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3 potential applications of cryptocurrency in the war for talent

Compensation Strategy & Design|Corporate Risk Tools and Technology|Executive Compensation|Retirement
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By Lauren Hoeck, FSA, EA , Beth Jolles and Greg Patnod | August 2, 2021

Employers can use cryptocurrency to attract and retain talent, but none is without risk.

While cryptocurrency headlines are now becoming commonplace, we’ve rarely seen digital currencies themselves be used as an attraction and retention tool for employees. That could certainly change as adoption of cryptocurrency increases and changing demographics fuel demand for unique compensation packages.

There are several ideas about integrating cryptocurrency into the employee compensation and benefits space – though unfortunately none of these come without risk or complexity. We outline three potential applications of cryptocurrency in the war for talent with a focus on talent attraction, retention and pay – all of which may be impacted by cryptocurrency.

  1. 01

    Paying employees in cryptocurrency

    Recently, several NFL players made headlines as they converted their salaries to Bitcoin. The question now becomes, “Who’s next”?

    While employees can certainly use their compensation to buy cryptocurrency themselves, facilitation by one’s employer – through salary, bonus, short-term incentives, and the like – makes it easy for the employee, who could also add custody and storage, cybersecurity and storage insurance to the “deal.” Consideration of custodian services and cryptographic key storage managed by the employer would provide an interesting value proposition.

    However, regulatory and tax hurdles still exist. In the U.S., cryptocurrency is currently considered property, not currency, and could therefore not only make taxes a challenge for employees but also create problems for employers, such as minimum wage requirements.

  2. 02

    Cryptocurrency exposure in 401(k) plans

    Employers could also facilitate cryptocurrency investments for employees through their 401(k) plans. In fact, the Wall Street Journal reported recently: Cryptocurrency comes to retirement plans as Coinbase teams up with 401(k) provider; workers at participating companies could invest up to 5% of their account balances in cryptocurrency.

    There are risks inherent in this application, given that the assets can be extremely volatile and the fundamentals of cryptocurrency are under debate. Some consider cryptocurrency a return-seeking asset, while others argue that it’s a diversifier against equity investments or offers inflation protection, among other things. Whatever the rationale, an estimated 14% of Americans, roughly 21 million people, own cryptocurrency (almost exclusively outside of 401(k) plans), according to a report from Gemini, a cryptocurrency exchange.

    Again, cryptocurrency investments present risks – including the potential for high volatility, and therefore facilitating cryptocurrency investments could open the 401(k) plan up to litigation risk if they underperform. The current litigious environment in the U.S. around 401(k) plans only underscores the rigorous fiduciary process needed to vet any investment considered for inclusion in such plans.

  3. 03

    Enhancing brand

    Finally, a company could enhance its employer brand by adding cryptocurrency to the balance sheet like Tesla did earlier this year. Potential or current employees who see the value in cryptocurrency could be inspired by these moves.

    Environmental, social and governance concerns are a major hurdle, though, and can result in cryptocurrency investments working against brand instead of for it. Bitcoin mining, or the minting of new bitcoin into circulation, requires a vast amount of energy consumption; therefore, businesses that champion climate change and sustainability can face difficulty in endorsing Bitcoin. Some bitcoin mining companies are trying to find ways to avoid this negative reference by adopting less energy-intensive methods of bitcoin mining, as well as increasing their use of renewable sources of energy.

Considerations going forward

In summary, there are many ways that employers can use cryptocurrency to attract and retain talent, but none is without risk and complexity. Time will tell, if, and when, these – or other options – will garner institutional adoption and become part of traditional compensation and benefit offerings.

Authors

Senior Director, Retirement

Senior Director, Client Management

Lead Associate, Corporate Risk and Insurance Broking

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