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More Than Bonuses

Tax Reform Affecting the Structure of Comp Programs

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It would be easy to surmise from recent headlines that the most common employer reaction to the newly enacted federal tax reform package — a one-time $1,000 bonus to employees — would be a quick win for corporations seeking a positive image.

You wouldn’t be altogether wrong.

But according to a Pearl Meyer Quick Poll of more than 300 individuals, about 20% of respondents have already provided some enhanced benefits to employees and 35% of those respondents are considering additional or new benefits. Moreover, 95% of company respondents who have taken action to share the benefits of the Tax Cuts and Jobs Act (TCJA), have made structural changes to their compensation plans.

“It’s been a surprise that companies provided an immediate reaction … with bonuses and minimum wages … and while they announced the one-time action, many of them have (also) made a fundamental, structural change to their programs,” said Dan Wetzel, managing director at Pearl Meyer & Partners.

Companies that already have made these changes to their programs “have been contemplating this for a while” under the premise that “this is going to drive future profitability that they’re going to share with their employees,” Wetzel said. “(They) wanted to provide immediate enthusiasm for future profitability.”

In sum, nearly half (48%) of companies have made or are considering changes to their compensation offering — with 29% considering change, 12% already having made the change and 7% considering additional changes — all based on tax savings they received from the most comprehensive reform to the U.S. tax code in 30-plus years.

65% of company respondents that acted have provided a one-time bonus since Jan. 1, the effective date of the TCJA. Among other actions taken by companies quick to act were increases to:

  • Minimum wage (46%)
  • Charitable contributions (21%)
  • Salaries (18%)
  • Retirement benefits (12%)
  • Investment in training employees (11%).

Sharing the benefit to reward their people, staying competitive with the marketplace, and looking to have a positive corporate image were among the top reasons companies, long advocates for tax reform, took a position to act so quickly, Wetzel said.

That leaves 52% of respondents that are not currently planning to make any changes based on tax reform. Their reasons for inaction vary. Some are simply not anticipating any tax benefit (nonprofits, for example), while others already have programs in place that are expected to directly benefit from the TCJA, such as profit -sharing plans and equity awards.

Takeaways for Rewards Pros
Given the recent wave of announcements and news coverage, for those companies that aren’t making changes Pearl Meyer recommends that they develop a communications strategy to explain their rationale. A company’s response is very “individualistic in nature,” Wetzel said. From an internal HR standpoint, the first step is for human resources to determine “sooner rather than later” whether there is a tax benefit for the company and therefore an increased profitability.

From a long-term perspective, HR should consider a communications strategy regardless, Wetzel said, of whether they expect to see improved corporate results and a fundamental shift in the amount of employment in the country making it more difficult to be competitive on an ongoing basis.

Dan Cafaro is the managing editor for Workspan magazine.

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