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Have companies grown too big? As companies merge or buy out other companies, fewer employees have fewer employment choices. Limited competition leads to a reduction in employee benefits as companies can reduce benefits and increase profit. This leaves the employee on the hook with more expenses and less capital for savings.
The trend is for employer-provided health insurance rates to increase while delivering less. The average retirement age is going up. The average family is saving less than they should. By all measures, employees are working more for less. Corporate social morals are now under scrutiny as new rules require companies to disclose their chief executive pay with the pay of their median employee (McGregor 2018).
The days of great employee benefit packages are far behind us with the current market. As companies look to make every bit of profit to satisfy shareholders, employee benefits are in decline. Employee Benefit News reports that several benefits are on the way out or are being reduced. Incentive bonus plans, some healthcare procedures, wellness programs, and housing and relocation benefits are all being reduced or eliminated (Mayer 2018).
The cost of healthcare plans is increasing and healthcare related bankruptcies are rising, tripling in 2017 alone (Ellison 2017). The trend is to shift the cost of healthcare to employees, with some plans leaving participants financially vulnerable. In 2016, nearly a quarter of working-age adults with job-based coverage had such high out-of-pocket costs and deductibles relative to their income that they were effectively “underinsured.” (Blumenthal 2017)
We’ve seen the retirement age steadily increase (Munnell 2017) with fewer people retiring (Nova 2018). For men, the average retirement age is back to levels not seen since 1960. From the 1960s to the mid-1990s, the average retirement age for men was in decline but has steadily increased since the mid-1990s. For women, the average retirement age has been on a steady increase since the 1960s.
When looking at how much Americans are saving, the data shows the average savings rate has increased since 1995 but is still below healthy levels. More households are at risk of not having enough savings to cover unplanned expenses. Some blame the higher costs of living with housing and healthcare being top concerns. The current savings rate is near 7% when most economists agree that 10-15% is a healthy savings rate for the average family (Frankel 2016).
Reducing employee benefits to bolster profit is a shift of burden from corporations to the employee. Ultimately this is a shift to the tax base when employees need government assistance. The retirement age, healthcare cost, bankruptcies and employee savings all factor to make someone at risk for needing public help.
To change the trend, how do you incentivize corporations to provide better benefits and take more social responsibility?
I posted this question on Facebook:
“What do you think?
What if corporate taxes linked to a company’s commitment to employee social responsibility? Lower tax rates for no gender wage gap, lower rates for more favorable CEO to median wage rates, lower rates for better healthcare plans. Lower rates for better profit-sharing plans? Lower rates for better 401K plans?
Give companies the choice of lower taxes for social responsibility or higher taxes for none?
If companies are more socially responsible than the burden on the government is lessened – hence the associated reductions in taxes. The key is giving the companies the choice. Will the free market reward companies who choose to be socially responsible? Should companies be rewarded for social responsibility?”
The results of the Facebook post were mixed. One person (whom I used to work for) attacked me. He said, “you’ve obviously never signed the front of a paycheck, only the back”. One commented that the free market takes care of this. Others said they thought it was a good idea however they didn’t know to implement it fairly. Religion even came up. Clearly, this was a sensitive issue.
I believe a large part of the issue is that we no longer operate within a free market, but rather a manipulated market. With too-big-to-fail banks and unfettered mergers, a few mega-corporations control most the employment. The free market no longer keeps them accountable and employees get fewer choices for employment.
The show “Dirty Money” on Netflix highlighted the state of the healthcare industry. The episode titled “Drug Short” showed how the company “Valeant” gobbled up over 100 smaller pharmaceutical companies. They cut research and development and kept drug prices high. This reduced the choices that the consumers had and also eliminated over 100 companies in this market providing competitive employment.
A look at the tool industry shows that a few companies control the market. According to an article in Popular Mechanics, just 18 mega brands control 91 percent of the global power tools market (Grossman 2017). The article highlights a graphic from PressureWashr.com showing that of those 18 brands, only four companies control 48 percent of the market.
It’s the same story in the grocery store. Business Insider reports that 10 brands control just about everything you buy in the grocery store (Taylor 2016).
Still think there is a “free market”? These “mega companies” did not create all the different brands. They gained the majority through mergers and acquisitions (M&A). With each M&A, employees get fewer and fewer choices for employment. With each M&A, the gaining company has less and less need to provide competitive benefits. The employees can take it or leave it.
Employees with specialized skills are particularly impacted by this not-so-free market. In a normal “free” market scientists, engineers, financial analysts, and other skilled positions are free to move to the companies with the most competitive compensation, benefits, and work life. Now employees must choose between a handful of mega-corps. If something constrains an employee to a single geographical area, the employee’s choices are even more limited.
This is not how a free market works. In a normal free market, competition will drive employers to provide healthy compensation packages. Without competition, the companies do not have a reason to provide these benefits. The result is a reliance of a greater portion of the population to rely on government assistance. Retirement plans, healthcare, and other benefits typically have provided a way for employees and retirees to be self-sufficient.
If employees save for retirement, their retirement savings and social security will carry that employee and their family through the golden years without government help. With the rising cost of healthcare, and reduced benefits that employees are getting, one of the first thing to get cut from the personal budget is additional retirement savings.
Most companies have cut pensions altogether, so it’s up to the employee to save for retirement. In some plans, the company will match a contribution to a retirement savings plan. A common match is only a few percent (2-3%). This is far below what companies used to contribute to employee retirement savings. This reduction in retirement savings leaves the government at risk of caring for someone who worked their entire life and who should have sufficient retirement savings, but who now needs government help.
Healthcare is another area where employees are paying more and receiving less. Medical costs are out of control in the United States. The average employee is finding it more difficult to use the healthcare system. High deductible healthcare plans have become the norm and employees need to budget thousands extra to pay for medical bills before the “insurance” kicks in. Compounding this problem is the states failing to implement meaningful regulation of large insurance companies. The insurance companies can deny claims and pay doctors as little as they choose. All this leaves the employee with extra expenses or little or no access to healthcare.
In a normal “free” market, these issues with healthcare would not exist. The company (and not the employee) is the end customer for the health insurance. The healthcare plans reflect what is important to the customer. The companies wants the lowest cost health insurance and the health insurance companies have delivered. High deductible plans cost the company less and shift the costs to the employee. If the employee was the end user, these plans would not exist. Healthy competition would keep insurance benefits reasonable.
When employees run out of resources to pay for healthcare, it’s not the company that picks up the tab. It’s the rest of the tax base. Employees declare bankruptcy, costing all citizens more in the cost of healthcare and driving up basic lending rates. With no funds for a healthcare plan, employees resort to using the emergency room. Some are forced onto welfare.
The bailouts and the lack of controls on mergers and acquisitions (M&A) are at fault, however, we cannot go back. How do you get these corporations to make sure they take care of their employees? If the companies take care of employees, then the burden on the tax base is reduced. So why not use taxes to sway the pendulum?
I think we can change corporate behaviors with a few tax incentives based on rating the companies social responsibility to the employee. Here is an example:
An employer healthcare plan would be rated using a standard method on a scale of 1 to 5. The amount of the tax credit would be linked to the plan rating. A 5-star plan would get the full credit. For each missing star, the tax credit would be reduced 25%. The one-star plans would not get any credit.
The two big areas where this would help drive corporate behavior is healthcare and retirement plans. Similar methods could be used to for other areas including:
- Wage gaps for women and minorities
- CEO to median wage ratio
- Profit-sharing plans
- Labor stability (layoffs, use of temporary workers)
- The rate of employee suicides
- Mental health policies
Start the tax rate high to compensate for the burden the company places on the tax base. Offer tax incentives for meeting or exceeding each of these measures. Companies can choose which tax incentives to use.
Will companies look at this formula and try to balance the cost of each program to the tax savings? Absolutely. The formula will need to give an incentive to have these socially responsible policies. I believe the key is to give the companies the choice.
The government could publish which companies received tax credits and which did not. Job candidates can use these measures when choosing an employer. Consumers can use this information when deciding what companies to do business with. Job candidate and consumer behavior will drive company policies.
Is this right for all companies? Absolutely not. Like any policy, it needs exceptions. Different rates for non-profits and small businesses are appropriate.
Would a policy like this drive corporate behavior? Absolutely. Would the American corporate employee benefit? Absolutely. Would consumer behavior drive corporate behavior? Absolutely. This gives the company the choice and rewards that same company for doing the right thing. It’s a great solution that embodies freedom while also ensuring social responsibility.
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Citations:
Blumenthal, David. 2017. “The Decline of Employer-Sponsored Health Insurance.” December 5, 2017. https://www.commonwealthfund.org/blog/2017/decline-employer-sponsored-health-insurance.
Ellison, Ayla. 2017. “Healthcare Bankruptcies More than Triple in 2017.” November 28, 2017. https://www.beckershospitalreview.com/finance/healthcare-bankruptcies-more-than-triple-in-2017.html.
Frankel, Matthew. 2016. “Here’s the Average American’s Savings Rate — The Motley Fool.” October 3, 2016. https://www.fool.com/saving/2016/10/03/heres-the-average-americans-savings-rate.aspx.
Grossman, David. 2017. “Four Companies Sell 48 Percent of Power Tools.” September 26, 2017. https://www.popularmechanics.com/technology/gear/a28359/megabrands-tools-graphic/.
Mayer, Kathryn. 2018. “Employee Benefits on the Decline | Employee Benefit News.” August 14, 2018. https://www.benefitnews.com/slideshow/employee-benefits-on-the-decline.
McGregor, Jena. 2018. “As Companies Reveal Gigantic CEO-to-Worker Pay Ratios, Some Worry How Low-Paid Workers Might Take the News – The Washington Post.” February 21, 2018. https://www.washingtonpost.com/news/on-leadership/wp/2018/02/21/as-companies-reveal-gigantic-ceo-to-worker-pay-ratios-some-worry-how-low-paid-workers-might-take-the-news/?utm_term=.50d35986aa2d.
Munnell, Alicia. 2017. “Why the Average Retirement Age Is Rising – MarketWatch.” October 15, 2017. https://www.marketwatch.com/story/why-the-average-retirement-age-is-rising-2017-10-09.
Nova, Annie. 2018. “Almost Half of Americans Don’t Expect to Have Enough Money to Retire Comfortably — but There’s Some Good News.” May 9, 2018. https://www.cnbc.com/2018/05/09/almost-half-of-americans-dont-expect-to-have-enough-money-to-retire-comfortably–but-theres-some-good-news.html.
Taylor, Kate. 2016. “These 10 Companies Control Everything You Buy.” Business Insider. September 28, 2016. https://www.businessinsider.com/10-companies-control-the-food-industry-2016-9.
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