Question

Problem 1

Your assistant shows you a Wall Street Journal article on companies offering their employees retirement plans with stock, not in their company, but in a large number of other companies. He asks if your company should do the same. Think of the pros and cons of this scheme.

Answer 1

Pros:

Employees can get a large value at retirment if the stock of the compnaies increase.

They can earn regular dividend not only during their work period but even after retirement.

Over time dividend-paying stocks have been shown to provide returns with significantly less volatility.

Dividends are taxed at a lower rate.

Stocks are beneficial if the employee has a good risk taking capacity

CONS

If the stocks fall, the employee may lose the entire value and get nothing at retirement in terms of capital appreciations.

Dividends may fluctuate and there may be years with no dividend

Payments will fluctuate and cannot be compared to the security of receiving a fixed sum by way of bonds.