As the recent headlines indicate, many companies are sharing their windfall from the new corporate tax cuts with their employees. Some are making short-term decisions, such as handing out one-time bonuses to workers, while others are evaluating options for enduring change that may impact healthcare or retirement. Either way, experts say HR leaders can’t afford to make snap decisions that may come back to bite them.
“If there are changes the company has contemplated for a while and the tax law basically releases new sources of funds that [allows them] to do things they were already thoughtful about, that’s a very effective strategy,” says John Bremen, managing director, lead of human capital and benefits for North America at Willis Towers Watson in Chicago. “What’s not effective are companies being knee-jerk and making decisions without a lot of data and analytics about their people.”
Last month, WTW surveyed 333 large and midsize companies across the county to determine how they plan on investing their tax savings. Nearly half (49 percent) are considering making a change to their employee benefits, compensation, total rewards and/or executive-pay programs within the next two years.
Two-thirds (66 percent) are planning or considering making changes to their benefits programs or have already taken action on such changes. Among the most common are expanding personal financial planning (34 percent), increasing 401(k) contributions (26 percent) and increasing or accelerating pension-plan contributions (19 percent).
Another 64 percent are planning, considering or have already taken action on broad-based compensation programs in areas such as reviewing compensation philosophy (43 percent), addressing pay-gap issues (36 percent) and introducing a profit-sharing or one-time bonus to all employees (21 percent).
Nearly half of companies—41 percent—are also considering or planning to make changes to their executive-pay program, such as spending more time analyzing this year’s incentive target (33 percent) and increasing the use of discretion in this year’s incentive plans (19 percent).
Meanwhile, the number of companies celebrating the tax-overhaul bill by redirecting tax savings to workers or employee programs is growing. American Airlines, Comcast, JetBlue, Bank of America, Southwest Airlines, Walmart, Disney and Whirlpool are each handing out $1,000 bonuses to their employees. Fifth Third Bancorp and Wells Fargo committed to hike their minimum wage to $15 per hour while Fiat Chrysler announced a $2,000 employee bonus.
In the future, Bremen believes that the majority of companies that benefit from the tax law will be the ones that have made some kind of change to their compensation programs.
“Companies have pretty solid data today showing the connection between people investment and business results,” he says. “We know that an investment in people will yield higher engagement, higher productivity, higher quality, higher services and, therefore, higher financial outcomes.”
Still, it’s important for HR leaders to evaluate the impact of their decision from all sides, says Mary Ann Sardone, a partner and workforce rewards practice leader for North America at Mercer in Atlanta.
She says HR needs to address the following questions when considering how to spend a tax windfall: Is this a decision we would make otherwise? Is this the right strategic investment in our human capital in the right place?
“Making decisions only because of the tax savings might be a little short-sighted just because they may not align with their longer-term strategy,” says Sardone. “Organizations are better off really studying what will work for their organization rather than doing what everyone is doing.”
Last month, Mercer surveyed 241 midsize to large employers about their tax-savings plans. Nearly one-third (32 percent) of participants are redirecting the funds to employee programs beyond rising wages and one-time bonuses. Some are increasing payments to defined-contribution retirement plans (10.1 percent) while others are investing in employee training and development (11.2 percent).
It’s the latter investment category that surprised Sardone. She says a large portion of the survey participants are manufacturers that appear to be concerned with “upskilling labor,” adding that this type of approach signals a long-term investment in human capital.
But when it comes to increasing the minimum wage, she says, this decision requires further analysis of whether it can be funded with or without the tax cuts, especially considering Washington’s volatile climate. Adopting a sound approach to pay equity across genders and protected classes is a good place to start to “right past wrongs,” she says.
Likewise, invest some tax savings in your total rewards program, says Tara Tays, managing director, national compensation strategies practice at Deloitte Consulting in Los Angeles.
Employers should engage employees to develop a total rewards relationship that offers a personalized, flexible and customized experience, she says, as well as one that’s “set on a firm foundation of compensation and benefits, but differentiated by other programs, including recognition, career development and a holistic approach to well-being.”
Other considerations include enhancing family sick time or even the physical work environment, says Sue Holloway, director of total rewards strategy at WorldatWork in Scottsdale, Ariz.
Holloway says employers could use tax savings to also create more collaborative areas for employees, provide them with stand-up desks or even build an on-site gym.
No matter what companies may choose to do, don’t rush into decisions to capture news headlines, says Sardone.
“Take your time, make the right investment,” she says. “Look at your rewards strategy, [identify] what you’re trying to achieve with the program and make targeted investments from there instead of feeling pressure to make an announcement or immediate investment.”