Since President Trump signed tax cuts into law before Christmas, at least 25 U.S. employers have announced plans to provide their employees with one-time bonuses. Some of the biggest companies in banking, communications, and transportation have led the way by awarding their employees a $1,000 bonus. Let’s politely refer to them as the Tax Cut Bonus Club (TCBC). Some have even gone a step or two further by increasing their minimum wages and making generous donations to their foundations.
Most employees who are eligible to receive the $1,000 bonuses are below the executive-level in non-management positions. Several employers included union employees, and even some part-timers, in their bonus-eligible pools.
So what should we make of this compensation commotion?
First, it’s real. While the number of TCBC members is relatively small, the number of employees impacted is estimated to be close to 1.5 million.
Second, trends become clear in hindsight. Congress passed tax reform, and President Trump signed it into law, the week before Christmas. Only a few companies, albeit most of the larger ones, announced their plans to award the $1,000 bonuses by then. While more companies have joined their ranks since then, there hasn’t been a flurry of activity resulting in a 10x or 50x jump. By the week of January 15, it should become clearer whether TCBC membership will grow in 2018. Unless there has been a distinct and rapid increase in companies deciding to give bonuses by then, the “trend” may end up looking more like a blip on the timeline.
Third, while the TCBC may only include a few more members, look for other employers to embrace different ways to invest in and reward their workers. Pay increases and inflation-adjusted wage growth have been in the 0-3% range for quite some time. With relatively low unemployment, some companies are having trouble find skilled workers. There are also a number of financially strong companies looking for diverse ways to reinvest their growing cash reserves.
These conditions may drive employers to consider providing higher rewards — possibly larger annual pay increases and greater 401(k) contributions. But to justify higher rewards, organizations are looking for evidence of greater employee productivity. This could spark increased employer interest and higher employee rewards in pay-for-performance programs, provided the performance is authentic.
While there may be indicators that point to the possibility of higher pay increases in 2018, companies have already set their compensation budgets and most are planning a 3% increase, as reported in our Compensation Planning for 2018 survey. This will likely serve as a counterbalance to any mass shifts towards substantially higher pay increases for middle-of-the-road performers.
What can we learn from these rapid developments?
Given the magnitude of some of the actions the TCBC took, it’s very unlikely that $1,000 bonuses were knee-jerk reactions to the new tax law. If an organization has 100,000 eligible employees and decides to give each of them $1,000, that’s $100 million. And double it to take into account the contribution it makes to its foundation. Although some organizations may have felt forced to follow the leaders to stay competitive, it’s highly probable that TCBC leaders planned their strategies well in advance of the tax reform bill becoming law. Companies think very carefully and strategically about $200 million decisions.
So now is the time to think seriously about your compensation strategy for 2018, if you haven’t already done so. Will you join the TCBC? Will you become a new leader and form a new club? Will you pass and hope for the next opportunity? Make a plan and carpe stipendium!