The GOP has positioned their tax law as a way to make American businesses more competitive — and thus increase their ability to hire more workers and raise wages. But will companies use their windfall to boost worker pay?
President Trump’s Council of Economic Advisers predicted that the corporate tax changes alone would result in a $4,000 salary increase for the average worker. Critics of the plan say that the massive reduction in the corporate tax rate from 35 to 21 percent, among other changes favoring businesses, will lead to more money in the hands of shareholders and owners.
In response to the additional cash they will be receiving, over 100 companies — including AT&T, JetBlue, ComCast and Wells Fargo — have announced plans to give bonuses or increase wages. Several sources, including CNS News, The New York Times and The Washington Examiner, have compiled lists of companies who have announced their plans to give employees bonuses or wage increases, or both.
Are companies really looking out for their workers, or are these just PR stunts?
To get a better read on the situation, we took a look at the statements of intent made by companies prior to the law passing, versus what they’ve announced since then. To fully understand their motives for giving bonuses, we looked at labor trends in these industries (layoffs versus hiring sprees), M&A moves, as well as the regulatory contexts in which they operate. We also looked at people’s reactions to these announcements on social media.
While there isn’t consensus on the question, there is an emerging lesson on employee engagement and pay communications.The GOP says that their tax law will inspire companies to hire more workers and raise pay. But will it?Click To Tweet
What the Largest Corporations Said About Tax Reform Back in 2017
In December of 2017, The Washington Post published an article on what America’s 20 largest companies had to say about tax reform. Nearly all have vocally supported the GOP bill. Many have said that at least a portion of the extra money might go to shareholders via higher dividends.
Other popular plans for spending include looking for other companies to buy and paying debt. Thus far, AT&T and CVS have made explicit promises to hire additional workers. Apple and Kroger executives made ambiguous statements that they may increase hiring. Here’s a small selection of what companies have said:
AT&T plans to invest $1 billion more. They announced in December that they will give their 200,000 U.S. workers a $1,000 “special bonus” because of the tax bill, but the company stopped short of raising wages.
They plan to invest in business expansion — which means buying companies.
“To the degree that we have [tax] relief, there’s a lot of investments that we think we can make within our business model that can more rapidly expand our business model across the country and deliver better care and higher quality and lower cost. So we would look to take the benefit of that and invest it clearly,” said CVS Health CFO David Denton in November 2017.
The company’s priority is paying dividends to shareholders. The company had a negative tax rate last year, although in other years, Exxon has paid as much as as 33 percent.
Exxon Mobil Vice President of Investor Relations Jeffrey Woodbury said in October, “The first things that are being funded are our dividends and our investment program. And if there’s any cash left at that point given that the corporation does not want to hold large cash reserves, it’s at that point that we will look for what the next best thing is. And maybe if we have some debt maturing, we’ll pay that debt down.”
Costco CFO Richard Galanti said in December, “I think you’ll see us do what we do well, it’s merchandising and driving business and taking care of our employees and ultimately taking care of our shareholders. …We don’t know what we’re going to do yet because first, we got to figure out what’s actually going to happen.”
Amazon, often secretive about its business plans, refused to provide any comments on the matter.
Companies’ Motives for Giving Bonuses
Is the motive for giving bonuses or raising wages really “looking out for their employees”? As it turns out, it’s more complex than that.
To answer the question, it’s important to know the context within which these companies operate. A few searches helped us discover the following information:
- A number of these companies are currently under regulatory scrutiny.
- Some had significant layoffs in 2017, letting go of hundreds or thousands of workers.
- Some are in unionized industries where employees have collective bargaining power.
- Almost all of these companies are facing a severe shortage of skilled workers.
AT&T is currently undergoing a massive HR transformation. They were among the first companies to announce a benefit for its workers on December 20th, after the bill cleared Congress but two days before it became law. They are giving $1,000 bonus to more than 200,000 employees. However, this came after the Communications Workers of America union had discussions with AT&T’s CEO, asking the company to guarantee the $4,000 wage increase promised by the tax reform.
2. Southwest Airlines, American Airlines and JetBlue
These airlines have announced that they’re giving all non-executive workers a bonus of $1,000.
Southwest’s Chief Executive Gary Kelly said the company will donate an additional $5 million to charitable causes and increase purchases of planes from American jet maker Boeing as a result of the tax cut.
It looks like giving bonuses is just one part of these airlines’ measures to attract pilots to their respective companies. The U.S. airline industry has been hiring pilots at a breakneck pace over the past three years. Major U.S. commercial and cargo airlines have hired more than 3,000 pilots in each of the last three years and have hired an additional 4,353 pilots through October 2017. Regional airlines are raising entry-level pay and adding bonuses in hopes of attracting more pilots to fend off a looming pilot shortage.
3. Wells Fargo
Wells Fargo is increasing its base wage to $15 per hour. The bank is also increasing its charitable giving by 40 percent. Wells Fargo’s reputation has been tainted in recent years due to repeat scandals involving its customers. In November 2017, Trump said that the bank would remain under government scrutiny.
Boeing pledged they would spend $300 million on employees through things like increased corporate giving and more training and education for its workforce of about 147,000 people. This is an interesting pledge given that their officials and local engineering unions have said they’re reducing its Puget Sound-area jet manufacturing workforce by more than 1,800 in 2017.
Comcast pledged $1,000 to more than 100,000 non-executive employees. The media and telecom giant also said it would spend more than $50 billion over the next five years on infrastructure, broadband capacity and its theme park and entertainment offerings. However, Comcast also quietly fired hundreds of workers before Christmas alongside their bonus pledge.
What We Learned About Employee Engagement and Pay Communications
It’s clear that one-off announcements about bonus pay does not move the needle on employee engagement — or for that matter, how much employees trust businesses.
People on Twitter are reacting to the round of bonus pledges with skepticism. A common sentiment is that a one-time, year-end bonus isn’t enough that to make people feel like companies are really doing good — especially if other corporate behaviors don’t line up with corporate promises or public announcements.
JetBlue says it will pay "every Crewmember employed as of December 31, 2017, a $1,000 bonus by the end of February" (CNBC) pic.twitter.com/huL1Xyhs8d
— Ivan the K™ (@IvanTheK) January 4, 2018
PayScale’s own research shows that when it comes to key employee engagement issues, there is a gulf between how employers think employees feel, and how employees actually feel. We call this phenomenon “The Corporate Chasm.” The majority of employees do not think they are paid fairly for what they do. And most feel that their company is not transparent with them about how pay is determined.
Another PayScale study found that 60 percent of employees who perceived they were underpaid said they intend to leave. The key lesson here? If you want your employees to feel good about working at your organization and stay committed to their work, you’ll want to talk clearly about pay and ensure that employees feel like they’re compensated fairly for their work.
Tell Us What You Think
Is your organization giving bonuses or raises because of tax cuts? We want to hear from you. Tell us your story in the comments.