Profit-sharing plans for rank-and-file employees are vanishing as corporate America has adopted a new approach toward who reaps a healthy company's gains.
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-take-some 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.
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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 C. 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 longest-serving 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 R. 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 profit-sharing 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.
Until this month, Amazon had been awarding two shares a year to warehouse employees, worth about $3,500 at the current price. The loss of those grants will prevent employees from directly partaking in one of the greatest examples of wealth creation.
To make up for the lost stock grants, Amazon has provided raises of at least $1.25 an hour to employees who had been earning over $15, plus cash bonuses at five, 10, 15 and 20 years of employment. Employees can put 401(k) contributions into Amazon shares.
Several employees interviewed, who insisted on anonymity because they were not authorized to speak publicly, expressed disappointment. Amazon should have saved the dollar and kept giving workers stock, said one warehouse employee in Baltimore.
Amazon insisted workers were not losing out. “The significant increase in hourly cash wages effective Nov. 1 more than compensates for the phaseout of incentive pay and future stock grants,” said a company spokeswoman, Ashley Robinson.
But that approach could make workers feel less connected to Amazon’s success, said Jeffrey D. Shulman, a professor of marketing at the University of Washington. “Going forward, it almost becomes a zero-sum game,” he said. “Now when the company makes a decision, Amazon either puts money into the pockets of shareholders or employees.”
The calculus was different at Sears, said Dan Fapp, a former communications executive who worked there from 1963 to 1999. “If the company did well and the stock went up, your account was worth more,” he said.
“It was not unusual for people to have $250,000 to $350,000 when they retired in the 1960s and early 1970s,” Fapp said. That’s worth well over $1 million today after adjusting for inflation.
At stores, there were also opportunities for salespeople to increase their base salary through commissions. So-called Big Ticket Men, who sold more expensive goods, earned the equivalent of nearly $50,000 a year.
Stanley Hreneczko, 91, started working at the Sears in Troy, Michigan, in 1965. He was a salesman in the appliances department — selling stoves and refrigerators. Thanks to his generous pay and the corporate savings plan, Hreneczko bought a home in cash and took summer vacations to Arizona and Florida.
“It was like working in heaven,” he said.
Even junior employees were well taken care of.
“Most of these people retired with a good pension,” said Jon White, who worked at Sears for 38 years, most recently as a manager in a store in Lithonia, Georgia, before retiring in 2008. “Most of them are comfortable for the most part — cashiers, clerks, replenishers, all kinds of workers.”
Even after Sears scaled back its profit-sharing plan, workers benefited from a pension plan that held a diverse portfolio of stocks and bonds and provided fixed payments based on their salaries and tenure at the company. With Sears in bankruptcy, the federal government is expected to guarantee some or most of those pension payments.
Unlike Sears, Amazon is growing rapidly, and the company says it is working harder to increase opportunities for promotion from the warehouse floor into leadership positions.
But its warehouses are staffed primarily by legions of lower-paid hourly employees. Of more than 2,000 workers at its fulfillment center in Carteret, New Jersey, all but 230 earn less than $17 an hour, or about $35,000 a year. During a recent tour there, one worker, Julia Teran, said she had received six shares during her three years at the company.
“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 end of stock grants? “Things change,” she said with a half-smile.