While the Trump administration cut the corporate tax rate from 35% to 21%, only a fraction of the savings has translated to employees’ wallets, according to the Wall Street Journal.
Immediately after the December tax-code overhaul, dozens of companies made high profile commitments to one-time bonuses and wage increases for workers – moves which earned praise from the Trump administration. Unfortunately for employees, it appears that most companies have chosen to apply their windfall tax savings elsewhere according to various surveys.
A new survey of 152 companies by executive-recruitment firm Korn Ferry International revealed 14% were putting part of their tax-cut savings into base salary increases. A poll of 1,500 companies by consulting firm Mercer LLC showed 4% are redirecting tax savings to budgets for bigger paychecks in the coming year. And in a survey of more than 1,000 companies published by human-resources consulting firm Aon PLC, 99% said the tax cuts weren’t prompting them to increase minimum wages. –WSJ
The reluctance to shower employees with cold hard cash is in part because it adds to fixed labor costs, according to compensation experts. “They’re doing everything they can to avoid seeing their permanent payroll go up,” said Adecco Staffing CEO Bill Ravenscroft.
Around a third of the companies polled by Korn Ferry said they would allocate the savings from tax-cuts to programs such as worker training.
“Companies are investing in people, but it’s much longer term,” said Korn Ferry senior client partner, Tom McMullen.
According to nonprofit business evaluator Just Capital, of the 119 companies it tracks in the Russell 1000 index, around 80% are passing some of the tax savings on to workers – however of the combined $59.3 billion or so these companies will save thanks to the tax overhaul – around 7%, or $4.2 billion, will benefit employees directly.
Roughly 5.8 million people, or 73% of the employees at those companies, have received some extra compensation, be it a wage increase, one-time bonus or bigger retirement contribution, said Rob Du Boff, director of corporate research.
The nonprofit calculates that the companies it is tracking will save a combined $59.3 billion from the tax overhaul. Of that amount, 7%, or $4.2 billion, appears to be destined for workers in the form of bonuses, benefits, wage increases, training or retirement contributions. The rest is being used for things like share buybacks, philanthropy and job creation. –WSJ
The reluctance by US corporations to pass tax-savings along to employees is in part why US workers have seen very little real wage growth this year in spite of a relatively strong economy, according to compensation specialists and economists.
At 3.9% unemployment, US employers are navigating one of the tightest labor markets in decades. Yet private-sector hourly wages rose 2.9% in august vs. last year – rising at nearly the same rate as inflation in consumer-goods and eroding the wage gains.
So where is the money going?
Businesses are spreading their tax savings across investments that will allow them to baton down the hatches if the business climate worsens. According to the Korn Ferry survey, nearly half of the companies said they would use the tax savings to boost capital investments at a faster pace, while 41% are adding to cash reserves and nearly a third were raising shareholder dividends.
And despite the headline-generating flood of companies rushing to announce bonuses tied to the Trump tax cuts, less than 10% of the companies surveyed said they planned to offer one-time payouts to employees over the next year, or had already done so.
AT&T Inc. paid a one-time bonus of $1,000 to about 200,000 U.S. employees after the tax-code changes became law, but didn’t announce pay raises linked to the tax changes. The company said most employees who received bonuses have their wage increases negotiated in labor-contract talks.
In a September interview, Chief Executive Randall Stephenson said AT&T awarded the bonuses, in part, to show employees the benefits that corporate tax cuts would pass on to labor, capital investments and the like. “It was a civics lesson,” he said.
Pfizer Inc., likewise, said it would pay $100 million in bonuses to nonexecutive employees and would make a $500 million contribution to its U.S. pension plan as a result of the tax cuts, but didn’t tie any sustained pay increases to tax savings. In addition, it plans to invest $5 billion in capital projects over the next five years because of the savings. –WSJ
At least the average taxpaying household will receive a tax cut too…
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ODemocrats voted for this → “Trump tax cut benefits all congressional districts, up to $44,697 per family” https://t.co/cwFuydNS4p
— Kevin McCarthy (@GOPLeader) July 23, 2018
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