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6 • Compensation


3 Pay Rates for Grocery Store Clerks

Sources: Costco, Sam's Club, and Wal-Mart information from Stephen Greenhouse, "Can't a Retail Behemoth Pay More?" New York
Times, May 4, 2005; Whole Foods information from Glen Kazahaya, "Harnessing Technology to Redesign Labor Cost Management
Reports," Healthcare Financial Management, April 2005; and industry average from BLS data.

labor costs are nearly 25 percent of sales—nearly twice the ratio of traditional supermarkets.16 Obviously,
Whole Foods, Costco, and Sam's Club are each trying to provide a unique shopping experience. Sam's Club
competes on low prices; Costco competes on low prices but with a mix that includes some high-end products;
and Whole Foods competes on customer service, a passion for organic food, and a wide array of prepared and
take-home foods. Plus, Whole Foods permits you to buy a single tomato of your own choosing rather than a
prepackaged group of 14.
Beyond treating pay as an expense, a manager also uses it to influence employee behaviors and to improve
the organization's performance.17 The way people are paid affects the quality of their work; their attitude
toward customers; and their willingness to be flexible, learn new skills, or suggest innovations. On the other
hand, people may become interested in unions or legal action against their employer based on how they are
paid. This potential to influence employees' behaviors, and subsequently the productivity and effectiveness of
the organization, makes the study of compensation worth your time.

The pay individuals receive in return for the work they perform is usually the major source of their financial
security. Hence, pay plays a vital role in a person's economic and social well-being. Employees may see
compensation as a return in an exchange between their employer and themselves, as an entitlement for being
an employee of the company, or as a reward for a job well done. Compensation can be all of these things.
However, whether employees see their pay as a reward remains an open question.
Describing pay as a reward may sound farfetched to anyone who has reluctantly rolled out of bed to go
to work. Even though writers and consultants continue to use that term, no one says, "They just gave me a

16 Charles Fishman, "The Anarchist's Cookbook," Fast Company July 2004,; Robert
Levering and Milton Moskowitz, "100 Best Companies to Work for in America," published annually by Fortune; Ingrid Smithey
Fulmer, Barry Gerhart, and Kimberly Scott, "Are the 100 Best Better? An Empirical Investigation of the Relationship Between Being
a 'Great Place to Work' and Firm Performance," Personnel Psychology 56, 2003, pp. 965-993.
17 K. Bartol and E. Locke, "Incentives and Motivation," chap. 4 in Compensation in Organizations, eds. S. Rynes & B. Gerhart (San
Francisco: Jossey-Bass, 2000), pp. 104-150; Mary Graham et al., "In the Land of Milk and Money: One Dairy Farm's Strategic
Compensation System," Journal of Agribusiness 15(2) (1997), pp. 171-188; Mark A. Huselid, Brian E. Becker, and Richard
W. Beatty, The Workforce Scorecard (Boston: Harvard Business School Press, 2005); David Ulrich and Wayne Brockbank, The HR
Value Proposition (Boston: Harvard Business School Press, 2005); Shad S. Morris.Scott A. Snell, and David Lepak, "Implications for
Reinventing the HR Function," CAHRS Working Paper 05-15 (Ithaca, New York: Center for Advanced HR Studies); Rosemary Bart
and Lisa M. Moynihan, "Human Resource Management, Service Quality, and Economic Performance in Call Centers," Working Paper
06-01 (Ithaca, New York: Center for Advanced HR Studies).