Where's the Outrage Against Clandestine Pay Cuts?

            Where’s the outrage?

            According to an article by Aaron Gregg in the Business Section of last Sunday’s Washington Post, Washington area companies have been dumbing down their compensation packages and replacing them with cheap life-style enhancers.

            Gregg was reporting on a survey by the Human Resources Association of the National Capital Area.  The survey found that D.C. metro companies were poised to spend only 26.3% of their compensation budgets on employee benefits.  This is the lowest percentage in 9 years.

            Employees are being asked to absorb higher health insurance deductibles and lower contributions to 401(k) plans.  In return, companies are expanding wellness programs, maternity leave, tuition reimbursements and telecommuting.

            This, of course, gives employers more flexibility in employee compensation down the road. “If you took a wellness program away, who would care?” asked Joan Passerino who served on the survey committee.

            Let’s get something straight.  Employee benefits are not merely the cherries on the sundae that consists of cash compensation.  Employee benefits are as much a part of an employee’s compensation package as his or her cash salary.

            I’ve had to manage employee compensation for the last twenty years at our small company.  Get out your green eyeshades, and let me tell you how businesses really look at it.

            Our employees do marvelous work for us, and we’re truly grateful.  But, when we consider our company’s finances, the gratitude we feel gets boiled down to a few line items on our profit and loss statement, right after the line items for telephones, office supplies and general insurance.

            From my standpoint in management, for any year, we only budget so much for employee compensation.  It doesn’t matter to us at all whether we pay our employees entirely in cash or with some combination of cash and benefits.  On the P &L, a benefits dollar looks exactly the same as a cash salary dollar.  All we care about is whether total employee cost is within budget and whether our employees are happy with their entire compensation packages.

            Until recently, our employees preferred to take part of their compensation in cash, part in the form of health benefits and part in the form of pension benefits.  Some of our employees had “pre-existing conditions” that would have prevented them from getting reasonably priced insurance outside of our group.  Under the Affordable Care Act, insurers can no longer take “pre-existing conditions” into account and so that incentive to have my company pay for insurance no longer exists.

            We have consistently paid 100% of our employees’ premiums.  We thought that was the more honest way to discuss employee compensation with our employees. When you look at employee compensation like that, everyone gets a clear idea about how much compensation our employees are getting in return for doing the great work they do for us.

            But when employers adopt health insurance plans with deductibles and co-pays higher than they were in previous years or they tell their employees that they’re going to reduce contributions to retirement plans, they frame their actions in terms of the general increase in prices and the need for greater “employee responsibility.”  They never frame these moves as the pay cuts that they really are.

            The most egregious example of this comes when the public, goaded on by politicians such as Republican presidential candidate Gov. Scott Walker of Wisconsin, turns a jaundiced eye upon the compensation of the teachers, firefighters, police and other public employees.  It’s a hard sell to insist that a teacher’s salary is too high and needs to be cut in order to balance the locality’s budget.  It’s much easier to complain that civil servants get benefits that are far more generous than are available in the private sector.

            Civil servants and the unions that represent them aren’t dumb.  They are simply taking advantage of the fact that the value of employee benefits aren’t taxable, and so these employees and their unions rationally choose to allocate as much of their earnings to benefits as they can. 

            And, employers who offer pensions and other deferred compensation benefits aren’t dumb either.  Money needed in the future doesn’t affect a current profit and loss statement or municipal budget.  Such employers are betting on the come, hoping that when the money is required it will be there.  That’s why, as of 2014, unfunded state pension liabilities amounted about $4.7 trillion and private unfunded pension liabilities for S & P 500 companies were in the hundreds of billions of dollars in 2012.

            I have little sympathy for employers whose profits have gone through the roof since the Great Recession.  And I also don’t have any sympathy for public officials who are too cowardly to raise the taxes they need to pay their employees fairly.  I don’t see why employees should have any sympathy either.