Peloton sweetens employee pay incentives as it fights to boost morale

Peloton sweetened incentives for its workers with one-time cash bonuses and changes to its stock compensation plan as it fights to hold onto employees and fix its struggling business, according to internal memos seen by CNBC.

The changes come a little more than five months into Barry McCarthy, a former Spotify and Netflix executive, working to boost the morale at Peloton as part of a turnaround push. McCarthy was named CEO in early February, replacing founder John Foley, as the company’s expenses spiraled out of control and demand for its bikes waned from a pandemic peak.

At that time of the C-suite shakeup, Peloton announced it was slashing roughly $800 million in annual costs. That included cutting 2,800 jobs, or about 20% of corporate positions. Now, investors are waiting to see if McCarthy can grow sales and win over customers as surging inflation squeezes budgets and a competitive labor market makes it harder for companies to hold onto employees.

Peloton shares on Tuesday hit an all-time low of $8.73, down more than 70% year to date, amid a broader market selloff. The stock had traded as high as $129.70 almost exactly one year ago.

Shari Eaton, Peloton’s chief people officer, said in an interview Wednesday that the company is taking the actions so employees can benefit as the company works on its turnaround efforts.

“The extraordinary circumstances that we find ourselves in now really give us that chance to pause and look at what it is that we can do to ensure future success,” Eaton said.

In one of the internal memos, Peloton told employees that eligible team members will have their post-IPO options repriced to Peloton’s closing price on July 1 of $9.13.

As an example, Peloton said options granted granted on March 1 had an exercise price of $27.62, meaning they were “underwater,” and employees were not benefitting financially until the stock passed that threshold. After the repricing, Peloton employees will be able to exercise their options after the price passes $9.13.

Peloton said it does not have plans for any future repricing events.

The company is also accelerating the vesting requirement by one year for eligible unvested restricted stock units that have more than eight vesting dates left in their vesting schedule. That lets employees access the value of the stock units sooner, Eaton said.

The change does not apply to hourly employees or C-suite executives, the company noted.

Not every Peloton employee owns or wants stock in the company. Instead of an equity grant, Peloton’s hourly workers in September will be eligible for a one-time cash bonus to be paid before the end of February, according to one of the internal Peloton memos.

Many of the company’s hourly employees have said they would prefer to receive cash compensation over longer-term equity grants, Eaton said in a phone interview.

Peloton said people who are employed on an hourly basis as of July 1 will be eligible for the one-time bonus as long as they stay with the company through Jan. 23. The amount of the bonus will vary for people across the business, Eaton said. Any equity awards granted in the past will remain unaffected.

Peloton also told its employees Wednesday that it recently finished conducting its first pay equity study with Aon, a third party consultancy.

The company said it identified less than 4% of its workforce, or 206 people, had a base pay disparity relative to peers that could not be explained by factors such as level of work, geography or tenure. Peloton said it took immediate action to eliminate the disparities.