Apple, Starbucks Have an Answer for the Tight Job Market: Hand Out Stock
July 20 2018 - 10:29AM
Dow Jones News
By John D. Stoll
U.S. companies are collecting record amounts of cash in their
coffers, and many can't think of anything better to do with it than
buy back their stock. Here's a better idea: Hand out some of those
shares to rank-and-file employees.
Starbucks Corp. has been awarding shares to baristas since the
1990s. The company says it has granted more than $1 billion in
equity under its "Bean Stock" program. It currently offers
restricted stock vesting over two years to nearly all
employees.
Apple Inc. in 2015 initiated a restricted-stock program that
includes grants to retail employees. A worker getting $1,000 in
Apple stock at that time would have seen the investment grow to
more than $1,800 as of this week, including dividends.
But Apple and Starbucks are exceptions in a corporate
environment where most of the equity compensation is reserved for
white-collar professionals, executives or higher-level managers.
Companies, however, have plenty of cushion to reconsider this
equation.
Nonfinancial businesses had amassed $2.1 trillion in cash and
liquid investments by the end of last year, according to S&P
Global Ratings. S&P 500 companies are on track to buy back $800
billion in shares this year, a move designed to make the remaining
shares -- the ones that aren't repurchased -- more valuable, since
each share now represents a larger piece of the company.
In practice, though, a sizable portion of the repurchased shares
are reissued in the form of equity-based compensation, said Jesse
Fried, a Harvard Law School professor who studies compensation and
buybacks.
Mr. Fried said shareholders may see aligning executive pay with
stock performance as logical because senior leaders can do
disproportionately more to affect a company's performance. But
giving out shares at the entry level where wages are set could be
considered a handout. "Companies aren't in the business of making
charitable contributions with other people's money," he said.
Still, there is evidence that offering lower-level workers a
modest amount of restricted stock is good for the bottom line
because it generates loyalty. With the U.S. unemployment rate
hitting a five-decade low this year, attracting and retaining
workers has become a major challenge for many companies.
Consider Shannon Rainey's story. The 34-year-old has worked his
way up at Starbucks since joining as a part-timer in the summer of
2003. He's been collecting company shares under the Bean Stock plan
and cashed in at various times. He used some of the proceeds to
remodel a house, and is now selling stock to construct a nursery in
his home as his family grows.
"I've gotten pretty lucky over the past ten years," Mr. Rainey
said, referring to the strong run for Starbucks' shares. Now a
store manager in Seattle, he tells potential employees about the
stock program as a way to get them to hire on, and uses it to
motivate workers in their early days on the job. His contact
information was provided to me by a company spokesman.
Many companies take a different route, offering a cash bonus or
profit-sharing that typically come with no strings. Some suggest
the workaday crowd doesn't want stock because of its volatility and
potential to create overexposure to an employer's performance.
"Cash is king for rank-and-file or hourly folks," Stephanie
Penner, a senior partner with human-resources consulting firm
Mercer LLC, said. "They're definitely going to be more interested
in what their hourly rate is."
Ms. Penner, however, said that there is an appetite among all
employees to get equal treatment as top executives even if they
aren't getting wealthy. Apple's decision to pass out a modest
amount of restricted stock is an example.
"It isn't the actual value of the stock that matters, it's the
symbolic value of that stock," Ms. Penner said. "This is a powerful
recipe for an engaged workplace."
Apple earlier this year awarded $2,500 restricted-stock grants
to employees following the passage of the Trump administration's
tax cuts. It has also repurchased $200 billion of its stock since
2012, and its board authorized another $100 billion buyback program
just before the company released second-quarter results in May.
Meanwhile, Apple's market capitalization is approaching a $1
trillion milestone that no U.S. company has ever reached.
A recent study by the National Center for Employee Ownership
that an index of 28 companies offering "broad-based" equity options
-- including stock for retirement plans and grants -- outperformed
the S&P 500 by nearly a two-to-one margin over the past
year.
The NCEO, a non-profit based in Oakland, Calif., estimates
workers who make less than $30,000 and get equity in their company
have 11% longer median job tenures than those without.
Ms. Penner said restricted stock grants are part of a broader
move by companies to improve their benefits to help with retention.
Longer parental leaves, richer medical-benefit packages and
education reimbursement are becoming more widely available.
These perks are to human-resources departments what the spice
rack is to a chef: "If you go to cook a chicken and you cook the
chicken without spices it's going to be kind of bland," she said.
"Add the right ingredients and you'll get better results."
(END) Dow Jones Newswires
July 20, 2018 10:14 ET (14:14 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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