Outten & Golden: Empowering Employees in the Workplace

What's Happening with Your Job Benefits?

March 24th, 2003 | Paula Brantner

In tough economic times, the conventional workplace wisdom is that companies scale back their benefit programs. Not only is cost cutting a significant concern, with benefit cuts marginally more palatable than layoffs, but some companies may feel less pressed to offer comprehensive benefit packages when the job market is much less competitive. So you might guess that many or most companies are cutting back on benefits right now. You may only be partially right, however–some companies are cutting back, while others still offer an increasing number of job perks, and continue to look for new ways to reward their employees. And some think that even the cuts may not last long.

First, the cutbacks: Charles Schwab, a company itself known for championing retirement savings and 401(k) plans through its eponymous founder, recently announced that it would no longer make matching contributions to employees’ retirement plans. (See New York Times article–free registration required). Schwab’s 401(k) plan had been among the more generous plans out there, offering participating employees $2 for every $1 they put into their accounts, up to $250 a year, and then matching employee contributions dollar-for-dollar, up to 5 percent of their annual compensation. Schwab announced the 401(k) cutbacks were in lieu of further layoffs, as the company has already reduced its workforce by 35 percent–a total of 9,000 jobs have been eliminated since the end of 2000. Schwab joins some other major employers who have also eliminated 401(k) matches, such as Goodyear Tire and Rubber, Great Northern Paper, Tech Data, the El Paso Corporation and the CMS Energy Company. While data is hard to come by, since most is not available for the last couple of years and thus does not reflect the decline in economic conditions, one survey showed a decline in the average percentage matched between 1999 and 2000, from 3.3 percent to 2.5 percent, which held steady in 2001.

Is this a sign of a longer-term trend, that we will see as long as the economy is weak and perhaps even beyond? Some experts don’t think so. One analyst pointed out that cutting the 401(k) match is a drastic and high-profile move, and that some of his clients had thus opted to make less visible benefit cuts, such as increasing the amount that employees pay for health care benefits. (See Houston Chronicle article.) Another believes that there are other ways to cut costs, likening the cut of 401(k) matches to “using a hatchet when a scalpel would be more appropriate.” While some employees may think that other benefits, such as health care, are more important, some experts believe that employees now expect company-matched contributions to be part of a basic benefits package, and that it will be important for companies to maintain the matches to compete for workers. Many of the companies that have announced cuts in matching contributions have publicly claimed that the cuts are only intended to be temporary, due to the poor economic condition of the company at the time of the announcement. It is therefore likely that company employees will be keeping a very close eye on the bottom line as they push for a quick restoration of a benefit that may have played a role in inducing them to accept employment with that particular company.

The relative ease with which employers have announced these 401(k) cuts is also a reminder of how 401(k) plans may offer less protections to employees than defined benefit pension plans. As union official Jesse Sanchez, who works at Goodyear, one of the companies recently announcing cuts, remarked, “this just goes to show what can happen when a company sweetens its 401(k) plan while it eliminates its more traditional defined benefit program — there’s no protection.” Sanchez has always viewed 401(k) plans as a supplement to a traditional company pension; now he is even more convinced of that.

And now for some of the perks that have survived our current economic decline: aside from benefits like flex time, family leave, and on-site day care, which are common if not common enough, workers at Edelman, a global public relations firm based in New York and Chicago, have a few additional perks. (See Carol Kleiman’s Working column.) Edelman has instituted an annual employees awards program that provides one week of extra vacation and $1,000 for 10 employees each year to “pursue a passion.” To qualify, employees submit in writing exactly what they dream of doing. Edelman also offers its Chicago employees monthly on-site manicures and massages. High-tech firms continue to lead the way in extra and more off-beat perks: The Omni Group, a Seattle software company, was considered a perks leader back in 1997 when it installed a big-screen TV, game systems and a Foosball table. Today its 25 employees enjoy two big-screen TVs, two pinball machines, a pool table, free home maid service, free in-house massages and two meals a day cooked by an on-site chef. (See Seattle Times article.) Another Seattle technology company, Aventail, raised the employee contribution for certain health plans but still offers a Friday beer cart, subsidized gym memberships, on-site massages, bus allowances and free sodas. It’s no secret why companies choose these kind of lifestyle-oriented benefits, however: According to The Omni Group’s president, “It’s a business strategy…One of our original goals was to free people’s time so they could work more.” Companies also hope that these extra perks will help retain quality employees, as the cost of training replacements can be very high, especially in some specialized workplaces.

While a massage or a manicure is certainly no real substitute for a 401(k) contribution or health care subsidy, in workplaces where those benefits are already necessary to attract talented employees, they can make certain companies stand out above the rest. Let’s hope that enough companies continue to retain attractive benefit packages that even the companies facing financial difficulties in these tough economic times will be forced to find some other place to make cuts, instead of compromising the retirement plans of their employees.

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One Response to “What's Happening with Your Job Benefits?”

  1. Melba Stuesse Says:

    Just thought I would check back on your blog. Thanks for the good posts.

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