Let’s start this posting with a question. Which would you rather receive from your employer:
1.) a ten percent raise?
2.) a one-time fifteen percent bonus?
Bonuses are a one time item for an employer. A ten percent raise will compound the next time that a raise is given whereas a one-time fifteen percent bonus will not. Employers know this and would much prefer to grant their employees a one time bonus than a ten percent raise. As for the employee’s side of the equation, a ten percent raise will reach the same value as a fifteen percent bonus in 4.3 years, assuming that the raise is given only once. If a raise is given every year, the period of time taken to reach the value of the one-time bonus is reduced.
Let’s start by looking at a quote from Gary Cohn, the National Economic Council Director and former President and Chief Operating Officer of Goldman Sachs:
“One of the real impetuses for our tax reform and tax cut plan was to get real wages to grow in the United States, we haven’t had real wage growth in a long time in the United States.”
After Washington passed the most recent tax cuts for Corporate America, dropping the headline corporate tax rate from 35 percent to 21 percent, a there was a rapid flurry of employers (up to 500 employers covering more than 5.5 million workers) announcing that they were giving bonuses to their employees with the individual one-time bonuses ranging from $1000 to $2000 as shown on this list from CNBC. As well, according to CNBC’s Global CFO Council, 20 percent of companies in a recent survey stated that they were granting one-time bonuses only because of the 2017 Tax Cuts and Jobs Act (TCJA) as shown on this graphic:
1.) Wages and salaries
2.) Paid leave
5.) Sick leave
6.) Personal leave
7.) Supplemental pay
8.) Overtime and premium pay
9.) Shift differentials
10.) Non-production bonuses
12.) Life insurance
13.) Health insurance
14.) Short-term disability
15.) Long-term disability
16.) Retirement and savings
17.) Defined benefit pensions
18.) Defined contribution pensions
19.) Legally required benefits
20.) Social Security and Medicare
21.) Federal unemployment insurance
22.) State unemployment insurance
23.) Workers’ Compensation
Over the period from the beginning of 2017 to the end of the second quarter of 2018, this is what happened to non-production bonuses in dollars per hour and as a percentage of total compensation for all private industry workers (see table 9):
Q1 2017 $0.85 2.6 percent
Q2 2017 $0.85 2.6 percent
Q3 2017 $0.86 2.6 percent
Q4 2017 $0.92 2.7 percent
Q1 2018 $0.96 2.8 percent
Q2 2018 $0.96 2.8 percent
Here is a graph showing what has happened to bonuses as a percentage of total compensation from 2008 to the second quarter of 2018:
Here is a quote from the Economic Policy Institute’s Lawrence Mishel:
“The White House contention that corporate tax cut-inspired widespread provision of bonuses that led to greater paychecks for workers is not supported by the BLS Employer Costs for Employee Compensation data. This is not surprising. Press releases—“a flurry of corporate announcements”—by a small group of administration-supporting firms do not create widespread bonuses or wage growth for workers. Neither do tax cuts, at least within the first six months.”
Let’s close with this graphic from CNBC showing how Corporate America really intended to spend its tax savings for the first half of 2018:
Given that one-time bonuses, particularly those of the thousand dollar variety, are a really inexpensive way for Corporate America to reward its workers, it is interesting to see that America’s employers are still too cheap to help their workers make financial gains by bribing them with shiny baubles in light of the tax savings granted to them by Washington.
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