“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…
Read More: What Walmart’s new focus on employee stock means for American wealth