Retail CEO Shares Bonus With Workers
If only I had a $100 bill for every time I’ve heard a top retail chain executive talk about how frontline employees are the reasons for a given business’s success. This talking point has been echoed repeatedly over the decades during which c-suite compensation has jumped exponentially and associate-level wages have not. This backdrop is what makes last week’s report that Lord Wolfson, CEO of Next, the U.K.’s biggest department store chain, shared his $3.6 million bonus with full and part-time employees all the more remarkable.
In an email to staff, as reported by The Telegraph, Lord Wolfson wrote that he intended the act as a "gesture of thanks and appreciation from the company for the hard work and commitment you have given to Next over the past three years and through some very tough times."
Next’s CEO added, "The task of growing sales and controlling costs looks set to remain a challenge over the next few years. But if we continue with the hard work, intelligence, initiative and common sense of recent years, then we have every chance of continued success."
According to ABC News, only one other CEO of a public company has done something similar in recent years. Yang Yuanqing, CEO of Lenovo, shared his $3 million bonus with 10,000 employees. In retailing, Whole Foods founder John Mackey didn’t give his $380,000 bonus to workers, but donated it to charity.
"It’s the first time that any chief executive (in the U.K) has ever done anything like this," Alistair Mackinnon-Munson, a spokesperson for Next, told ABC. "All our staff of 19,400 will share in it as a cash bonus. It works out to about one percent ($186) of their basic salary."
Next workers, who will receive the bonus in July, received a two percent pay increase from the company in 2012. Lord Wolfson saw his pay increase 13 percent last year, according to The Guardian.
While the Next CEO’s act of generosity was welcomed by most, others said it highlighted out-of-control executive compensation practices.
The Guardian reported "top bosses" at Next made 185 times the average salary of workers at the chain last year. In years past, execs have seen double-digit increases in pay even while the rank and file had wages frozen.
The author of The Guardian article, Deborah Hargreaves, wrote that companies such as Next need to "see employees elected to boards and remuneration committees to break up the cozy club of directors who set each others’ pay. This is the only way to turn (Lord) Wolfson’s gift into more than a one-off gesture."
Discussion Questions
Do you think Lord Wolfson’s gesture will be meaningful to the employees who will share his bonus? Do you think there are problems with the current compensation system for retail company executives and employees? How would you fix it?
Smart move. He sets a great example and will garner favorable press.
The larger issue is the compensation model used by many retailers, which provides store associates little incentive to excel, or stay. It’s time for an industry-wide discussion about how best to motivate and compensate the people who are the front line of customer engagement.
If they don’t find it meaningful, they should refuse the bonus or donate it to charity. If they don’t like the compensation system at a given retail company, go work for one they like.
Everyone likes a piece of the financial/bonus action. When they are included it has meaning beyond money.
The current compensation system would benefit from a re-study. When a company doesn’t increase sales or make a profit or increase shareholder value, bonuses should be pared down or negated. When it does do those things the bonus system should include more employees. Everyone on a team should have some skin in the game.
The compensation system for CEOs—retail and otherwise—is skewed much more heavily toward the top than even 25 years ago. Right or wrong, the “multiplier” of senior paychecks vs. hourly associates has ballooned. As long as there is growing competition for a shrinking talent pool—in an industry undergoing consolidation, like many others—this is not likely to change soon. So it’s notable that the CEO of Next decided to “share the wealth,” and his gesture shouldn’t be taken for granted even if the gift to an average employee is nominal.
This is a nice gesture and well meaning. However, this only works out to about 1% of an employee’s salary, therefore making no meaningful difference in their lifestyle. That’s one step up from getting a years subscription in the jelly of the month club.
I see no problem with current compensation system for company executives and employees. It’s all about supply and demand, market forces, and what works with each company’s business model. Companies that want low turnover, good looking, and fit employees will be paying more. Companies that just want warm bodies they can turn over in 8 months, they will be paying less.
At the executive level, it’s how good a rainmaker you are. We often see a lot of overpaid executives, however, if they are failures, they generally get fired in short order, both physically by the company and emotionally by the public—not necessarily at the same time.
While CEO compensation is out of line, especially when compared with workers’ salaries, Wolfson’s gesture is welcome and meaningful. Workers, who saw their salaries grow by 2%, are the backbone of the company. By sharing his bonus, Wolfson is saying that their efforts matter.
I think employees will appreciate the money as well as the gesture by Lord Wolfson. He told his staff in no uncertain terms that he acknowledges their effort and is thankful for it. And therefore the company is thankful.
It’s not always about the money, but in this case it’s an exclamation point to the profound thanks expressed. Everyone wants to be appreciated and once you are it can make a difference in your attitude and behavior. Well done Lord Wolfson.
This is a terrific gesture from someone who has demonstrated tangibly what others merely say. As far as the pay scales being out of whack, this is strictly a by-product of the consolidation of the industry.
40 years ago, there were over 130 regional department stores and no Walmart/Target/TJX in this country. Today, these are huge businesses requiring extraordinarily talented and accomplished CEOs. You get what you pay for.
A generous gesture that I think will be appreciated because Lord Wolfson let them know he appreciated their efforts. A “thank you” comes in many different ways. This is a gesture others should, but will not follow.
Yes, I think the employees will appreciate it to some degree, but if their pay structure is broken, then that is an entirely different subject. They will cash the checks, but at the same time some will be aware that they have received a 2% pay increase vs. the CEO’s 13% increase. So, after they buy their children a few gifts or enjoy a nice dinner, then they are faced with the same economic situation they were struggling with before.
It’s a challenge for retailer to figure out how to not only compensate employees properly, but also how to retain the good ones. Retailers suffer with high-turnover sales associate and in-store positions. They struggle to train their employees only to lose them to universities or higher-paying jobs.
Lord Wolfson’s gesture will most definitely be meaningful to his employees. Although without other top executives at Next following his example, the gesture will likely have little impact on employees or their behavior. It is despicable when top executives put draconian cost-cutting measures in place that squeeze the front-line workers while the executives continue to suck the company dry from the top.
Lord Wolfson’s gesture is absolutely meaningful. The old adage, “it’s the thought that counts” started somewhere. It’s moments like these that help us to be less cynical in business. The issues with retail compensation are real and should be addressed, but in this moment, let’s just acknowledge someone did something good.
Yes, the gesture is very meaningful, even if it translates into $1 for each employee! There is still way too much greed and too many unwarranted bonuses given out by weak BODs and compensation committees.
More companies should look to companies like Ben & Jerry’s and Southwest Airlines where ratios are established from the highest to lowest paid employees.
Gain-sharing, or bonuses paid to all associates based on achievement of goals—financial and strategic—is a proven motivator for numerous firms. When an executive weighs in with some additional cash, as Mr. Wolfson chose to do, that bonus also carries impact among employees.
It demonstrates his genuineness and belief in the organization and its associates. It’s also a smart move on his part. As an associate for better than two-thirds of the life of the company, Wolfson has accumulated a solid stock position (more CEOs would do well to emulate strong stock ownership in their firms). His shares have appreciated nicely.
While the lad likely has some sound financial planning, he still is not able to escape the tax man. In capturing an added $3,600,000 in bonus, his effective tax rate on the incremental figure would be 45%, or more than $1.6 million. By passing through the funds to front line associates, each of them will have a tax rate of 20%, or less. Nice move on Wolfson’s part in that at least $1,000,000 of the taxes will stay in the hands of associates, instead of government waste.
Those 19,000+ Next associates should place some useful funds into the consumption sector of England’s GDP.
This is a meaningful gesture. While it is not a life-changing amount, for some employees it’s enough to make a difference for a short time.
From what I read, there do seem to be some disconnects between compensation and performance in some companies.
I also perceieve that some approaches for senior level hiring appear to drive a “mercenary effect” with highly personalized terms and compensation. I suspect these might fuel disconnects between some senior hires and the broader culture, values, beliefs and ambitions of the business and its brand.
I’ll be the holdout here: oh, I think it will be “meaningful” alright, but not in the way it was (presumably) intended; I think it will be seen as a subtle way of telling people how much he made (and by implication how little they did). If the other employees truly deserved this largess, then it should have come from the company directly; if they do not, then this is simply charity.
As for exec compensation in general, obviously it’s all over the place, but in the recent case of you-know-who, the usual apologists were telling us how laudatory it was that no hefty exit package was offered. Really? Drive a company into the ground, with losses in the $Billions, and the fact that you receive “only” $1 Million+ is supposed to be proof that “the system works”? It’s a “heads I win, tails you lose” practice that can hardly be called efficient.
Remarkable move. This gesture goes beyond saying “thank you” and it would not have come unless it’s really felt from the bottom of the heart….
I hope that the employees of NEXT realise that this may not be a “huge” amount, but it isn’t chump change either—this is a GREAT way to show the appreciation of the associates and the fact that it is for EVERYONE in the company is excellent. NEXT is pretty nice and has some great stuff, so they are operating from a fairly successful starting point, but it is still nice to be appreciated and this shows the high level of leadership and true company interest that Lord Wolfson obviously has for the company.
It is a nice gesture but one that will neither be followed by others nor make a difference in the overall pay issues front line staff experience. Compensation philosophies (intentional or not) determine the pay structures of both senior executives and frontline staff.
For retailers whose philosophy is to attract, retain, and develop true professional sales associates, they must pay accordingly: at a rate (base + incentives) that make it a rational career choice. For retailers whose philosophy is to minimize the number and cost of ‘cashiers’ and other frontline staff, they too will pay accordingly: as close to minimum wage as possible, with little or no incentives.
If Lord Wolfson wants to be in the first group of retailers, he might consider taking the senior leader compensation structure (base & incentives) down by 20% or more, and convert those dollars into compensating frontline staff at a level which will attract and keep true professionals. I don’t think that is his desire.