Few companies using tax cuts for pay hikes

Posted at 4:09 PM, Oct 02, 2018
and last updated 2018-10-02 18:09:17-04

When it comes to reaping the benefits of the windfall from last year’s tax cuts, it’s better to be a shareholder than a wage earner, new data suggest.

Although dozens of companies announced extra pay for workers after the December tax overhaul slashed the corporate tax rate to 21 percent from 35 percent, those headline-grabbing moves are proving to be more of an exception than the rule. Eighty-six percent of the CEOs, chief financial officers and other top executives at 152 corporations said they would not raise salaries because of the tax cut, according to global consultancy Korn Ferry.

Nine of 10 companies also said they do not plan to offer employees one-time bonuses related to the deal.

Shortly before signing the Tax Cuts and Jobs Act into law in December, President Donald Trump cited his economic advisers in predicting that the bill “would likely give the typical American household a $4,000 pay raise.”

The companies, which Korn Ferry surveyed in July and August and which generate a combined $700 billion in annual revenue, signaled five different priorities for the tax savings. Top on the list — speeding up capital investments, cited by 49 percent of respondents. That was followed by padding their cash reserves, boosting investment in training and development, acquiring new businesses, and rewarding shareholders with increased dividends.

“While it is a positive sign that companies are planning to use the tax savings to invest in their people through training and development, the sentiment that compensation will increase as a result of the new legislation appears to not be panning out,” Tom McMullen, global leader of Korn Ferry’s Intellectual Capital for its Rewards Practice, said in a statement.

Korn Ferry’s findings jibe with other evidence that most companies are using their tax windfall for other purposes besides boosting employee pay. U.S. companies have repurchased more than $827 billion in stock this year, topping the previous record in 2007, according to TrimTabs Investment Research.

Corporate insiders sold an average of $400 million in stock per day through the first three weeks of September. Stock buybacks boost the value of a company’s shares and bolster top executives’ pay, much of which comes in the form of equity.

— story by Kate Gibson – CBS News