The 401(k) Monster

Wjfhile many studies suggest that employee ownership of stock in their companies creates loyalty to the company (and increases in productivity), I view it in a different light, based partly from my own experience. I worked in a consulting firm, which was privately owned (but bought out by a public company after I left). Upon it's buy-out, current employees were not given any proceeds in the sale (nor any stake in company), despite that their contributions were responsible (in part) for the sale. In fact, during the transition period, some employees were laid off. Employee ownership and companies' "matching" contributions to 401(k) plans are nothing more than blackmail. Even leaving aside the downside risks of employee-ownership (noting Enron as a prime example where employees were encouraged to buy Enron stock for their 401(k)s as management was selling), the increase in 401(k) plans and increased stock-option distribution has turned into a form of blackmail. Under most stock-option plans, employees must remain with the company for many years (usually between 2 and 5 years) to be able to excersize their options. In the intervening period, their stocks can rise to high levels or plummet to depths near zero. Furthermore, the provision of 401(k) plans is also problematic. It increases the risk on the employee while decreasing the risk for the firm because it is a defined-contribution plan, rather than a defined-benefit plan. The employee, not the firm, is responsible monetarily for the movement of the investments made, over which they often have little control. In addition, there is the downside risk created by the requirement that to be eligible for matching contributions (or at least to have them vested), the employee must work at the company for between 2 (for partial vesting) to 5 (for full vesting) years. Between these two forces, the company can use these benefits as leverage to keep wage growth low and benefits stationary. There is little incentive for big increases in wages or benefits as long as the employee knows that much of the compensation (in terms of stock-options or 401(k) matching contributions) will disappear if they leave the firm.