John Lewis slashes staff bonus to 6% – the lowest in 63 years

John Lewis has slashed its staff bonus to just 6% of salary, the lowest level since the 1950s, despite a 21% rise in pre-tax profits.

The group, which includes department stores and the Waitrose supermarket chain, said the bonus was the equivalent of three weeks’ pay and had been cut to retain profits and strengthen its balance sheet.

“This allows us to maintain our level of investment in the face of what we expect to be an increasingly uncertain market this year, while absorbing the costs associated with adapting the partnership for the future,” said Sir Charlie Mayfield, chairman of the group.

He added: “This is absolutely not about slowing down. It is a sign of our determination, of speeding up.” He said that, while staff were likely to be disappointed with the drop in their bonus, it would be met with “realism.”

Last year, the staff bonus – which is the same percentage of salary for all workers, from the chairman to Saturday shelf-fillers – was 10%, the lowest for 13 years. That meant an average payout of £1,585, compared an average of about £1,031 this year for the 86,700 staff who jointly own the retail group.

It is the fourth year in a row that John Lewis has cut the award. It will be the lowest bonus since 1954, when it stood at 4% of pay.

This year’s cut in bonus came despite a 21.2% rise in pre-tax profits, before the staff bonus and one-off items, to £370.4m. Sales rose 3.2% to £11.4bn.

Profits were further boosted by one-off income of £207.2m including £270m from a reduction in pension liabilities, offset by a £42.9m writedown of property and other assets, and related costs, and a £20.7m charge for restructuring and redundancies. Taking one-off items into account, profits soared by nearly a third to £577.6m.

Mayfield said John Lewis had pumped money into reducing its debts, including its pension deficit, as the economic outlook remained “volatile and uncertain” because of difficulties in the wider UK economy and in the retail market.

He said trading profits at the John Lewis department stores and Waitrose supermarkets also owned by the group, excluding a benefit from lower pensions accounting charges, were up just 1.9%.

“In the year ahead, trading pressures will continue as a result of the wider changes taking place in retail. The two major influences are pricing, where the rate of change in selling prices is likely to be significantly slower than the rate of change in input costs as a result of weakness in the sterling exchange rate, and the continued shift from shops to online.”

He said he expected cost inflation and competition in the market to intensify this year and the business needed to be prepared.

John Lewis and Waitrose have both announced plans to cut hundreds of jobs in recent months as the group continues to cut costs. Mayfield reiterated his view there would be a continued “gradual decline” in staff numbers, as well as a reduction in the use of contractors and consultants.

Total staff numbers fell by 3,000 last year and the company said it was looking to make further “productivity gains” at its head office. Part of that will be driven by robotic automation of some routine head office jobs, such as data input – something that is already being trialled and is to be expanded this year.

Sales at Waitrose rose 2.7% to £6.63bn in the year to 28 January and the company said it increased market share. But operating profit slid 11.3% to £206.2m and sales in established stores slid 0.2%.

Sales at John Lewis rose 4% to £4.74bn, including a strong 2.7% rise at established stores. But all this growth came online, where profits are slimmer, with sales in the department stores down 1%. Operating profits slid 7.5% to £231.4m.

Paula Nickolds, the new managing director of the John Lewis department stores, said home electrical goods had been the best performing product group, driven by new technology including the Dyson Supersonic hairdryer. But she said women’s clothing sales had risen by about 3%, when the rest of the market had seen sales drop by about the same amount.