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Shortsighted

Richard Quinn  |  May 16, 2019

IN 1914, HENRY FORD approved a new minimum wage of $5 per day for most of his workers. Thousands lined up for jobs. Other businesses were thrown for a loop, as they tried to figure out how to compete for workers.

Ford’s shocking wage wasn’t pure altruism. He wanted to motivate his workers to do a routine, boring job and to reduce employee turnover. The $5 included an advance on profit sharing—another motivating factor. Ford knew the pay would allow his workers to buy the product they made. He also expected high standards of behavior from his workers, including financial prudence.

But those insights have, unfortunately, been forgotten by many of today’s companies. Indeed, over my many years in corporate America, I saw management adopt many shortsighted employee policies, which—in turn—led to new laws and regulations. For instance, failing to fund promised pensions led to the Employee Retirement Income Security Act, often known simply as ERISA, which then contributed to the accelerated demise of traditional pensions.

Even the Affordable Care Act, with its requirement that employers cover employees’ “children” through age 26, was an overreaction to a gap created, in part, by the way employers designed health plans. Much of the concern over the affordability of prescription drugs is the result of employers switching to high-deductible health plans and not excluding certain crucial drugs, such as insulin, from the deductible.

Freeze pensions, raise deductibles to catastrophic levels, eliminate retiree medical benefits, cut the 401(k) match. Corporate executives make such decisions, often relying on consultants, but they don’t think long-term or have a broader strategy.

This recently hit close to home. In 2006, I negotiated five union contracts that allowed for retiree medical benefits. To pay for those benefits, employees had to give up other benefits. Fast forward to 2019 and my old employer is dropping medical and dental coverage for retirees, who instead will receive help buying Medigap insurance. The upshot: Retirees are almost certain to incur greater costs.

Why would an employer in good fiscal shape do this? Because it lowers the accounting liability for retiree benefits. But will this change help the company to attract and retain talented employees? Almost certainly not. Does the change help ensure its workers can buy the company’s goods and services, both now and once retired? Quite the opposite.

Business typically doesn’t like any regulation that raises its costs. And yet employers frequently invite such regulation by taking actions designed simply to meet short-term financial goals. For millions of Americans, these narrowly focused changes make their lives harder both now and in retirement. That means business also suffers—because it’s harder for everyday Americans to buy a new Ford.

Richard Quinn blogs at QuinnsCommentary.com. Before retiring in 2010, Dick was a compensation and benefits executive. His previous articles include Farewell MoneyOne Last Thing and Over Coffee. Follow Dick on Twitter @QuinnsComments.

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Phil M
Phil M
1 year ago

Benefits are an interesting question. What should companies provide? I’m of the opinion your employer shouldn’t provide any healthcare – it should be obtained separately from your job. The only reason it seems normal to Americans is because that’s the way it’s been for a long time – but does it really make sense? What if you got your car insurance through your employer? You would have to weigh the type of car insurance each job provided, and see if it meets your needs. Doesn’t that seem unnecessarily complex? Why not just get money from your job, and be free to pick and buy the car insurance you want? And yet it seems scary to do so for medical coverage. I think steamlining benefits results in more benefit choices and more transparent job comparisons.

hannahkatz
hannahkatz
1 year ago

Exactly right. But for many execs, all they see in cutting benefits to employees and retirees is a lowering of operating costs, and thus increased bonuses for themselves.

corrupt
corrupt
1 year ago
Reply to  hannahkatz

It’s not always that easy. The company I helped set benefits for was in a competitive environment. At some point, it was impossible to maintain our previous policy of paying for all employee and family medical premiums and still win a contract. Decisions on which benefits should be maintained and which should require employee contributions were tough, and executives had to live with the same benefits.

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