“We’re asking our managers to own their roles and act like owners, and from now on they will literally become owners,” said John Farner, head of Walmart’s U.S. operations. . video Posted on LinkedIn at the end of January.
It’s not just executives that Walmart wants to encourage stock ownership. The company just recently announced a 3-for-1 stock split, which it said was part of an effort to get more employees on board with its stock purchase plan. “This was a good time to split our stock and encourage our employees to participate in the coming years,” Walmart CEO Doug McMillon said in a statement.
Walmart’s decision comes as it plans an aggressive store expansion plan to build 150 new superstores over the next five years. The employee stock news also comes at a time when President Biden and his economic team are at odds. increased pressure on grocery chains The company asked for price cuts because operating profit margins were still rising even as other retailers saw their profit margins fall due to lower inflation.
Walmart’s decision to become America’s number one employer is likely to have significant ramifications, and could even lead to increased stock ownership for rank-and-file employees.
Industry consultants say giving out stock to executives en masse is less common in retail than in other industries such as technology, finance and life sciences. Mark Roloson, a senior director at WTW, which specializes in the retail industry, said that in the retail industry more generally, companies use it to specifically recognize top talent or high-potential employees they want to retain or retain. , the company is said to be using stocks selectively.
But more companies, including department stores, movie theaters and restaurants, are considering granting broader equity to mid-level executives as a way to attract and retain top executives, according to compensation advisory firm Pearl Meyer. said Aarup Shah, Managing Director. Shah said. And Walmart’s move will only further accelerate this debate.
“It’s not surprising that something like this is happening now that we’re on the other side of the Great Resignation,” Shah said. Companies are implementing strategies to keep their employees “empowered.”
Walmart takes the lead in compensation war
For Walmart, the move is largely a competitive strategy, part of an overall redesign of manager compensation aimed at attraction and retention. In mid-January, the company announced that the average salary for managers will increase from $117,000 to $128,000 per year, and a redesigned bonus program will reward managers who meet targets with bonuses of up to 200% of their base salary. announced.
Brian J. Hall, the Albert H. Gordon Professor of Business Administration at Harvard Business School, said that turnover rates, especially in retail, are extremely high, and Walmart’s efforts highlight the need to attract and retain talented workers. He said that it shows that he is aware of the This could be a good lesson for other companies that may be struggling in this area. He said companies often view workers as a commodity and always try to pay them the minimum wage, making these roles less attractive.
Stacy Cole, a professor of clinical economics at the University of Chicago Booth School of Business, said Walmart’s new packaging, taken as a whole, could give competitors a reason to reconsider their products. Stated. Annual bonuses of up to 200% of their salaries are “huge,” she said. “It’s not just other retailers that have to worry about this. It’s anyone who has the talent to run a very complex organization.”
Stock compensation provides several benefits to employees
While companies need to consider their overall compensation programs, there are multiple benefits to granting equity to executives, compensation consultants said. First of all, stock grants are a major economic deterrent for executives considering retirement. When faced with a choice, a business owner might think, “If it costs me $600,000 to leave, I’ll stay where I am,” Ed Latage said. , Managing Director of Compensation Consulting at CBIZ Talent & Compensation Solutions.
There are other long-term benefits as well. Managers who are given stock have more reason to own the restaurants, stores, and other locations they run, which benefits the company as a whole and positively impacts the stock price. Surely, Shah said.
Additionally, if lower-level workers can stay in stores and restaurants and move into management positions, there is a path to greater wealth creation, Shah said. “If they move into a management position, you’re giving them an opportunity to earn a grant,” Shah said, adding that this encourages self-improvement, working harder and staying with the company longer. He said it would be.
There are also disadvantages to stock grants.
While there are benefits to stock grants, there can also be significant drawbacks.
Michael Kestenbaum, managing director of executive compensation at Gallagher, said despite the “crazy bull market,” there’s no guarantee that stock prices will continue to rise. If stock prices are flat or falling, equity grants are less attractive. There are also limits to the amount of stock companies can offer, and companies need to be careful about offering meaningful awards to employees, he said.
Additionally, Peter Follows, chief executive officer and co-founder of Carpedia International, a global management consulting firm, said stock compensation typically does not provide “great motivation for day-to-day performance.” But it can be effective as part of an overall attraction, retention and collaboration strategy, he said. “All of these things are multifaceted.”
At the very least, companies should probably consider it, especially given that managers may ask. There’s a psychology behind companies investing in you like this, Cole said. “It certainly exacerbates the distortions in the labor market.”
Providing $20 billion in wealth to working families
While more companies are expected to at least consider the option of giving stock to executives, questions remain as to whether the move will continue for other employees. Ownership Works, a nonprofit organization that partners with companies and investors to develop and implement a wide range of employee ownership programs, predicts that the shared ownership movement will create hundreds of thousands of new employee ownership programs by 2030. We predict that at least $20 billion in wealth will be created for businesses. working family.
Already, companies like Ingersoll Rand and Harley-Davidson have taken steps to extend stock ownership to employees.
“This is an important move,” said Martin Whitman, founding CEO of Just Capital, which measures the largest companies in the market on metrics such as employee pay. (ranked No. 1 for ESG issues overall).
“We believe these issues support ‘legitimate’ businesses,” Whitman said. “Stock ownership is a pillar of economic health for workers.” Together Other high-profile initiatives Whitman said Walmart’s move, like private equity executive Pete Stavros’ Ownership Works, is a “sign of things to come.”
Still, companies need to be a little careful about acquiring stock or making plans that end up costing a lot of money. “Many workers don’t value equity-based pay. They’d rather have cash,” said Harvard’s Hall.
Indeed, WTW’s Roloson said companies need to consider the most meaningful ways in which they can invest their money and resources. “It’s about what employees value most and what is in the best interest of the organization.”
