What If Walmart Were Employee-Owned?

Walmart is the nation’s largest private employer, with 1.5 million US employees. It recently raised its entry-level wages to $11, or about $23,000 a year for full-timers. When General Motors occupied the biggest-employer slot back in the mid-1950s, it paid an average hourly wage that would translate to about $35 (in today’s dollars), or more than $70,000 a year.

The comparison isn’t apples to apples, because the two companies operate in very different business contexts. But still.

Meanwhile, the Walton family—Sam Walton’s descendants—is #1 on Forbes’s most recent list of the richest families in America. Its collective net worth is estimated at $130 billion. The disparity is a metaphor for the current state of our economy: the top does fine while the bottom struggles.

But it didn’t have to be like this.

In 1970, Walmart offered a portion of its stock to investors in an initial public offering. Walton retained a large number of shares, which he passed along to his children. That’s the chief source of their wealth. Let’s imagine that, instead of an IPO, he had sold all his stock to a trust for the benefit of the company’s workers.

Today, a company founder’s sale of stock to an employee stock ownership plan (ESOP) is a relatively common occurrence. It wasn’t so common in 1970, but even then it wasn’t a crazy idea. Louis Kelso, the lawyer who was the intellectual godfather of ESOPs, had already facilitated several successful ESOP buyouts. With Kelso’s assistance, Walmart might have created a trust to hold the shares on employees’ behalf. The trust would borrow money against the company’s future earnings to buy the shares at market value, just as many modern ESOPs do. It would then allocate them over time to each worker’s retirement account, at no cost to the employee.

Research suggests that employee ownership adds a couple of percentage points a year to a company’s growth rate. It’s hard to imagine Walmart growing any faster than it did, so let’s conservatively assume that our employee-owned Walmart followed the company’s actual growth trajectory. The employee trust would now hold stock worth roughly $264 billion, which averages out to about $176,000 per US worker. Long-term full-timers would likely have hundreds of thousands of dollars in retirement funds.

Implausible? Hardly. Look at George Jenkins, who was born 11 years before Walton. Jenkins founded the 1,100-store Publix supermarket chain, a market leader in Florida and other southeastern states.

Jenkins and Walton had a great deal in common. They both started with nothing. They both were master retailers, launching hugely successful companies that continued to grow and make money long after the founder’s death. They both were revered company leaders during their lifetimes, even sharing similar nicknames: “Mr. George” and “Mr. Sam.”

But Jenkins did something Walton didn’t. He encouraged all his employees to buy stock, and most did. When the government passed legislation in 1974 giving statutory blessing to Kelso-style plans, he set up an ESOP. Today, Publix is the nation’s largest employee-owned enterprise: virtually all of its stock is held by the ESOP or by current and former employees (including Jenkins descendants who have worked at the company). In every recent year, Publix’s ESOP has allocated shares worth 8.5% of total pay to every qualifying employee.

Publix isn’t as big as Walmart, so the average worker’s nest egg is smaller than the hypothetical Walmart worker’s. Still, according to a 2016 Fortune article, a veteran store manager might hold shares worth about $900,000. Research by the National Center for Employee Ownership shows that participants in all the nation’s ESOPs have more than twice as much in retirement assets, on average, as employees in non-ESOP companies. Many diversify their holdings as they get older; in fact, ESOP participants hold about as much in diversified assets as non-ESOP employees have in total assets.

Selling shares to an ESOP does nothing to hurt the top end of the income distribution, because the founder receives cash for the stock and can invest it elsewhere. (Forbes estimated the Jenkins family’s net worth at $5.2 billion a few years ago.) But it does an enormous amount for the low-paid workers at the bottom of the scale, who can build up sizable retirement accounts over time.

Back in the day, labor unions helped ensure that employees shared in the bounty of a free-enterprise economy—one reason GM’s hourly pay in the 1950s and 1960s was as high as it was. But traditional unionism is moribund, and we need a new method for ensuring that US capitalism is inclusive rather than exclusive. Widespread employee ownership seems like the best bet.

Too bad Sam Walton didn’t understand that.