What’s the Story?

For the third year in a row John Lewis announced last week that the company will not be paying it’s prized staff bonus.

The John Lewis group, which includes the top end supermarket Waitrose, announced a 73% pre-tax profit rise to £97 million for the year ended 31 January 2025. Sales rose 3% to £12.8 billion, most delivered by Waitrose up 4.4% at £8 billion.

The retailer said that it was “not right” to pay a staff bonus for last year. But it said it would continue to invest in its fortune revival following a challenging period; including increased pay of £114 million. Future employers’ NICs was also a big cost factor.

The main profit metric for John Lewis is PBT before exceptional items. That tripled to £126 million, but still fell short of the bonus trigger target of £150 million.

The company noted some staff losses were likely but mainly through natural attrition. In fact staff numbers have already fallen by some 15% since 2020.

A £300 million bond repayment from cash reserves completes the picture of prudent restructuring of cost base and balance sheet.

Why Does it Matter?

Responsible management and division of ownership and control is a hallmark of a a strong company.

John Lewis became an icon of employee share ownership once the founder John Speden Lewis established the employee ownership trust in 1921. Ever since John Lewis has been the big name in UK employee ownership for over 100 years.

As technology unfolds hot competition means high street margins are under strong pressure. John Lewis as a brand invokes huge customer and staff loyalty. That, combined with the never knowingly under sold moto, has been a strong underpin for the business throughout troubled times.

The business needs to be careful with its profitability and capital base. Employee owned companies do not have access to new money from the capital markets. Often the upshot is that growth mainly comes through organic means, with big acquisitions off the table.

Newspoint View

Many John Lewis employees will be disappointed to not receive their annual staff bonus once again. However, the decision may enhance long-term employee shareholding value.

What is missing is the capital value of the equity owned by the employees. A non-distribution will push up that value on a net asset basis, and if the money is invested in strong growth opportunities, then the value will be enhanced still further. It is clear the equity is owned fully by employees. But who individually owns what and with what benefits is more hazy. Not everyone wins from the rise in the John Lewis share price.

But not everyone wins. Employees who leave in the short term will lose more than those who stay. And new joiners get an uptick in future value even though they were unhurt by earlier non bonus decisions.

John Lewis is often held up as the poster child of employee share ownership in the UK. This is somewhat surprising as the shares are collectively owned with no tax favoured distributive employee share plans in point. In short, no employee of John Lewis is actually a personal shareholder, strange but true.

There is much evidence that employee ownership adds strong shareholder value. In fact leading global companies spend many millions annually on these plans. If they are not receiving value, they would have stopped many years ago.

Almost all these companies have a minority employee shareholding interest, rarely exceeding 8%-10% in employee hands. By contrast John Lewis and other ESOT companies have employees with a majority stake.

So there is a gap - a “missing middle”. Where are the companies where employees own 10% to 49% of the shares?

Companies with employee shareholding of only 1% or 2% still see the value, but they should ask, as should others,

“what would a more ambitious profile of employee share ownership deliver for the business?”

A question rarely voiced.

Executive Compensation and Incentive Design

Please feel free to email or call:

Damian Carnell - [email protected] +44 (0) 7989 337118

VA Bec Bostock - [email protected]

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