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On August 31, 2024 Jonathan wrote What We Believed which included the following. How right he is. I experienced it first hand over my near fifty years working for the same employer.
“Employers care. My parents worked for a paternalistic employer, and I certainly thought of my initial employers in those terms. But how many folks today believe that, if they work hard, their employer will return that loyalty and that their job is truly safe? The evisceration of that social contract has, I believe, left us all worse off, both workers and their employers.”
However, there is no such thing as “the employer” or “the Company.” Those terms mask the real culprit – the individuals running the show, the mid-level decision makers looking to make a mark on their careers, those looking for recognition for (mostly) saving money and boosting corporate earnings.
Since I retired my former employer has made several changes that were unnecessary (because gradual cost cutting changes were already in place) and can accurately be described as greed.
Promised future pension benefits were reduced so that the amount anticipated – and shown in company-provided retirement estimators – was significantly reduced thereby disrupting the plans of many employees. Why? A consultant concluded that the combination of pension, Social Security and 401k was providing too much retirement income ignoring the fact that most of the future income was employee or stock market funded.
While working I had negotiated retiree health benefits. I, the unions and retirees believed they were secure. Three years ago that commitment was broken for Medicare eligible retirees. Company medical, dental and Rx coverage was eliminated and replaced with use of a insurance broker to offer insurance and a company Health Reimbursement Account (HRA) to help pay for Medicare supplemental coverage. The HRA contribution increases by 1.5% a year while the premiums retirees pay increase at 6% to 8% per year. The Company now had a defined contribution plan while shifting future increases to retirees who retired (rightly) believing they had coverage for life. The move saved the company billions in future liabilities. Because of the radical change associated with prescription drug coverage many retirees were financially devastated.
Once a company recognized as a great place to work is now frequently maligned as untrustworthy. All because of the actions of individuals with their own short-term personal agendas.
I think it both is and isn’t about people. I think the corporate machine is largely bigger than any indivdual with the exception of certain egomaniacs like Musk and Bezos. But that does mean that execs and CEOs know they are playing a short term game to maximise value ( and their vesting stock/bonuses) over a 3-5 year horizon rather than creating a career long legacy.
And when leadership see themselves as expendable, woe betide any regular employee who expects a more caring and nurturing environment. As investors maybe we should be glad that a relentless and thankless focus on delivering the numbers is so prevalent. As consumers and employees maybe less so.
Leaving aside the fact that executive comp
in the U.S. is a scandal, isn’t it better to
have institutions that manage long term
liabilities in a responsible manner rather
than have them threaten the company’s
future ?
The auto industry was never able to deal
with retiree health care and the result
was bankruptcies at GM and Chrysler and
extreme financial stress at Ford.
Many public sector pension plans
and retiree health plans are huge
headaches as well – will not go into the
causes.
Maybe a good approach for companies
like Mr. Quinn’s would be to provide
some stock options to employees losing
expected but not contractually promised
benefits.
Executives may make final approval for changes, but they rarely come up with the ideas, that is middle and upper managers.
I don’t agree exec comp is a scandal. It’s paid for by shareholders and takes nothing from workers despite the rhetoric claiming otherwise.
The problems of the auto industry were caused by poor management and greedy unions resulting in unsustainable liabilities. The same is true for public sector pensions and benefits – the unholy alliance between unions and politicians. I was on several governor task forces evaluating these arrangements.
I agree, there should be both stock incentives and some profit sharing.