At Work

Great idea, but does Sen Sanders understand?

Senator Sanders wants to promote employee ownership. I agree, it is a good idea, but I don’t think he understands how business works or how workers would benefit.

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3 replies »

  1. Actually, Employee Stock Ownership Plans have been demonstrated to be effective at improving productivity, in turn improving corporate performance. They are also effective at transferring ownership of the enterprise from the entrepreneur to the employees. See academic work at Rutgers for example.

    Unfortunately, that is not what Mr. Sanders espouses. His proposals would:
    – ” … require large businesses to regularly contribute a portion of their stocks to a fund controlled by employees, which would pay out a regular dividend to the workers. Some models of this fund increase employees’ ownership stake in the company, making the workers a powerful voting shareholder. …” and
    – “… force corporations to give workers a share of the seats on their boards of directors. …”

    In that manner, the changes will create new entitlements that can only be accommodated by adjusting other aspects of the total rewards offered to workers. Much like health reform and other misguided concepts, this substitutes Senator Sander’s priorities for the enterprise’s and worker’s goals. For example, where there are represented employees in place, nothing stops them from negotiating over the same two items (perhaps not bargain to impass, but negotiate just the same).

    With exceptions, few unions are really interested in requiring workers to take compensation in the form of equity in the employing entity. Many workers who do have been disappointed – one of the most common ERISA class action lawsuits are something called “stock drop” suits.

    Similarly, didn’t we just go through the ENRON and other comparable scandals. Today, look at KraftHeinz were a significant portion of employees retirement savings assets are invested in KraftHeinz stock, in turn now the subject of stock drop litigation. Similarly, unions typically don’t want to take board seats, lest they have to vote in favor of something the rank and file might disagree with (plant closing, etc.)

    So, when Bernie says workers get to be owners of stock and get a share of the seats on the board, what he is really talking about is increasing the unionization of the private workforce (who would actually be sitting on the board as employee representatives), as a means of gaining added dues, and in turn, campaign contributions. In turn, those monies would fund added government control over private industry, and in turn, private lives – until, of course, all is consistent with Bernie’s “democratic” socialism. Any other motives for this stuff are clearly secondary.

    Here’s an example of Bernie at work. Back when Bernie was a congressman from Vermont, he held up legislation to insert instructions to the Treasury Department/IRS, that they could not finalize regulations that applied to “cash balance” formula defined benefit pension plans. He thought that if the Treasury could not provide guidance, employers would not convert their more traditional, final average pay formula plans to cash balance formula plans. What he never understood, and still doesn’t today, is that the private sector plan sponsor’s choice is not between a cash balance formula pension plan and a final average pay formula pension plan, but between any pension plan and no pension plan at all. Since he took that action in the early 2000’s, since eliminated (we got final regulations in 2014, 10+ years later), we have seen the percentage of employers who sponsor defined benefit pension plans (cash balance or final average pay formula) decline to less than 5%.

    See: https://www.towerswatson.com/en/insights/newsletters/americas/insider/2016/02/a-continuing-shift-in-retirement-offerings-in-the-fortune-500 https://www.forbes.com/2003/04/16/cz_jn_0416beltway.html#4f5c786b47ce

    Restricting pension plans and limiting employer flexibility will only lead more and more employers to the exits – regardless of the topic or issue

    Thank you Senator Sanders!

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