Between the Ant and the Grasshopper: It's the Ant Every Time

Common sense tells us that those willing to make short term sacrifices for long term benefits make better employees than those who live for the moment. They are more likely to recognize that their hard work and initiative improves their opportunities for promotion, increases company profitability (and their annual profit sharing bonus), and helps insulate them if a company downsizes. Those who live for the moment are more likely to quit unexpectedly, take frequent days off, treat company equipment carelessly and do the minimum necessary to keep their jobs.

If longer-view employees make a bigger contribution to the bottom line, is there a way for companies to identify, attract and financially reward them? Is there a way to teach short-view employees to think and act long-term? I believe that 401(k) plans are such a tool.

Identify. Attract. Reward. It is generally recognized that employers who want to populate their workforce with valuable long-view employees should offer compensation and benefit packages that appeal to individuals who seek companies that reward their short term sacrifices with benefits for the future. Profit sharing and 401(k) plans with matching contributions are especially appropriate for these long-view individuals, creating a retirement program especially designed for their future focus.

However, 401(k) plans also self-identify long-view employees and company matching contributions selectively reward them. In other words, long-view employees recognize the long-term benefit of deferring current income to save for retirement and reveal themselves to their employers by their decision to save in a 401(k) plan. In addition, matching contributions provide these employees with a larger compensation package than their shorter-view co-workers and do so without a cumbersome and expensive monitoring process.

Education. Understanding the long-term benefit of short-term sacrifice is not innate, it must be learned. It is easier to go out drinking with your buddies than to go home after work and read a book on corporate finance. It is easier to choose instant gratification than delay today's pleasure for tomorrow's gain. Unfortunately, the value of acting and thinking long-term seems to be drowned out by the current cultural message extolling the rightness of doing what feels good today. Unfortunately, the employers of America, who need a high quality, committed workforce to compete successfully in today's global economy, must provide the education so greatly needed.

Fortunately, 401(k) plans are helping employers get the job done, even if they don't know it. First, employers through their 401(k) education programs are interrupting their employees’ short-term focus by confronting them with retirement realities. Second, the value of short-term sacrifice is verified and reinforced for employees who choose to participate in a 401(k) plan as they witness the incredible long-term effects of linking an ongoing saving program with the power of compounding. Finally, the financial disparity between long-term thinkers who save in 401(k) plans and immediate-reward employees who do not will become apparent to short-view employees who will then have and incentive to change their behavior.

By offering 401(k) plans employers give employees the opportunity to learn specifically about the benefits of saving and investing. At the same time, employers teach the value of a long-term view. It then is a short step to acting long-term. This makes employees more productive and valuable. As part of the win-win scenario, it also means they will be better prepared for retirement.

David