Friday’s huge jobs number showed that the labor market remains highly competitive, with wage increases outpacing expectations, and the retail industry third among those with net job gains. It’s no surprise then that the biggest retailer, Walmart, is increasing its efforts to attract and retain workers. But what’s interesting is a new carrot that it is dangling before workers — its own publicly traded shares.
Walmart is offering its store managers stock grants, which based on a manager’s store format, can range between $10,000 and $20,000. That announcement came on the heels of Walmart’s decision to roll out a souped-up compensation package for managers.
“We ask our managers to own their roles and act like owners. And now they’ll literally be owners,” John Furner, the head of Walmart’s U.S. operations, said in a video posted on LinkedIn at the end of January.
It’s not only managers that Walmart wants to encourage to buy into stock ownership. The company just announced a 3-for-1 stock split, a move that it said was being made in part to allow more employees to buy into its stock purchase plan. “It was a good time to split the stock and encourage our associates to participate in the years to come,” Walmart CEO Doug McMillon said in a statement.
Walmart’s decisions come as it plans an aggressive store expansion plan, with 150 new superstores to be built over the next five years. The employee-stock related news also comes at a time when President Biden and his economic team have stepped up pressure on grocery chains to lower prices, citing operating margins that have still been rising even as other retail businesses see margins decline amid lower inflation.
As the nation’s No. 1 employer, Walmart’s decisions are likely to have significant ripple effects and could even lead to broader equity ownership among rank-and-file employees.
Granting stock to managers en masse is not as common in the retail industry as it is in other industries like technology, finance, and life sciences, industry consultants said. More commonly, in retail, companies use stock selectively, for special recognition of high performers or high-potential employees they want to lock in or retain, said Marc Roloson, senior director at WTW who focuses on the retail sector.
But more companies, including department stores, movie theaters and restaurants have been thinking about granting equity broadly for mid-tier management, as a way to attract and retain good managers, said Aalap Shah, managing director at Pearl Meyer, a compensation advisory firm. Shah said. And the Walmart move is likely to accelerate these discussions.
“It’s not surprising that this is happening now that we’re on the other side of the Great Resignation,” Shah said. Companies are implementing strategies to keep workers “so they can shore themselves up.”
Walmart leads in compensation wars
For Walmart, the move is largely a competitive play that’s part of an overall redesign of its manager compensation for attraction and retention purposes. The company announced in mid-January that the average manager salary will increase to $128,000 a year from $117,000, and that, thanks to a redesigned bonus program, managers who hit their targets could see a bonus that’s up to 200% of their base salary.
Retail, in particular, has had tremendous turnover, and this effort by Walmart represents a recognition of the need to attract and retain good workers, said Brian J. Hall, the Albert H. Gordon Professor of Business Administration at Harvard Business School. It’s a good lesson for other companies that may be struggling in this area. In many cases, businesses think about workers as commodities, but always trying to pay the minimum makes these roles less attractive, he said.
Taken in its entirety, the new Walmart package is going to give competitors reason to reconsider their offerings, said Stacey Kole, clinical professor of economics at The University of Chicago Booth School of Business. A yearly bonus that’s up to 200% of their salary is “huge,” she said. “It’s not just other retailers that have to worry about this. It’s anyone who has personnel that can run really complex organizations.”
Stock awards offer several benefits to employees
While companies have to consider their overall compensation programs, granting stock to managers can have multiple benefits, compensation consultants said. For starters, awarding stock provides a significant financial disincentive for managers that are considering leaving: When faced with the choice, the manager might think: “If it costs me sixty grand to leave, I’ll stay where I am,” said Ed Rataj, managing director of compensation consulting at CBIZ Talent & Compensation Solutions.
There are other long-term benefits as well. Managers who are given equity have more of a reason to make the restaurant, the store or whatever location they are managing, more their own, which benefits the company overall and should have a positive impact on its share price, Shah said.
What’s more, lower-level workers see a path to greater wealth creation if they stay at the store or the restaurant and work their way into management, Shah said. “You’re giving them an opportunity to earn a grant once they get into the managerial ranks” which promotes self-advancement, working harder and encourages longevity with the company, Shah said.
There are downsides to stock grants
While there are upsides to granting stock, there can be significant downsides as well.
Despite the “crazy bull market run” there’s no guarantee that a stock will continue to rise, said Michael Kestenbaum, managing director of executive compensation at Gallagher. When stocks are flat or down, equity grants don’t have the same appeal. Also, companies have limitations as to much equity they can provide, and they have to be sensitive about providing awards that are meaningful to employees, he said.
What’s more, stock awards aren’t typically a “great motivator for day-to-day performance,” said Peter Follows, chief executive and co-founder of Carpedia International, a global management consulting firm. But it can be effective as part of an overall attraction, retention and alignment strategy, he said. “All these things are multi-faceted.”
At the very least, it’s something companies will need to consider, especially given that managers are likely to ask. There’s something psychological about a company investing in you this way, Kole said. “It is certainly turning up the screws in the labor market.”
$20 billion wealth for working families
With more companies expected to at least weigh the option of stock grants for managers, the question remains whether that movement will continue downstream to other workers. Ownership Works, a nonprofit that partners with companies and investors to develop and implement broad-based employee ownership programs, predicts that by 2030, the shared ownership movement will create hundreds of thousands of new employee-owners, generating at least $20 billion of wealth for working families.
Already companies such as Ingersoll Rand and Harley-Davidson have taken steps to broaden stock ownership to employees.
“Those are significant moves,” said Martin Whitman, founding CEO of Just Capital, which evaluates the market’s largest companies on metrics including worker pay (it ranks workers as the No. 1 ESG issue overall).
“We see those issues very much in support of a ‘just’ business,” Whitman said. “Stock ownership is a pillar of worker financial wellness.” Alongside other high-profile efforts like private equity executive Pete Stavros’s Ownership Works, Whitman said Walmart’s moves are “a sign of things to come.”
Even so, companies have to be a little careful about taking equity and having huge expensive plans that go all the way down. “Many workers don’t value equity-based pay. They’d rather have the cash,” said Harvard’s Hall.
Indeed, companies need to consider the most meaningful ways they can invest their dollars and resources, WTW’s Roloson said. “It’s a question of what will employees value the most and what will give the organization the biggest bang for its buck.”
This story originally appeared on CNBC
