Earlier this month, Delta Air Lines announced that it was paying out over $1.1 billion in profit sharing to its more than 80,000 employees, which Fortune reported was the second-largest payout in its history after the $1.5 billion it shared last year. Over the past five years, Delta said it had paid out nearly $5 billion through its profit sharing program, which returns 20 percent of its annual pre-tax profits to the employees if they exceed $2.5 billion and 10 percent if not.
Profit sharing has become an increasingly common feature of progressive employers in recent years, in sectors from manufacturing to tech and show business. Advocates have touted it as a potential remedy to the problem of wage stagnation at a time when many corporations are posting record profits.
The good news for Delta’s employees was somewhat less welcome to its competitors, however. At American Airlines, which introduced profit sharing in 2016 at a rate of 5 percent, and whose profits for 2017 were smaller than Delta’s, employees are “concerned because their profit sharing rate is less than at either Delta or United,” Ted Reed observed at Forbes:
A Delta captain will get a payout of $29,000 to $59,000, according to the Allied Pilots Association, which represents 15,000 American pilots, while a United captain gets between $9,300 and $20,500 and an American captain gets $3,600 to $7,500. … The union wants to discuss higher profit sharing with management, APA spokesman Dennis Tajer said Wednesday.
A new union deal in Germany covering some 120,000 Volkswagen workers will give some of them the option of swapping some of their pay for additional time off, CNN Money reports:
Volkswagen said the workers will get a 4.3% pay rise starting in May, and from 2019 an extra 2.3% bonus and more pension benefits. Night shift workers, and those caring for children and elderly relatives, can swap the new bonus for six extra days off. If they do, they’ll be entitled to about 45 paid days off each year, including public holidays.
Volkswagen Group — which also owns the Audi and Porsche brands — employs about 286,000 workers in Germany and 350,000 in other countries. German workers are taking advantage of low unemployment and strong economic growth to flex their muscles at the negotiating table.
The deal between Volkswagen and the IG Metall labor union comes after the first strikes the company had seen since 2004, Reuters adds, and represents a compromise between the union’s demands for a 6 percent raise and the company’s initial offer of 3.5 percent initially and a further 2 percent over 30 months. It also includes a significant boost in the amount of money Volkswagen contributes to employees’ pensions, from 27 euros a month to 90, and then to 98 euros starting in 2020. In exchange for these concessions, Volkswagen secured the right to ask five to ten percent of the workers covered in the agreement to temporarily increase their working hours from 35 to 40 a week.
In an op-ed at the Guardian on Saturday, UK Prime Minister Theresa May pledged that her government would take further action this year to rein in what she described as abusive behavior by a minority of British companies that fail to safeguard their employees’ pensions:
In the spring, we will set out new tough new rules for executives who try to line their own pockets by putting their workers’ pensions at risk – an unacceptable abuse that we will end. By this time next year, all listed companies will have to reveal the pay ratio between bosses and workers. Companies will also have to explain how they take into account their employees’ interests at board level, giving unscrupulous employers nowhere to hide.
And, for the first time, businesses will have to demonstrate that they have taken into account the long-term consequences of their decisions. Too often, we’ve seen top executives reaping big bonuses for recklessly putting short-term profit ahead of long-term success. Our best businesses know that is not a responsible way to run a company and those who do so will be forced to explain themselves.
May’s announcement came days after Carillion, the UK’s second-largest construction company, went into compulsory liquidation. The collapse of the company puts as many as 43,000 jobs at risk worldwide, including 19,500 in the UK, and threatens to leave as many as 30,000 subcontractors unpaid. Carillion’s insolvency will also mean delays or disruptions in a number of major public-private partnerships in which the firm is involved.
Although US employers’ contributions to their employees’ 401(k) plans appear to be growing, Americans’ overall retirement benefits have fallen sharply in the past decade and a half as more organizations shifted from defined-benefit pensions to defined-contribution plans like the 401(k), Bloomberg’s Ben Steverman reported last week, citing a new report from Willis Towers Watson:
Retirement benefits — including employer contributions to pensions, 401(k)s and retiree health-care benefits — fell from 9.1% of worker pay in 2001 to 6.8% in 2015. Spending on traditional pensions plunged 76%, to less than 1% of worker pay. Medical benefits for retired workers became increasingly scant, falling from 1.2% of worker pay to just 0.2%.
The good news is that many companies, while shutting down or freezing pension plans, have sweetened their 401(k) matching contributions. … But higher 401(k) matches aren’t making up for the loss of other retirement benefits overall, and even the most generous 401(k) plans usually lack a traditional pension’s biggest selling point: a guaranteed income for life. With a 401(k), it’s up to individual workers to figure out how much they should be saving — and how to make the money last, once they’ve retired.
This doesn’t necessarily mean employers are spending less on employee benefits, but rather that more of their money is going toward health insurance instead: Willis Towers Watson found that average spending on health care as a percentage of employees’ pay increased from 5.7 percent to 11.5 percent between 2001 and 2015. “Unfortunately,” Steverman adds, “the rising cost of health care is hitting Americans twice” as the cost of insurance is leaving them and their employers with less money to invest in retirement planning, and as they face even higher medical bills in retirement if current cost trends continue.
The growth of the gig economy and increasingly independent relationships between employers and employees has raised some important questions about the future of HR and particularly how working people will receive benefits when more and more of them are no longer traditional, full-time employees of a single enterprise? At a moment when the benefits space is ripe for innovation, it’s interesting to look at how workers in non-typical fields of employment are coping with challenges in this area.
Professional artists, for instance, typically make their living in big chunks rather than steady paychecks, receiving grants or selling work on an irregular basis, so their unpredictable earnings make long-term financial planning difficult, to say nothing of retirement planning. BBC business reporter Zoe Thomas profiles a New York-based organization called Artist Pension Trust, which has devised a way for artists to invest their work, rather than their money, in a group pension fund:
“The idea was to share the risk of financial insecurity,” said Al Brenner, chief executive of Mutual Art, the organisation that owns APT. Like traditional pensions or trusts, APT works by pooling resources and sharing the value that is gained over time with its member. But rather than putting in money APT members must hand in 20 pieces of their art over 20 years. APT keeps the art typically for ten years, often displaying it at exhibitions and museums before selling and distributing the proceeds. …
APT has set up trusts across the world in cities including New York, London, Los Angeles, Mexico City, and Beijing. The number of members in each trust is limited to 250. Artists are hoping to benefit not just from the increase in the value of their work but in the value of others work.
The Wall Street Journal’s Timothy Martin talks to some of the original proponents of the 401(k) who have since changed their tune about the effectiveness of the savings plan:
What [former Johnson & Johnson human resources executive Herbert] Whitehouse and other proponents didn’t anticipate was that the tax-deferred savings tool would largely replace pensions as big employers looked for ways to cut expenses. …
Many early backers of the 401(k) now say they have regrets about how their creation turned out despite its emergence as the dominant way most Americans save. Some say it wasn’t designed to be a primary retirement tool and acknowledge they used forecasts that were too optimistic to sell the plan in its early days. Others say the proliferation of 401(k) plans has exposed workers to big drops in the stock market and high fees from Wall Street money managers while making it easier for companies to shed guaranteed retiree payouts.
It’s not news that the US workforce has a major deficiency in retirement readiness, especially among low-income workers. Helaine Olen at Slate digs deeper into why 401(k)s haven’t solved that problem, and likely won’t, even if more organizations begin auto-enrolling their employees:
Many companies already do auto-enroll their workers, but as of now employers aren’t required to even offer a 401(k) and they’re certainly not required to offer a match—and if they do match, they can stop at any point. Given the political climate in Washington, it’s hard to believe any of that will change soon.
As the UK government prepares to implement the country’s withdrawal from the EU, a new report finds that Brexit may have a severe impact on British employees’ retirement savings, Sophie-Marie Odum reports at the CIPD’s People Management blog:
Falling interest rates and weak post-Brexit growth predictions mean that three-quarters (75 per cent) of UK workers are at risk of receiving a retirement income that’s below the government’s recommended minimum level, according to a new report. Based on the analysis of 500,000 defined contribution (DC) savers pension plans, consultancy firm Hymans Robertson found that 50 per cent of workers have an extremely low chance of reaching the level of retirement income regarded as appropriate by the Department for Work and Pensions (DWP). Only 25 per cent have a good chance of meeting that level. Many workers paying into DC schemes will therefore need to pay more into their pensions, accept a lower income in retirement or work for longer. …
According to DWP calculations, a UK worker with an average annual salary of £30,000 would need a pension of £20,000 per year to maintain their standard of living, which takes into account reduced living costs during retirement. Someone who retired on a salary of £70,000 would need around £35,000 a year. The cumulative effect means that people could be working into their 80s before they have a pension they can retire on, said Richard Farr, managing director at Lincoln Pensions. “Brexit may be liberating in the long run, but in the short term it will be carnage.”
Brexit also stands to harm the UK’s National Health Service, which relies heavily on foreign labor, according to another report released last week. If its 57,000 current employees from the EU were to leave, the Institute of Public Policy Research warned, the public health care system “would collapse”:
“It is critical to public health that these workers do not seek jobs elsewhere. All EU nationals who work for the NHS, or as locums in the NHS system, should be eligible to apply for British citizenship. This offer should be organized by the regional NHS and mental health trusts, who would be responsible for writing to all NHS staff who are EU nationals to inform them of their eligibility,” [IPPR research fellow Chris Murray] added.