Walgreens, America's largest drugstore chain, faces financial pressures and labor issues.

The company has announced the cancellation of corporate bonuses for its staff this year and a significant reduction in bonuses for store and pharmacy managers.

Earnings and Labor Concerns for Walgreens

Walgreens sent an internal memo to its employees, stating that annual bonuses would not be funded. This announcement coincided with a series of walkouts by Walgreens pharmacy staff who are demanding improved working conditions to ensure safe prescription filling.

Manmohan Mahajan, interim global chief financial officer of Walgreens Boots Alliance, expressed that the company's fiscal year 2023 financial results fell short of expectations. Since annual company bonus payouts are dependent on financial performance, the Compensation and Leadership Performance Committee decided not to fund bonuses this year.

Bonus Reductions for Walgreens' Pharmacy Managers Amid Declining Sales in the Pharma Industry

Although corporate bonuses are canceled, pharmacy managers will still be eligible to receive up to 25% of their target bonus based on performance reviews.

Walgreens clarified that the bonus changes were unrelated to labor matters, and the impact of the walkouts at its 9,000 stores nationwide has been minimal.

The healthcare industry, including drugstore chains like Walgreens, has faced challenges, including a decrease in customer traffic due to the decline in Covid-related needs and the growing popularity of online prescription services. Rite Aid, another major drugstore chain, filed for bankruptcy earlier this year, while rival CVS has also encountered stock difficulties despite better-than-expected earnings.

Credit Downgrade and Fiscal Concerns for Walgreens

Walgreens' announcement comes after a credit downgrade by S&P, which expressed concerns about the company's cash flow and its ability to manage its substantial debt. The company's stock has dropped significantly this year, down about 40% to approximately $21 per share.

The credit rating downgrade is a sign of financial instability, reflecting mounting debt, budget cuts, theft, leadership turnover, and understaffing within the company.

Walgreens's Corporate Leadership and Compensation Conundrum

Executive pay at Walgreens has been a point of contention among employees. Former CEO Stefano Pessina, who is worth nearly $7 billion, received more than $8 million in compensation last year. Former CEO Rosalind Brewer received a $9 million severance after less than three years on the job and will continue to receive a monthly consulting fee of $375,000 through February 2024. She was also given a $25 million signing bonus when she joined the company in 2021.

Pharmacy managers have expressed disappointment over the reduced bonuses, feeling that they incur additional legal risks and responsibilities without adequate compensation.

Shane Jerominski, an independent pharmacist in Southern California and one of the walkout's organizers, noted that the reduced bonuses effectively mean that pharmacy managers receive minimal rewards for the added work and legal responsibilities they shoulder.

CVS also faces challenges in the industry, with its stock down by about 27% this year. The company's third-quarter earnings were bolstered by its diversification efforts away from the retail business, with notable growth in the health care benefits division and health services.

Labor Issues and Organized Protests

Labor issues have added to the woes of both Walgreens and CVS. Protests and walkouts by pharmacy workers have occurred in multiple states, including Arizona, Washington, Massachusetts, and Oregon. These actions have caused temporary closures and disruptions but have not led to widespread protests due to the absence of widespread unionization among pharmacy workers.

The American Pharmacists Association, an advocacy group for pharmacy workers, expressed support for the pharmacy staff who participated in the walkouts.

As Walgreens grapples with financial challenges, labor disputes, and credit downgrades, the company's decision to cancel corporate bonuses and reduce bonuses for pharmacy managers reflects its efforts to manage costs amidst a turbulent business environment. These developments shed light on the broader challenges faced by drugstore chains and the importance of addressing labor concerns in the industry.