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More Cos Save Money At Employees' Expense
03/25/03
By: Cheryl Winokur Munk and Lynn Cowan, Dow Jones Newswires
Workers lucky enough to hold on to their jobs nowadays are finding themselves in the unfortunate position of having their health and retirement benefits cut as their employers scrimp to save money.
As the economic downturn drags on, companies are increasingly looking for ways to improve the bottom line. Goodyear Tire & Rubber Co. (GT), El Paso Corp. (EP) and Charles Schwab Corp. (SCG), for example, are among a growing list of companies to temporarily suspend their 401(k) matching programs. Meanwhile, bankrupt U.S. Airways Group Inc. (UAWGQ) is trying to terminate its pension plan for pilots to emerge from Chapter 11; Northwest Airlines Corp. (NWAC) has begun requiring employees to pay 20% of the cost of their health care coverage; and insurer Aetna Inc. (AET) is phasing out the subsidy it pays on future retirees' health care coverage.
Still other companies have eliminated certain morale-boosters that many employees had come to expect. Privately-held Mindbridge Software, Philadelphia, for example, has cut out its quarterly employee-appreciation days, which gave staffers the day off to participate in a company-sponsored treat such as golfing and boating.
"I'm sure people don't like that but there are goals we need to make," said Scott Testa, the company's chief operating officer.
Although employee benefit cutbacks aren't yet a standard means of penny pinching for American corporations, it could become more prevalent if the business environment continues to stagnate, said Alan Johnson, managing director of Johnson Associates, a New York compensation consulting firm.
"Depending on how the economy goes, we're going to see more of these (negative changes for employees)," said Johnson. "We haven't had that much of it yet, but with the labor market in the state it's in, it could grow.
"Moves by companies to cut benefits come at a time when disgruntled employees don't have much recourse. With unemployment hovering at 5.8%, quitting and finding a new position isn't as easy as it was in the late 1990s, when many employers were enhancing benefits to attract new workers. Unionizing probably won't work in many industries either, Johnson said, since companies can just move jobs to other parts of the world where the cost of labor isn't so high--even, in some cases, for white collar workers.
Still, companies risk losing good employees when business conditions improve if they make cuts indiscriminately.
Many employers are too focused on the here and now and are being "pennywise and pound foolish," said Paul Dorf, founder and managing director of Compensation Resources Inc., a consulting firm in Upper Saddle River, N.J.
Medical benefits are one target for companies looking to save money. With premiums rising, companies that used to absorb much or all of the costs are passing more onto employees. Some are looking to find less expensive providers, while others are switching to plans that carry higher deductibles for employees.
Mindbridge, example, has passed on some of its added costs to its 60 employees. In January, it hiked employees' co-pay for medical insurance about 10%, after its rates went up 25%, Testa, the COO, said.
Another option is to compensate employees who opt-out of the company health plan if they can prove they are covered elsewhere, Dorf said.
That method proved a cost-saver for one regional bank, a client of Dorf's, that was shelling out around $5,000 in medical expenses for each of its 1,500 staffers. The bank offered a $1,500 opt-out and got 300 employees to sign on, producing savings of around $1 million.
While benefit cuts are to be expected during lean times, they are also morale killers among employees who are already jittery about losing their jobs.
"Companies haven't done a great job of communicating what they're doing and why," said Dorf. Even worse is when companies say one thing and do another.
"Nobody likes to have anything taken away from them and no one likes to pay more money," but employee dissatisfaction can be exacerbated when companies are inconsistent, Dorf said. For example, it doesn't sit well with the rank and file when a company freezes their pay and then gives executives fat salary increases and bonuses.
Robert Drago, a professor of labor studies at Pennsylvania State University, said demoralized employees often become less productive, so a quick savings could translate into less revenue in the long run. Although it may seem that scared employees are working harder to hold on to their jobs in this economy, their behavior doesn't always mean improved performance, he said.
"It's bad for production. They're worried about what the boss thinks --they're not worried about doing a good job," said Drago.
Smart companies will look for ways to hold on to benefits and even add some less expensive options, such as introducing flextime schedules to their workforce, Drago said. Meanwhile, companies can save money by subcontracting out services, such as resources for child care and elder care, he said.
Whatever they do, companies should make cutbacks in one swoop, not cut medical benefits one week, the company picnic the next and jobs weeks after that, said Martin Pichinson, co-founder and principal of Sherwood Partners Inc., Los Angeles, an adviser to troubled and fast-growth companies.
Doing it bit by bit pours more salt on employees' wounds every time there's a change, he said. "Piecemeal never did work and it won't work."
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