brought more announcements: starting wages rising to $11, then $12, with a goal of reaching $15 an hour by 2020.

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. Supporting this view, Target has reported that more candidates have been applying for jobs, even as the demand for labor nationwide has continued to strengthen. And while costs have risen, so have revenues.

These changes have, however, had an unintended consequence. Current employees have observed 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

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

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

Answer 1

ANS 1) Economic forces like wages are influencing Target's decisions about pay. Until 2015 entry level workers at Target earned minimum wage of $7.25 per hour. But subsequently it raised it wages to $9, $10, $11, $12 and with a goal of reaching $15 per hour by 2020. and these raise in wages was due to the fact that Target wanted to be a better employer in the industry. Target always keeps their eye on major competitors like Wal Mart stores, the world's largest retailer who announced that it would raise its lowest wage to $9 per hour in 2015 and $10 per 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.

ANS 2) If i were working in Target's HR department, i would have recommended to pay the entry level workers on the basis of market rate so that employees get fair amount of pay neither less nor more than the market. And the more experience a candidate is, the pay will be more according to his/her years of experience and i would have also recommended to include bonuses from time to time so that it would motivate the employees to do more work. And regarding the older employees they i would gave recommendation to promote them by seeing their performance. By doing all these the pay structure would have been fair and the company could also make more profits by giving quality products and good customer service to consumers.