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Several Major U.S. Companies Announce Bonuses From tax savings

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Several Major U.S. Companies Announce Bonuses From tax savings

Several Major U.S. Companies Announce Bonuses From tax savings

Over three dozen of America’s largest companies have shared their tax-cut windfalls with their employees, mostly by way of one-time bonuses but there have also been cases of hourly wage increases and larger 401(k) matches after the new tax law was passed in December.

FedEx announced last week that it was boosting employee compensation by $200 million, two-thirds of which will go towards wage increases for hourly workers while the rest will be allotted to performance-based incentive plans. Another large company Honeywell has said that it would hike its 401(k) match.

These announcements follow earlier such moves by employers such as Home Depot, Walmart and Walt Disney.

Tax Savings Shared In Many Forms

The new tax law has slashed the corporate tax rate from 35% to 21% and will boost the profitability of large U.S. companies by an additional 8% this year, as per Credit Suisse.

So far around 39 companies in the Standard & Poor’s 500 index have announced additional financial rewards to workers, citing benefits from the new tax law, according to a USA TODAY report

Combined, these companies represent 7.8% of the S&P 500.

According to USA TODAY’s research nearly 1.3 million U.S. workers will receive either cash or stock-based bonuses which is likely to add up  to around $1.7 billion or more.

However these bonuses are much smaller as compared to the total compensation (wages, salaries and benefits) of  around $10.3 trillion paid by U.S. companies last year, as per the Department of Commerce.

Wage Gains Not Permanent

S&P 500 companies are likely to pay around $75 billion to $100 billion less in taxes in 2018 as compared with last year, according to Credit Suisse.

Economists say that while getting an extra $1,000 check is welcome, employees would have been benefitted more if the companies had made their wage gains permanent.

Mark Hamrick, senior economic analyst at Bankrate.com called the payouts “a temporary lift.”

The bonus also does little to close the wage gap between workers and CEOs.

S&P 500 CEO’s earned a median $11.5 million in 2016 in compensation an increase of 8.5% from the previous year, according to a study by executive data firm Equilar for The Associated Press.

The AFL-CIO’s Executive Paywatch study found that CEOs earned 347 times of what the average worker did in 2016.

Nick Sargen, chief economist at Fort Washington Investment Advisors, a money-management firm in Cincinnati has called the profit sharing exercise ” a drop in the bucket,” adding that companies are doing it “mainly as a PR gesture”.

Companies Wary Of Cost Implications

Edward Yardeni, president & chief investment strategist at Yardeni Research said that further bonus announcements are likely, but pay hikes are doubtful as the companies remain “cost-conscious in a tight labor market.”  The companies he said  are focused on maintaining profit margins and are still mindful of the fallout from the Great Recession nearly a decade ago.

Hamrick has said that any more news of bonuses or pay increases will depend on the “performance of the economy” and the businesses themselves.

According to Scott Anderson, chief economist at Bank of the West in San Francisco, the announcements regarding profit-sharing with workers will continue in the first three months of 2018, after which it “will die down.”

Here’s a list of S&P 500 companies, who have cited the tax-cut as a motivation to announce “bonus” payouts to workers:

 

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