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Wall Street Says Chipotle Pays Too Much–Its Socially Responsible Investors Disagree

Looking at results quarter by quarter makes it harder to see the benefits of higher wages.

Wall Street Says Chipotle Pays Too Much–Its Socially Responsible Investors Disagree
“Short-termism often penalizes companies that raise their workers’ wages or invest in their employees’ skills.” [Photo: Joe Raedle/Getty Images]

When a Bank of America Merrill Lynch analyst downgraded Chipotle stock last week–claiming the company spends too much to pay workers and that it would have trouble cutting labor costs–it was the latest of many examples of Wall Street pressure on retailers to keep wages low.

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“It’s pretty common throughout [the retail] sector,” says Tessie Petion, vice president of responsible investment research for Domini Impact Investments, a social impact investing firm that is a Chipotle investor. “A couple of years ago Walmart had the same criticism. They agreed that they were going to raise wages because it was affecting their store experience–people were coming in and seeing disgruntled workers–and they were met with really negative feedback from Wall Street.”

Of course, that response ignores the long-term benefits that come from fairer wages. “Wall Street’s time horizon for company earnings is very short–often one or two quarters,” says Michael Reich, a professor of economics at the University of California-Berkeley and chair of the Center on Wage and Employment Dynamics at the Institute for Research on Labor and Employment. “This short-termism often penalizes companies that raise their workers’ wages or invest in their employees’ skills. Wall Street thus ignores or is unaware of how higher pay reduces employee turnover and boosts worker productivity.”

“I think Chipotle is going to be better able to resist [Wall Street pressure] than most companies.” [Photo: Joe Raedle/Getty Images]
Twenty-two states raised the minimum wage in 2017, while some companies have raised wages independently to compete for employees or because they recognize the benefits of paying more. Reich’s research suggests that as wages rise, companies may offset the expense with slightly higher prices, not lower profits. In Chipotle’s case, it may be more complicated; early in 2017, one executive said that the company couldn’t raise prices now, as it tries to bring back consumers after recovering from food safety scandals in 2016 and again in 2017.

But the company may recognize a connection between paying and treating workers well and its other issues–including the food safety problems, which were linked to employees coming in when they were sick because they felt that they couldn’t miss work. “I think Chipotle is going to be better able to resist [Wall Street pressure] than most companies, in that if you have workers that you treat well, that you pay well, that feel like they can take time off when they need to . . . I think that they feel that in the long term it’s going to pay off,” Petion says.

For its part, Chipotle disagrees with the Bank of America Merrill Lynch analysis, which looked at a pattern of employee hours from 2006 to 2017 and concluded that the company had already cut hours and didn’t have room to cut more to save money. “Drawing conclusions from 2006 and applying them as a directional change to our business over the past 12 months is simply flawed, and the conclusion that we are cutting hours is simply not correct,” says Chipotle spokesperson Chris Arnold. The company recently increased the number of hours employees are scheduled to work, he says.

The company’s employees aren’t always satisfied: A group of nearly 10,000 workers sued in 2016, saying Chipotle had forced them to work off the clock, and another group sued in June 2017 arguing they were owed overtime pay. Chipotle also doesn’t pay workers particularly high wages, but they are competitive for the fast-food industry. “We do see employees as a resource worth investing in, and have always offered competitive wages and benefits,” says Arnold. For socially responsible investment firms like Domini–which has pushed the company to increase its labor reporting through shareholder resolutions–that’s a benefit, not a detriment.

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“In the long term, companies, investors, and society do better when people are paid fair wages,” says Petion.

About the author

Adele Peters is a staff writer at Fast Company who focuses on solutions to some of the world's largest problems, from climate change to homelessness. Previously, she worked with GOOD, BioLite, and the Sustainable Products and Solutions program at UC Berkeley.

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