Bonuses after tax cut don’t always live up to their billing

Patricia Cohen
The smartest and dumbest things to do with your unexpected corporate bonus
The smartest and dumbest things to do with your unexpected corporate bonus

What's not to like? Scores of companies, including some of the country's biggest employers, are handing out bonuses, announcing with a flourish that they are sharing the windfall from corporate tax cuts with their workers.

A look at the fine print, though, shows that some of the largess is not nearly as large as company news releases suggest.

Consider retailers like Walmart, Lowe's and Home Depot. They've tied the size of bonuses to tenure, so that only employees who have been with the company for 20 years or more will receive the $1,000 maximum that was highlighted in their announcements. Few employees meet that requirement.

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The median tenure for retail workers, according to the Bureau of Labor Statistics, is three years. At Walmart and Home Depot, that work history results in a $250 bonus, and at Lowe's, $200. And nearly a quarter of American wage and salary workers have logged less than a year with their current employer. For them, bonuses at these big retailers will range from $150 to $200.

There may be other qualifications.

Part-time workers at Lowe's, Washington Trust Bancorp and Flushing Financial Corporation, for example, will receive just half the amount promised to full-time workers. At First Merchants, a financial institution, part-timers can get even less, since their share is prorated according to their hours.

A worker sets up a display in a Walmart Super Center in Compton, California.
Mike Blake | Reuters

At Travelers, an insurance company, the $1,000 bonus will be distributed to workers who earn $75,000 or less and who meet certain objectives in annual performance reviews.

Given how slowly lower- and moderate-wage workers' pay has risen in recent decades, any added cash is welcome. But for many workers, the one-time bonuses reflect a familiar pattern: The bulk of economic rewards flow to stockholders, who tend to congregate at the top of the income scale, while most working Americans receive a relatively tiny portion.

"It's a nice gesture on the part of employers," said Ken Abosch, compensation practice leader at Aon Hewitt, a human resources consulting firm. "And it appears to be great for employees who up until this point were not eligible to receive any type of bonus opportunity," such as part-time and hourly workers.

"But I don't see anything that suggests this is going to be ongoing," he added.

Particularly since the recession, businesses have been reluctant to increase fixed costs and have relied more on one-time bonuses than permanent raises, Mr. Abosch said.

A survey of 241 companies by Aon Hewitt in December found that 83 percent did not expect the tax cuts to result in any changes in future salary increases.

A somewhat higher proportion said they expected to award bonuses, but estimated the awards would not exceed 2 percent of annual base salaries.

"That is significantly less than what would be a competitive bonus target," Mr. Abosch said.

Southwest Airlines CEO has never taken a bonus or given himself a raise
Southwest Airlines CEO has never taken a bonus or given himself a raise

Based on data from thousands of companies, a competitive bonus for workers earning, say, $30,000 a year equals 5 percent of base salary, he said. Retail workers who get a $250 bonus, by comparison, are receiving just 0.8 percent. (A $1,000 bonus equals 3.3 percent.)

For $50,000-a-year employees, the competitive bonus rate is 7.5 percent, Mr. Abosch said. A $250 bonus amounts to 0.5 percent, while a $1,000 bonus equals 2 percent.

"And as you go higher up the wage scale, it becomes less and less consequential," he said.

At the same time, some corporations offering bonuses will be able to subsidize their payouts with taxpayer funds. If they announced their plan before the end of 2017, they will be allowed to deduct the cost of the bonuses at last year's 35 percent corporate rate, even if they pay employees in the early months of 2018, after the rate dropped to 21 percent.

"That's a very advantageous tax rule," said Steven M. Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center.

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This article originally appeared on The New York Times.

Video by Jonathan Fazio

The smartest and dumbest things to do with your end-of-year bonus
The smartest and dumbest things to do with your end-of-year bonus