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The STOP Walmart Act Is Rewriting the Rules of Stock Buybacks

The  STOP Walmart Act prohibits large companies from stock buybacks unless they make investments in their workers.

The local AFL-CIO chapter stages a protest at a Walmart at Capital Plaza over wages on September 5, 2013, in Hyattsville, Maryland.

Yesterday, Sen. Bernie Sanders (I-VT) and Rep. Ro Khanna (D-CA) introduced the STOP Walmart Act, which prohibits large companies from engaging in stock buybacks unless they make serious investments in their workers. While the act takes aim at Walmart, the country’s largest private employer, it highlights the theme of my work: that excessive giveaways to shareholders across the vast majority of large corporations are a major part of why workers’ wages remain stagnant.

The STOP Walmart Act stipulates that companies with over 500 workers cannot conduct stock buybacks unless their employees — importantly, including part-time workers, independent contractors, and franchisees — make a starting wage of $15 per hour. It also stipulates that employees must earn up to seven days of paid sick leave, and that CEO compensation does not rise above 150 times the median pay of all employees.

This proposal matters because, in many parts of the country, Walmart still pays its employees a starting wage of $11 per hour — a wage that company executives think is fair. Never mind that the Walmart family is the wealthiest family in the country, and that the six heirs of the Walton empire own more wealth than 40 percent of Americans. They also comprise the majority of the company’s shareholders, sit on the board of directors, and, in part, decide how much Walmart spends on its stock buybacks program.

The STOP Walmart Act joins other important pieces of legislation — including the Reward Work Act, introduced by Senator Tammy Baldwin (D-WI), and the Worker Dividend Act, introduced by Senator Cory Booker (D-NJ) — that aim to curb the runaway use of stock buybacks that has occurred since passage of Trump’s corporate tax cuts. Stock buybacks occur when corporations purchase their own company’s shares on the open market, automatically boosting the value of the stocks that shareholders still hold, as each share is now worth a larger slice of the corporate pie.

While they may sound harmless, stock buybacks have been driven by relentless pressure from wealthy shareholders to move more and more corporate profits up and out of the firm for themselves. This extractive behavior is exacerbated by the fact that corporate executives are largely compensated in stock themselves. What has this “shareholder primacy” approach to running large corporations meant for workers? Shareholder primacy has, among other things, resulted in workers being understood by corporate executives as a cost to be cut, rather than being considered as an essential part of the value-creation process and as stakeholders who should be able to bargain for a living wage that is commensurate with the value they create. One important example of how this has played out in practice is the choices that Walmart’s executives have made over the last 10 years. Walmart’s starting wage is $11 an hour, or $19,448 a year for a full-time worker.

Walmart has chosen to reward shareholders while ignoring workers’ demands for higher wages. Walmart has spent $121 billion paying out shareholders over the last decade ($67.8 on stock buybacks and $53.7 billion on dividends), compared with $147 billion it earned in net income. Shareholder payouts have exceeded net income over the past two years, meaning they are financing payouts through taking on debt or using cash reserves on top of profits. Meanwhile, Walmart issued no new shares. Walmart’s board authorized an additional $20 billion to be spent on stock buybacks in 2018 and 2019. The table below provides a detailed description of Walmart’s shareholder payout to net income ratios over the past 10 years.[1]

Table 1. Stock Buybacks, Dividend and Net Income over the past 10 years (in millions)
Year Stock Buybacks Total Dividend Total Shareholder Payout Total Net Income Buybacks/ Income Ratio Dividend/ Income Ratio Payouts/ Income Ratio
2008 $3,521 $3,746 $7,267 $13,400 26.3% 28.0% 54.2%
2009 $7,276 $4,217 $11,493 $14,335 50.8% 29.4% 80.2%
2010 $14,776 $4,437 $19,213 $16,389 90.2% 27.1% 117.2%
2011 $6,298 $5,048 $11,346 $15,699 40.1% 32.2% 72.3%
2012 $7,600 $5,361 $12,961 $16,999 44.7% 31.5% 76.2%
2013 $6,683 $6,139 $12,822 $16,022 41.7% 38.3% 80.0%
2014 $1,015 $6,185 $7,200 $16,363 6.2% 37.8% 44.0%
2015 $4,112 $6,294 $10,406 $14,694 28.0% 42.8% 70.8%
2016 $8,298 $6,216 $14,514 $13,643 60.8% 45.6% 106.4%
2017 $8,296 $6,124 $14,420 $9,862 84.1% 62.1% 146.2%
Total $67,875 $53,767 $121,642 $147,406 46.0% 36.5% 82.5%

In “Making the Case: How Ending Walmart’s Stock Buyback Program Would Help to Fix Our High-Profit, Low-Wage Economy,” I estimate that by ending the practice of stock buybacks and spending the $10 billion authorized in 2018 on increasing wages instead, 1 million low-wage Walmart employees could see an hourly wage increase of over $5.66.[2]This would raise the starting wage for all employees to $16.66 — and positively impact Walmart by improving employee productivity, retention, and consumption by Walmart workers and their families. For a full-time worker at the starting wage, this increase in their hourly rate would mean an annual salary of $29,455. For completeness, I calculate the impact on wages for partial and total reductions of stock buybacks, from $2.5 billion to $10 billion.

In the alternative, Walmart could end its open-market stock buybacks and spend the same amount purchasing stock for employees through the Associate Stock Purchase Plan. If Walmart made direct stock grants to employees, assuming the shares were bought at the current market price of $88.05 and were distributed evenly, I estimate that each of their 1 million hourly employees could receive roughly 113 shares, giving Walmart associates the opportunity to build substantial wealth and invest in the company’s future prosperity. I similarly estimate the impact on shareholdings per worker for a range of re-directed stock buyback spending.

Table 2. Stock Buybacks in 2018 and the Potential for Increased Wages and Stock Purchases for 1 Million Employees
Reduction Level Stock Buybacks Total Redirected Amount Increased Hourly Wage Per Worker Stock Price Shares Per Employee
100% $10 billion $10 billion $5.66 $88.05 113.57
75% $10 billion $7.5 billion $4.24 $88.05 85.18
50% $10 billion $5 billion $2.83 $88.05 56.79
25% $10 billion $2.5 billion $1.41 $88.05 28.39

What has Walmart spent on stock buybacks so far in this year alone? To date, based on quarterly disclosures to the Securities and Exchange Commission (SEC), they have spent $2.3 billion in the first half of this year, of the $20 billion they are authorized to spend between 2018 and 2019. If they had instead spent that $2.3 billion on their 1 million hourly employees, it would mean that each employee could have taken home an extra $2,300.

While Congress should ultimately pass legislation that would end the practice of stock buybacks entirely, bills like the STOP Walmart Act that continue to highlight the link between rewarding shareholders and wages that aren’t keeping up are an important and needed step. Reversing decades of rising economic inequality depends on it.

[1] This draws from an issue brief I published in May of 2018 on Walmart’s approach to shareholder primacy.

[2] The calculations are as follows: Walmart’s full-time workweek for hourly employees is 34 hours per week. A full-time worker works 1,768 hours a year. The per-hourly employee amount available from the cessation of stock buybacks is $10,000 ($10 billion divided by 1 million employees). $10,000 / 1,768 = $5.66 per hour.

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