How Walmart's shift towards employee stock ownership may impact the labor market and the average American family.

• Recently, Walmart revealed two major plans to increase the ownership of its publicly traded shares among its employees.
• The retailer announced a 3-1 stock split and is offering managers stock grants of up to $20,000 to make it easier for all workers to buy shares.
• In the retail industry, providing stock compensation to rank-and-file employees is not a common practice. However, competitors of the nation's top employer may need to follow a trend that is gaining popularity in the market, as one policy group predicts that this policy could generate $20 billion in wealth for average households in the future.

The labor market is highly competitive, with wage increases outpacing expectations, and the retail industry third among those with net job gains. It's no surprise that the biggest retailer, Walmart, is increasing its efforts to attract and retain workers. What's interesting is that Walmart is dangling its own publicly traded shares before workers as a new carrot.

Walmart has announced that it is providing its store managers with stock grants ranging from $10,000 to $20,000, as part of a revamped compensation package for managers.

John Furner, head of Walmart's U.S. operations, stated in a LinkedIn video at the end of January that the company's managers will now literally become owners by being accountable for their roles.

Walmart aims to increase employee participation in its stock ownership plan by implementing a 3-for-1 stock split.

As Walmart plans to expand with 150 new superstores over the next five years, the company's employee-stock related news coincides with increased pressure from President Biden and his economic team on grocery chains to lower prices, due to rising operating margins despite declining margins in other retail businesses amid lower inflation.

The decisions made by Walmart, the country's top employer, could result in substantial repercussions and potentially increase equity ownership among its workers.

In the retail industry, granting stock to managers en masse is less common than in other industries such as technology, finance, and life sciences. Instead, companies typically use stock selectively to recognize and retain high performers and high-potential employees, according to Marc Roloson, senior director at WTW who specializes in the retail sector.

According to Aalap Shah, managing director at Pearl Meyer, more companies, including department stores, movie theaters, and restaurants, are considering granting equity broadly to mid-tier management as a way to attract and retain good managers. Shah said that 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 retain workers "so they can shore themselves up.

Walmart leads in compensation wars

Walmart's decision to increase the average manager salary to $128,000 a year and introduce a redesigned bonus program that could offer bonuses up to 200% of their base salary is a competitive move aimed at attracting and retaining managers.

The retail industry has experienced significant turnover, and Walmart's efforts to attract and retain good workers demonstrate the importance of recognizing the value of employees, according to Brian J. Hall, the Albert H. Gordon Professor of Business Administration at Harvard Business School. This serves as a valuable lesson for other companies facing similar challenges. Instead of treating workers as commodities, businesses should strive to provide competitive compensation and benefits to make these roles more attractive.

The new Walmart package is likely to prompt competitors to reevaluate their offerings, according to Stacey Kole, clinical professor of economics at The University of Chicago Booth School of Business. She stated that the yearly bonus, which can be up to 200% of an employee's salary, is a significant incentive. "It's not just other retailers that have to worry about this," she said. "It's anyone who has personnel that can run really complex organizations."

Stock awards offer several benefits to employees

Compensation consultants pointed out that while companies must take into account their overall compensation programs, granting stock to managers can have several advantages. For instance, awarding stock can serve as a significant financial disincentive for managers who are considering leaving, as they may choose to stay due to the potential financial loss of leaving, said Ed Rataj, managing director of compensation consulting at CBIZ Talent & Compensation Solutions.

Managers who receive equity are more likely to invest in their location, benefiting the company and potentially increasing its share price, according to Shah.

Shah stated that lower-level workers can achieve greater wealth creation by working their way into management positions, which offers an opportunity to earn a grant and promotes self-advancement, working harder, and longevity with the company.

There are downsides to stock grants

There are both advantages and disadvantages to awarding stock.

Although the market is experiencing a "crazy bull run," there is no assurance that a stock will continue to increase, according to Michael Kestenbaum, managing director of executive compensation at Gallagher. When stocks are stagnant or declining, equity grants lose their allure. Additionally, companies have constraints on the amount of equity they can offer, and they must be cautious when providing awards that are significant to employees.

Peter Follows, CEO and co-founder of Carpedia International, stated that stock awards are not a great motivator for daily performance. However, they can be effective when used as part of an overall strategy for attracting, retaining, and aligning employees. According to Follows, these things are complex and multi-faceted.

Companies must consider the psychological impact of investing in employees, as Kole stated. "It is definitely intensifying competition in the job market."

$20 billion wealth for working families

Will the trend of stock grants for managers extend to other employees as more companies consider it? Ownership Works, a nonprofit that collaborates with companies and investors to establish broad-based employee ownership programs, anticipates that by 2030, the shared ownership movement will result in hundreds of thousands of new employee-owners, generating at least $20 billion in wealth for working families.

Some companies, including Ingersoll Rand and Harley-Davidson, have made efforts to expand stock ownership among their employees.

Martin Whitman, the founding CEO of Just Capital, stated that the moves made were significant. This company evaluates the largest companies in the market based on various metrics, including worker pay, which is ranked as the top ESG issue.

Whitman stated that the issues we see are in favor of a "just" business. Stock ownership is a crucial element of worker financial wellness, as demonstrated by Walmart's recent actions. Along with other notable initiatives, such as private equity executive Pete Stavros's Ownership Works, Whitman sees Walmart's moves as a harbinger of things to come.

Harvard's Hall stated that many workers prefer cash over equity-based pay, despite companies' need to exercise caution when taking equity and implementing expensive plans.

Roloson of WTW emphasized the importance of companies investing their resources wisely, stating, "It's crucial to determine what employees value the most and what will provide the greatest return for the organization."