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. SBUX -0.33% 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. AAPL -0.12% 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.