U.S Senator Bernie Sanders (I-Vermont) has a plan to force Walmart (NYSE: WMT) to pay associates $15 an hour. Sanders is introducing legislation that will prevent companies from buying back stock if they pay employees less than $15 an hour.
In addition, The Stop WALMART Act (Stop Welfare for Any Large Monopoly Amassing Revenue from Taxpayers Act) also requires seven days of sick leave for all employees. Moreover, the Act restricts CEO compensation to 150 times the median pay of a company’s employees.
Interestingly, the Act’s sponsors; Sanders and U.S. Rep. Ro Khanna (D-California), do not expect it to pass. Instead, they hope to shame Walmart into raising wages.
Will Sanders Hurt Walmart Employees
Notably, a similar strategy forced Amazon (NASDAQ: AMZN) to raise wages to $15 an hour. However, Amazon cut stock options and incentives for employees, USA Today reports.
Thus, Sanders campaign against Amazon ultimately backfired. Some Amazon employees are taking home less money, even though the average pay is higher.
Therefore, Sanders and Khanna’s actions could reduce the take-home pay of some Walmart workers. On the other hand, it could put more cash in Walmart employees’ pockets.
Walmart is likely to go along because employees will spend because a lot of that extra pay at Walmart. Thus, Walmart and its stockholders could make more money thanks to Bernie.
Will Bernie Sanders kill jobs at Walmart?
The $15 an hour minimum wage could have killed 20,000 temporary jobs at Amazon.
To clarify, Quartz estimates Amazon will hire 100,000 temps for holiday season 2018. In contrast Amazon hired 120,000 temporary workers for holiday seasons in 2016 and 2018.
Amazon no longer needs the 20,000 temps because of its deployment of Kiva robots in fulfillment centers, Citi analyst Mark May theorizes. In particular, Kiva robots eliminate workers who pull merchandise from the shelves.
Instead, the robots literally bring the shelves to the workers who pull and pack and the goods for shipment. Quartz claims, Amazon cut the time needed to pull and pack an order from an hour to 15 minutes with robots.
To be fair to Bernie, Amazon would have deployed the robots with or without the $15 wage. In fact, the robots could have made the $15 wage possible by reducing the size of the labor force. Amazon is paying workers more because it has fewer of them thanks to robots.
Bernie Sanders has a good point about Walmart
In the final analysis, Bernie is making a superb point about Walmart. Walmart is making a lot of money at its employees’ expense.
Walmart reported a gross profit of $126.947 billion, an operating income of $20.437 billion, and a net income of $9.862 billion for 2017, Stockrow calculates. Moreover, Walmart plans to buy back $20 billion worth stock which will boost its share price.
Thus, Walmart executives who get paid in stock options can give themselves a raise. To explain, the executives can sell the stock at a higher price and cash in.
In addition, the family of Walmart founder Sam Walmart holds $180 billion worth of the companies’ stock. Hence, the Waltons will make more money if the share price increases.
Why Stock Buy Backs are Bad for Walmart
Strangely, Sanders’ Stop Walmart Act could benefit investors and speculators in two ways.
First, discouraging buybacks could put more stock on the market and lower prices. Thus, more investors will enjoy Walmart’s 52¢ dividend on January 2, 2019.
Second, Walmart will have more money to reinvest in operations and compete with Amazon or in dividends. Notably, Walmart recorded $15.84 billion in cash and equivalents on July 31, 2018. Meanwhile, Amazon recorded $29.765 billion in cash; equivalents, and short-term investments, on 30 September 2018.
Bernie Sanders Shareholders Friend
Hence, Amazon has vast amounts of cash to invest in things like Go cashier-less convenience stores. Management will better serve Walmart stockholders by spending the stock buyback money on new technology or better stores.
Under these circumstances, Bernie Sanders; a self-proclaimed socialist, is a good friend to shareholders. Hopefully Sanders will encourage more responsible behavior from big retailers like Walmart.