As com­pa­nies give out bonuses, prospects of pay gains still hazy

Houston Chronicle Sunday - - BUSINESS - By Christo­pher Rugaber and Josh Boak

WASH­ING­TON — Amer­i­can Air­lines is hand­ing out $1,000 bonuses to its em­ploy­ees. So are Wal­Mart, AT&T, Bank of Amer­ica and Na­tion­wide In­sur­ance. The same for Com­cast, JetBlue Air­ways and US Ban­corp.

Such an­nounce­ments, com­ing from dozens of com­pa­nies, have fol­lowed the pas­sage of the Repub­li­can tax plan that Pres­i­dent Don­ald Trump signed into law last month. The plan slashed the cor­po­rate tax rate from 35 per­cent to 21 per­cent. The com­pa­nies say the bonuses they’ve an­nounced are a way to share some of their bounty with their work­ers.

The bonuses are one-time pay­outs, not the per­ma­nent pay raises that Trump and con­gres­sional Repub­li­cans have said will even­tu­ally re­sult from the cor­po­rate tax cuts. Over time, bonuses are far less valu­able to em­ploy­ees than wage in­creases.

So far, most com­pa­nies haven’t said whether any per­ma­nent pay in­creases are in the works. Econ­o­mists cau­tion that the cor­po­rate in­come tax cut’s ef­fect on av­er­age pay, if any, might not be­come ap­par­ent for sev­eral years.

“As a worker, it’s great to get a one­off bonus, but that doesn’t guar­an­tee any­thing for the next year,” said Stephen Stan­ley, chief econ­o­mist at Amherst Pier­pont. “You’d rather have the raise, be­cause next year you’re work­ing off the higher base.”

Even­tu­ally, Stan­ley thinks the lower cor­po­rate tax rates will lead to worker pay raises. He ex­pects com­pa­nies over the next sev­eral years to use some of their wind­falls to in­vest in equip­ment that would make work­ers more pro­duc­tive and lead to higher wages.

Other econ­o­mists re­main skep­ti­cal that work­ers stand to re­ceive sharp wage in­creases. They note that the cor­po­rate tax cut will over­whelm­ingly ben­e­fit share­hold­ers and com­pany own­ers. That sen­ti­ment is one rea­son stock mar­ket in­dexes are set­ting new highs al­most daily.

“The bulk of the cor­po­rate tax cuts should ac­crue to peo­ple who hold stock in com­pa­nies,” said Ethan Har­ris, chief econ­o­mist at Bank of Amer­ica Mer­rill Lynch. “Work­ers ben­e­fit much more from a cut in taxes on or­di­nary in­come. In other words, bet­ter to get a di­rect cut than a spillover from cuts to oth­ers.”

Be­yond the worker bonuses that have been an­nounced, typ­i­cally for $1,000, about a dozen banks have said they will raise their min­i­mum wages. A hand­ful of mostly small com­pa­nies, in­clud­ing Wash­ing­ton Fed­eral Bank, have an­nounced pay in­creases for most of their work­forces. And a few, in­clud­ing Visa and Aflac, have said they will raise their con­tri­bu­tions to their em­ploy­ees’ re­tire­ment plans.

This past week, Hous­ton-based Waste Man­age­ment an­nounced bonuses. It said it would hand out $2,000 for up to 34,000 em­ploy­ees.

In ad­di­tion, U.S. work­ers will be­gin re­ceiv­ing more take-home pay, likely by next month, as lower tax rates for in­di­vid­u­als un­der the Repub­li­can plan kick in.

The Com­mu­ni­ca­tions Work­ers of Amer­ica, a la­bor union, asked CEOs of large cor­po­ra­tions to give work­ers the $4,000 av­er­age in­come gain that White House of­fi­cials said would flow even­tu­ally from lower cor­po­rate taxes. AT&T, the first com­pany to an­nounce bonuses, said it chose the $1,000 bonus in­stead.

Amer­i­can Air­lines, which also em­ploys the com­mu­ni­ca­tion union’s mem­bers, sim­i­larly de­cided to be­stow a $1,000 bonus. The union said it ap­pre­ci­ated the ges­ture but as­serted in a state­ment that the bonus “falls short of the per­ma­nent wage in­crease that work­ing fam­i­lies were promised.”

The White House has touted the an­nounced bonuses as ev­i­dence that the cor­po­rate tax cut is ben­e­fit­ing work­ers, rather than just share­hold­ers, and has dubbed the pay­outs a “Trump bonus.”

“Busi­nesses across Amer­ica have al­ready started to raise wages, and more than 100 com­pa­nies have al­ready given bonuses and other ben­e­fits to hun­dreds of thou­sands of work­ers as a re­sult of th­ese mas­sive tax cuts,” Trump said Mon­day in Nashville.

The con­ser­va­tive group Amer­i­cans for Tax Re­form, which backed the tax cut, has com­piled a list of more than 100 com­pa­nies that have an­nounced some kind of fi­nan­cial ben­e­fit for em­ploy­ees re­sult­ing from the tax cut.

Only a few have an­nounced any broad-based pay in­creases. One that has is Nephron Phar­ma­ceu­ti­cals, based in West Columbia, S.C. Nephron said it would give a 5 per­cent raise to most of its 640 em­ploy­ees.

An­drew Cham­ber­lain, chief econ­o­mist at Glass­door, said there are prac­ti­cal rea­sons why most com­pa­nies would pre­fer bonuses over pay raises.

“It’s a way for em­ploy­ers to ben­e­fit work­ers without be­ing on the hook for a long-term pay in­creases,” Cham­ber­lain said.

In some cases, the com­pa­nies are shar­ing only a sliver of their tax-cut wind­falls. Bank of Amer­ica’s bonuses will cost it roughly $145 mil­lion — only about 4 per­cent of the $3.5 bil­lion that Gold­man Sachs es­ti­mates Bank of Amer­ica will re­ceive from the tax cut.

Like­wise, KBW, an in­vest­ment firm, es­ti­mates that Wells Fargo’s com­mit­ments to raise its min­i­mum wage to $15 an hour and to boost its char­i­ta­ble con­tri­bu­tions will equal about 5 per­cent of the ad­di­tional prof­its the tax cut will pro­vide Wells.

Most econ­o­mists do ex­pect pay­checks to start ris­ing faster for most work­ers this year but for a dif­fer­ent rea­son: The un­em­ploy­ment rate is pro­jected to fall fur­ther and could reach a five-decade low of 3.5 per­cent. A rate that low would likely force many com­pa­nies to sharply raise pay to keep and at­tract the work­ers they need.

Econ­o­mists like Stan­ley, who ex­pects the cor­po­rate tax cut to lift wages over time, think it will hap­pen in­di­rectly as com­pa­nies chan­nel their tax sav­ings into machin­ery, com­put­ers and soft­ware, mak­ing work­ers pro­duc­tive and lead­ing to higher pay.

“Th­ese things aren’t go­ing to hap­pen right away, but they will grad­u­ally fol­low through in the next sev­eral years,” Stan­ley said.

Chris O’Meara / As­so­ci­ated Press

Nati Harnik / As­so­ci­ated Press

Matt Rourke / As­so­ci­ated Press

Mark Len­ni­han / As­so­ci­ated Press

Alan Diaz / As­so­ci­ated Press

Wil­fredo Lee / As­so­ci­ated Press

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