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Capitalist Villain Gouges his Employees
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Richard Jernigan
Posts: 3430
Joined: Jan. 20 2004
From: Austin, Texas USA
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 RE: Capitalist Villain Gouges his Em... (in reply to NenadK)
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I worked for, and as a retiree still own part of an employee-owned company. It was the best job I ever had, including the time I ran my own consulting business.
I had almost complete autonomy. The company's 401K* contribution was 15% of my base salary. We had excellent health insurance, life insurance if we wanted it, and a retirement plan in addition to the 401K. We were audited by the government tax collectors every year. They told us that if we paid a penny more in employee benefits, we would be violating the law. We said, "Fine. We'll keep our accountant and benefit planner."
The way it was better than running my own business was that I felt I had a number of real peers to discuss things with. At previous jobs, and running my own business I felt pretty much on my own.
The company became employee owned in the same way as the one I linked to. It was started by a single individual. Some employees owned some stock, but the great majority was owned by the original entrepreneur. Under his leadership, the company accumulated some cash. When he decided to retire, at a fairly early age, the company bought his stock, giving him a retirement nest egg, and the stock was distributed to the employees over a couple of years' time.
When the entrepreneur retired, we had a picnic. He introduced a guy we all knew, who worked part time. He was a renowned management consultant. The entrepreneur thanked him for teaching him that a small company could be run like a happy family.
Traveling from California to a meeting in New England, I met up with engineers from General Electric, for whom I was working on contract. They were staying at a luxury hotel. They mentioned that their vice president had authorized the expenditure. I was staying at a more modest, but perfectly decent place.
They said, "Richard, you make more money than we do. Why don't you stay at a nicer hotel?"
"If I paid more, your company wouldn't reimburse me for the added cost. It would have to come out of my company's overhead account, reducing profits."
"It's the same for us. That's why our vice president had to authorize it."
I replied, "It would make my secretary angry when I turned in my expense account. She is an excellent secretary. I wouldn't like to annoy her."
"Why would your secretary care about your expense account?"
"She is one of the owners of the company."
Every economic system has its weak points that tempt flaws in human character. Good laws, good people and careful arrangements can ameliorate the abuses.
RNJ
* In the USA a 401K plan, named after the statute section that set it up, is a fund that the employer and employee can pay into. Neither contribution is taxed. There are legal limits to how much each can contribute. Another advantage to the setup is that the funds can be invested, with the investment proceeds being tax free.
When the employee retires, he or she periodically withdraws money from the 401K plan. This money is taxed, but since the person is retired, it is probably taxed at a lower rate than it would have been while he or she was working. When the owner of the 401K reaches age 70 1/2, money must be withdrawn each year at a rate determined by life expectancy tables. The withdrawals are taxed at the person's income tax rate. In my own case, the annual tax-free returns on investment handily exceed the required withdrawal.
The tax free contributions and the tax-free accumulation of investment proceeds is a significant advantage. Any company can set up a 401K plan for its employees, but many do not. A typical 401K plan for a non-employee owned company might be a 6% contribution by the employee, half of which (3%) is matched by the employer. When I would mention that my company contributed 15% of my base salary, without my being obligated to contribute anything--but I could contribute up to 15% as well--I was often met with disbelief. I don't remember ever meeting anyone working for a non-employee owned company who knew that 15%+15% was the legal limit.
RNJ
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Date Nov. 27 2012 16:43:00
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