AAPL Apple Inc

By John D. Stoll 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 21, 2018).

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 21, 2018 02:47 ET (06:47 GMT)

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