Advertisement
Employee Benefits

Should Firms Share the Wealth With Workers?

Companies don’t have any general moral obligation to pay more than the market dictates, but it often makes good business sense.

Q: I’ve read that the total profits of U.S. corporations recently hit their all-time highest share of the nation’s annual output—somewhere between 11% and 14% of gross domestic product. At the same time, the share going to labor has fallen to a five- or six-decade low (62% of GDP for total compensation, including benefits, or 44% for cash wages and salaries). This suggests to me that business has the ability—and moral obligation—to start restoring some of the pay and benefits that were slashed in the Great Recession. What do you think?

I agree, but with plenty of caveats. Many businesses have not recovered to their normal levels of sales and profits, and they are appropriately cautious about whether their improved situations will last. And even corporations now enjoying record profits are understandably conflicted about how to deploy their retained earnings: Invest them in internal growth, buy other firms, or reward shareholders with stock buybacks and higher dividends.

Advertisement - Article continues below

As for those highly profitable firms that are giving big cash rewards to their owners and senior executives, I believe they have a moral obligation—and also a strong self-interest—to include their rank-and-file employees in the largess, especially if employees bore more than their fair share of the pain during the slump. This should include bigger year-end bonuses, larger contributions to retirement accounts, and—if the renewed profitability looks secure—higher wages and salaries.

Ultimately, the price of employee compensation is set by supply and demand. Companies don’t have any general moral obligation to pay more than the market dictates, but it often makes good business sense to do so if they can. Strong compensation helps attract and retain the most-talented staff, boosting perform­ance and reducing the cost of turnover. It benefits society, too, because employees are everyone’s customers. Henry Ford, a hard-nosed capitalist, said he paid higher wages because he wanted his workers to be able to afford the cars they were building.

Advertisement
Advertisement

Most Popular

What Trump's Payroll Tax Cut Will Mean for You
Tax Breaks

What Trump's Payroll Tax Cut Will Mean for You

President Trump issued an executive order to suspend the collection of Social Security payroll taxes. How much could it save you?
August 13, 2020
8 Things You Must Know About Retiring to the Carolinas
retirement

8 Things You Must Know About Retiring to the Carolinas

From the mountains to the beaches, North Carolina and South Carolina offer retirees plenty of incentives.
August 14, 2020
7 Surprisingly Valuable Assets for a Happy Retirement
happy retirement

7 Surprisingly Valuable Assets for a Happy Retirement

If you want a long and fulfilling retirement, you need more than money. Here are the most valuable retirement assets to have (besides money), and how …
August 3, 2020

Recommended

Vote by Mail: A State-by-State Guide to Absentee Ballot Voting
Politics

Vote by Mail: A State-by-State Guide to Absentee Ballot Voting

With health authorities recommending people continue to social distance, the idea of voting by mail is becoming an increasingly hot topic.
August 4, 2020
Election 2020: Joe Biden's Tax Plans
taxes

Election 2020: Joe Biden's Tax Plans

With the economy in trouble, tax policy takes on added importance in the 2020 presidential election. So, let's take a look at what Joe Biden has said …
July 22, 2020
Answers to PPP Loan FAQs (Now That There's Fresh Funding for the Loans)
small business loans

Answers to PPP Loan FAQs (Now That There's Fresh Funding for the Loans)

Small business owners are getting another crack at Paycheck Protection Program loans. Here are answers to some frequently asked questions about the lo…
July 21, 2020
Travel Planning in the Time of Coronavirus
Travel

Travel Planning in the Time of Coronavirus

Insurance may not cover canceled vacations, but airlines and hotels may be flexible.
June 11, 2020