What risks and challenges will IKEA likely face due to basing its minimum pay on the living wage formula rather than just legal requirements and the market rate?
There are several risks and challenges that IKEA will face by basing its wages on a living wage formula rather than simply adhering to legal requirements or market rates. Firstly, one of the immediate risks is the impact on profit margins. Merchandise prices are typically calculated based on various factors, including overhead costs. Wages constitute a significant portion of a business’s overhead expenses.
When IKEA commits to raising wages without increasing prices, it assumes the risk of higher overhead costs, which can lower profit margins. Although this decision aligns with IKEA’s values and social responsibility, it may affect its financial health.
BUS 3040 Unit 7 IKEA Case Study
Wage imbalances at IKEA could cause unfairness and hostility among employees if the living wage formula is implemented. Floor workers’ wages might increase from $9 to $12 per hour, while floor supervisors earning $15 wouldn’t receive a raise. This could lead to morale problems and potential turnover.
Furthermore, the location of IKEA stores presents another challenge. Many IKEA stores are situated away from urban environments, where implementing a living wage would be particularly beneficial. For instance, let’s consider the IKEA store in Frisco, Texas, located outside the Dallas area.
Frisco is known for being a prosperous and rapidly growing area with high home prices. To afford to live in such an area, workers at IKEA would need to earn close to $20 per hour or more. However, the target workforce for IKEA jobs often resides in urban areas where the cost of living is comparatively lower. IKEA should provide accessible public transportation options near their stores for employees facing transportation issues.
Given that IKEA’s management considers the living wage consistent with the company’s mission, what advice would you give the company for successfully implementing it?
While implementing a living wage aligns with IKEA’s mission and values, there are vital considerations to ensure its successful implementation. Here are some recommendations:
Maintain a proportional pay structure: To address potential wage imbalances and maintain equity within the organization, IKEA needs to establish a precise ratio of pay increases throughout the chain of command. BUS 3040 Unit 7 IKEA Case Study
This approach ensures that wage increases are proportionate and reflect the level of responsibility and work performed by each role. For example, implementing a system where a floor supervisor earns 20% more than a floor worker and a department manager earns 40% more than a floor worker would create a fair and transparent pay structure.
Strategic store location planning
As IKEA expands and opens new stores, careful consideration should be given to selecting locations. While affluent areas may be appealing for store placement, it is essential to strike a balance and consider the accessibility of the target workforce.
By locating stores closer to urban areas with more potential employees, IKEA can enhance recruitment and productivity. This strategic approach ensures a diverse range of talent, increases job opportunities for the local community, and facilitates employee commutes, especially for those relying on public transportation.
Communication and employee engagement
Transparent communication is crucial throughout the implementation process. IKEA should proactively communicate with employees about the rationale behind the living wage initiative, its benefits, and how it aligns with its mission. BUS 3040 Unit 7 IKEA Case Study
Open dialogue and engagement sessions can help address concerns, clarify, and ensure employees feel valued and heard. Moreover, involving employees in decision-making, such as through representative committees or surveys, can foster a sense of ownership and collective responsibility for the company’s success.
Monitoring and evaluation
Implementing a living wage policy requires continuous monitoring and evaluation. IKEA should regularly review the impact of the living wage on various aspects, such as employee satisfaction, turnover rates, and financial performance. Ongoing assessments will allow the company to identify any unintended consequences, make necessary adjustments, and demonstrate its commitment to the well-being of its employees.
Partnerships and collaborations
IKEA can leverage partnerships and alliances with local community organizations, nonprofits, and government agencies to support the successful implementation of the living wage policy. These partnerships can provide resources, training opportunities, and additional support to employees, ensuring their overall well-being and success in the workplace. BUS 3040 Unit 7 IKEA Case Study
By considering these recommendations, IKEA can successfully implement a living wage policy that aligns with its mission, fosters a positive work environment, attracts and retains talent, and contributes to its overall success.
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Roberts, D. (2015, June 24). Ikea is raising the minimum wage for the second year in a row. Retrieved May 28, 2017, from
Kuehner-Hebert, K. (2015, June 25). IKEA Raising U.S. Worker Pay. Retrieved May 28, 2017, from
Bouie, J. (2014, June 26). Why Raising the Minimum Wage Won’t Solve Income Inequality. Retrieved May 28, 2017, from http://www.slate.com/articles/news_and_politics/politics/2014/06/ikea_raising_wages_why_pay_hikes_aren_t_enough_to_solve_income_inequality.html