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John Lewis: Partnership trouble ahead?

The John Lewis Partnership has announced today that its Partners will not receive a bonus this year, reports Paul Wilson.

For over 100 years the permanent staff have been the beneficial owners of the business and aside from the 15 year lean period  between 1938 and 1953 when it only paid a bonus twice it has constantly delivered for Partners until now.

The Pandemic has impacted in two ways, firstly the severe dampening on trading has caused losses, however the additional effect on commercial property values has compounded the problem with a £470 million write down bringing losses for the year to an eye watering £635 million.

Susannah Streeter, Senior Investment and Markets Analyst, Hargreaves Lansdown comments

‘’Losing the bonus will be a huge blow to workers who have been at the retail front line of the pandemic – at tills, in warehouses and on delivery trucks. The fact that it’s the first time since 1953 that John Lewis will not pay out a proportion of profits to staff highlights the once in a generation challenge the retail sector is facing.”

On the upside John Lewis pay their Partners, basically all permanent staff, a competitive market salary based on good performance so although Partners may be disappointed at the loss of a bonus for this year, they will have been paid competitively.

On the downside the commercial ground under the Partnership’s feet is shifting, with retail space failing to deliver economic returns, the rise of online trading and the diversion into domestic housing instead of commercial space exploitation that is hitting many high streets. Reshaping the business to exploit assets built up over a century might suit a business with dispassionate shareholders, but as a sophisticated workers collective it may struggle to maintain its ownership ideals when it becomes a capital intensive business with many fewer are required

The Partnership has previously announced plans for up to 10,000 rental homes on their surplus or redundant property sites. This pivot from being a trading retailer with over 80,000 staff and partners, to an online slimed down employer with revenues derived from asset rents could cause an existential crisis down the road. A quick scan of the Partnership Constitution reveals the scale of that challenge

At 80,000 staff, the personal benefit of the Partnership structure averages out at about 11.5%. The recent high point of 15% dates back to 2014, and the highest bonuses of 24% are a distant memory of 1979,87 and 1988. The bonuses have been paid in cash since 1970, having previously been a blend of shares, stocks and cash. In a new world with significant fewer partners required the bonus rates rise and the premium you receive for winning a job at the John Lewis Partnership rises to levels where it is no longer linked to merit, but more in the nature of a lottery win.  Additionally pressure will mount for a sale and distribution of the assets of business with a particular generation of Partners cashing in on the work of over 100 trading years and the accrual of assets and reserves of previous generations.

Although the Partners constitution discourages this kind of selfish behaviour, as was seen in the wave of demutualisations of building societies in the 90s, it is astonishing how little the masses need to be offered personally in order to throw collective benefit under any approaching bus.

It would be a shame to see the institution in its current form change, but unless it can morph into new work intensive core activities consistent with the Partnership approach it seems difficult to see how the warning shot of no bonus this year will not lead to a generational change for the company.

 

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