From Sears to Ama­zon: Profit-shar­ing isn’t what it used to be

The Charlotte Observer (Sunday) - - Business - BY NEL­SON D. SCHWARTZ AND MICHAEL CORKERY New York Times

Half a cen­tury ago, a typ­i­cal Sears sales­man could walk out of the store at re­tire­ment with a nest egg worth well over $1 mil­lion in to­day’s dol­lars, feath­ered with com­pany stock. A ware­house worker hired now at Ama­zon who stays un­til re­tire­ment would leave with a frac­tion of that.

Much as Sears has de­clined in the in­ter­ven­ing decades, so has the will­ing­ness of cor­po­rate Amer­ica to share the re­wards of suc­cess. Share­hold­ers now come first, and em­ploy­ees have been pushed to the back of the line.

This shift is broader than a sin­gle com­pany’s cul­ture, re­flect­ing deep changes in how busi­ness is con­ducted in Amer­ica. Win­ner-take­some has evolved into win­ner-take-most or -all, and in many cases pub­licly traded com­pa­nies are con­cen­trat­ing wealth, not spread­ing it. Profit-shar­ing and pen­sions are a rar­ity among the rank-and-file, while top ex­ec­u­tives take home an in­creas­ing share of the spoils.

Ama­zon share­hold­ers have ben­e­fited more than work­ers, but Sears, in its hey­day, tried to serve both.

The com­pany ear­marked 10 per­cent of pre­tax earn­ings for a re­tire­ment plan for full-time em­ploy­ees, and by the 1950s, the work­ers owned a quar­ter of Sears. By con­trast, one man at Ama­zon, the founder and chief ex­ec­u­tive Jeff Be­zos, owns 16 per­cent of the com­pany and is ranked as the world’s rich­est per­son.

Ama­zon, which changed how Amer­i­cans shop much as Sears did in its prime, does not dis­close what per­cent­age of its stock is owned by em­ploy­ees.

But this month, Ama­zon stopped giv­ing stock to hun­dreds of thou­sands of em­ploy­ees, even as it lifted its min­i­mum hourly wage to $15. While the raise gar­nered head­lines, the move to curb stock awards may ul­ti­mately be more sig­nif­i­cant.

Not only does it re­verse what had been an unusu­ally broad em­ployee stock own­er­ship pro­gram, Ama­zon’s de­ci­sion un­der­scores how lower-paid em­ploy­ees across cor­po­rate Amer­ica have been locked out of profit-shar­ing and stock grants.

“What’s hap­pened is that share­hold­ers’ in­ter­ests have squeezed out other stake­hold­ers,” said Arthur Mar­tinez, who ran Sears dur­ing the 1990s and was cred­ited with a turn­around. “The mantra is share­hold­ers above all else.”

Decades ago, he said, “the peo­ple who pro­duced or sold the prod­uct were more cen­tral than the peo­ple in the cor­po­rate suite. There was a dif­fer­ent mind­set, and it’s linked to the larger is­sue of in­come inequal­ity.”

Not only was Sears’ pro­gram gen­er­ous, it was also re­mark­ably egal­i­tar­ian. Con­tri­bu­tions were based on years of ser­vice, not rank, and the longest­serv­ing work­ers re­ceived nearly $3 for ev­ery dol­lar they con­trib­uted. The com­pany phased out the profit-shar­ing plan be­gin­ning in the 1970s. This month, af­ter years of lack­lus­ter at­tempts at re­vival, the re­tailer filed for bank­ruptcy pro­tec­tion.

Sears was hardly alone in cor­po­rate Amer­ica, said Joseph Blasi, who di­rects Rut­gers’ In­sti­tute for the Study of Em­ployee Own­er­ship and Profit Shar­ing.

Com­pa­nies like Proc­ter & Gam­ble, S.C. John­son, Hall­mark Cards and U.S. Steel all em­braced prof­it­shar­ing and were part of a cor­po­rate move­ment to en­cour­age the prac­tice, he said.

Among some lead­ing ex­ec­u­tives in the early to mid-20th cen­tury, Blasi said, “there was a no­tion that wages were not enough and work­ers had a right to share in the fruits of their la­bor.”

In the ex­ec­u­tive suite, how­ever, profit-shar­ing still flour­ishes. While 68 per­cent of work­ers who earn more than $ 75,000 ben­e­fit from it, only 20 per­cent of work­ers earn­ing less than $30,000 do, ac­cord­ing to Blasi. The de­cline of profit-shar­ing for the lat­ter group has ac­cel­er­ated in re­cent years, with the me­dian an­nual grant fall­ing to $300 in 2014 from $921 in 2002.

There are Ama­zon em­ploy­ees who hold a lot of stock. Four out of the top five ex­ec­u­tives earned less than $175,000 each in an­nual salary in the past three years, but got tens of mil­lions of dol­lars in stock.

By present-day stan­dards, Ama­zon is rel­a­tively gen­er­ous. In ad­di­tion to 401(k) plans, full-time em­ploy­ees re­ceive med­i­cal in­sur­ance and a week of paid va­ca­tion their first year.

Fifty years ago, Sears pro­vided all of that plus a much larger an­nual re­tire­ment con­tri­bu­tion. While the typ­i­cal Ama­zon em­ployee re­ceives $680 from the com­pany in a 401(k), the av­er­age Sears worker got the present-day equiv­a­lent of $2,744. Div­i­dends on ac­cu­mu­lated stock could add thou­sands an­nu­ally.

The Sears ap­proach was not with­out flaws. By putting much of its as­sets into com­pany stock, it made work­ers even more ex­posed to their em­ployer’s fate. It also fa­vored men over women, who lost out when they took time off or left ear­lier than male col­leagues, ac­cord­ing to San­ford Ja­coby, a pro­fes­sor of man­age­ment and pub­lic pol­icy at Univer­sity of Cal­i­for­nia, Los An­ge­les.

Still, it was very pop­u­lar with em­ploy­ees. “Peo­ple were re­tir­ing with nice chunks of change,” Ja­coby said. “Peo­ple loved this fund, and Sears was a wildly suc­cess­ful com­pany.”

If Ama­zon’s 575,000 to­tal em­ploy­ees owned the same pro­por­tion of their em­ployer’s stock as the Sears work­ers did in the 1950s, they would each own shares worth $381,000.

DEMETRIUS FREE­MAN NYT

Ju­lia Teran says she re­ceived six shares of Ama­zon stock dur­ing her three years at the Ama­zon Ful­fill­ment Cen­ter in Carteret, N.J. “I keep it for my re­tire­ment,” Teran, 58, said of her stock, which is worth more than $10,000. How does she feel about the re­cent end­ing of the stock grants? “Things change,” she says with a half-smile.

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