In recent years, Walmart and Chipotle have been sharing the profits of a booming stock market in a manner not seen in decades.

• In recent years, Walmart and Chipotle have both announced plans to complete their first stock splits in decades.
• To increase the number of investors, companies prioritize reaching their own employees, even if it means trading near $3,000 in the record market.
• Experts suggest that a company stock plan can be beneficial for workers, but without financial education and incentives, many workers are already struggling to manage their finances, and a stock split won't significantly improve their financial situation.

Both Chipotle and Walmart have been prominent in the U.S. corporate world for increasing wages and providing tuition assistance to their large, low-paid workforces. Now, the companies are implementing a new strategy that they believe will benefit employees in the long run: publicly traded stock splits.

In a booming stock market, it's not uncommon to see companies splitting their shares. Prior to its split, Walmart's shares were close to an all-time high of $170. Even further down the market chart, Chipotle's shares are approaching $3,000, and their stock split will take effect on June 26.

Walmart completed its first 3-for-1-stock split in over 20 years on Feb. 26. The company announced that the move was made to make purchasing shares more accessible to its associates and to review optimal trading and spread levels.

Chipotle and Walmart have announced their first stock splits in 30 years, with the aim of increasing employee investment through financial education and stock purchase plans.

But it may not be so simple, according to benefits consultants.

While a lower share price makes stock ownership more accessible to employees, it is uncertain whether more workers will utilize this opportunity.

Michael Kestenbaum, managing director of Gallagher's executive compensation practice, stated that the notion that all employees would rush out to the market to purchase equity is not very plausible.

While a stock split can make shares more accessible, other factors, such as the company's promotion of ESPP, financial education availability and usage, and competing interests among lower-level employees, who may be struggling financially, can also impact the effectiveness of the program.

The two companies are combining their efforts to promote employee stock ownership by offering discounted stock through an ESPP and financial education programs.

ESPP versus fractional shares

Employees could have already purchased shares of their company through a brokerage account, even without a stock split. However, ESPPs offer certain advantages, such as the money being directly deducted from an employee's paycheck and the possibility of a significant employee discount. For instance, Walmart's associate stock purchase plan allows eligible associates to buy stock through payroll deductions and provides a 15% company match on the first $1,800 each year.

According to a regulatory filing, Chipotle provides a quarterly chance to purchase its common stock at a price of 92.5% of the lower fair market value on the first and last trading days of each offering period.

Owning fractional shares can have disadvantages, such as the difficulty of transferring them if you change brokers, which may require selling the shares to obtain the cash value.

Company stock and financial education

To motivate employees to buy company stock, companies must not only offer stock splits and ESPPs but also provide financial education, as advised by benefits consultants and educators.

According to Dan Kapinos, partner and global practice leader of corporate governance and equity services at Aon, companies that incorporate ESPP into their culture, like many West Coast tech companies, have participation rates exceeding 50%.

Google educated its employees on stock options and financial literacy prior to its IPO, according to Clemens Kownatzki, assistant professor of finance at Pepperdine Graziadio Business School. "Education is crucial," he emphasized.

While Google is the exception, most companies have not adopted the Silicon Valley model of employee stock programs, with participation rates typically ranging from 20% to 30%. Low participation can be attributed to a lack of understanding about the plan and competing financial interests that employees manage.

According to MetLife's annual employee benefits trends study, only 54% of companies provide financial planning and education workshops or tools.

Everyday demands on money

"How can I invest in company stock if I don't understand the financial implications?" Aalap Shah, managing director at compensation consultancy Pearl Meyer, explained.

Walmart has partnered with Khan Academy to provide free online financial literacy courses to its associates and their family members on topics such as budgeting, savings, financial goals, insurance, and retirement. Additionally, the company offers financial counseling through its partnership with Lyra Health Partners, which includes tax planning, financial planning for debt, budgeting, and retirement planning, as stated in its 2024 employee benefits book.

Chipotle is collaborating with SoFi to enhance the financial education it provides to its employees. Through this partnership, Chipotle employees can utilize the SoFi at Work Dashboard, a financial well-being education platform, which includes an evaluation of their current financial outlook, along with recommendations and resources.

No replacement for low-cost index funds

Even with excellent education, motivating employees to purchase company shares can be challenging, especially for those who are struggling financially, said Kownatzki. For these employees, their top priority is to meet their basic needs, such as putting food on the table and paying rent, which leaves little room for investing in stocks. "When you're earning only $15 to $20 an hour, it's clear that getting food on the table is the most important thing, and there's no doubt about it," he added.

Investing in a company's stock can be a beneficial tool for employees with discretionary income as part of an overall investment strategy. However, Kownatzki advised that many individuals would be better off investing in a low-cost index fund and gradually accumulating shares over time for diversification purposes.

Saving for retirement is a goal that many workers aim for, but it often leaves them with little extra cash to spare. BlackRock's Chairman Larry Fink addressed this issue in his annual letter to investors, released earlier this week. He wrote, "As a society, we focus a tremendous amount of energy on helping people live longer lives. But not even a fraction of that effort is spent helping people afford those extra years."

Upping the financial incentives

Employers have several options if they prioritize giving equity to their employees.

Kestenbaum suggested that companies could improve their ESPP offerings by providing discounts, longer lookback periods, or larger discounts on their ESPP plans.

Historically, emerging companies, technology players, and fintechs have prioritized broader equity participation for lower-level workers as part of their compensation.

While Bank of America has given restricted stock bonuses worth $800 million to 97% of its staff, other companies could also adopt this strategy. For instance, Walmart is offering an annual stock grant of up to $20,000 to its managers. However, employees who earn less than $500,000 in total annual pay are eligible for the award.

Considering the cost of an equity grant strategy, especially for companies with a large employee base, is necessary, Kestenbaum advised.