Why Many Companies are Giving Bonuses Not Raises

Apple has announced it is planning to build another corporate campus and hire 20,000 workers during the next five years as part of a $350 billion commitment to the US economy. (Kiichiro Sato/AP Photo)
Apple has announced it is planning to build another corporate campus and hire 20,000 workers during the next five years as part of a $350 billion commitment to the US economy. (Kiichiro Sato/AP Photo)
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Why Many Companies are Giving Bonuses Not Raises

Apple has announced it is planning to build another corporate campus and hire 20,000 workers during the next five years as part of a $350 billion commitment to the US economy. (Kiichiro Sato/AP Photo)
Apple has announced it is planning to build another corporate campus and hire 20,000 workers during the next five years as part of a $350 billion commitment to the US economy. (Kiichiro Sato/AP Photo)

Last week, yet another company -- this time Apple, which pledged to give $2,500 restricted stock awards for most of its employees, in addition to investing $350 billion in the US economy -- joined the ranks of employers offering bonuses in the wake of the new US tax law. Companies such as American Airlines, Bank of America and AT&T have also made one-time payouts, each offering $1,000 cash bonuses for many employees as a way of sharing their savings haul from the new tax bill.

Yet the number of employers offering such bonuses appears to be greater in number than those putting their savings toward a boost in base pay. A number of companies, including Walmart and many banks, have announced increases to their minimum wage or other adjustments to salaries. But the number of companies offering bonuses -- or who say they may do so -- are thus far higher.

The human resources consulting firm Willis Towers Watson, in an analysis of public announcements made by employers, found 88 companies as of Jan. 12 that have committed to making one-time bonuses ranging from $150 to $3000, compared with 35 that have made adjustments to their minimum wage and 10 or so others that have announced some other form of compensation or salary change.

A list compiled by the conservative group Americans for Tax Reform promotes even more companies that have announced financial adjustments for employees, with roughly three times as many citing bonuses as wage increases. And a survey from December by Aon found that 17 percent of employers said they would offer workers a bonus as a result of the tax cut, compared with 11 percent who said they expected to increase salaries.

Human resources experts and economists say they are not surprised one-time bonuses are getting more play in response to the tax cut for several reasons. For one, bonuses are easier for employers to hand out than bumps in base pay because they don't increase a company's fixed costs.

"The one-time bonus is an easy thing to do: It generates good will, puts money into employees' pockets, and you're not committed long-term to anything," said Gregg Levinson, a senior retirement consultant at Willis Towers Watson.

"Salaries represent the single largest percentage of direct labor costs" for employers, said Ken Abosch, the North American compensation practice leader for Aon. "Any time you give someone an increase in their salary, it’s an annuity. It's not a one-time event like a bonus. It’s additive and it compounds."

It also reflects a long-term trend in how compensation for rank-and-file employees has been paid: For more than two decades, employers have increasingly allocated more of their payroll budgets to discretionary bonuses and less and less to paying increases in salaries. In 1992, said Abosch, spending on "variable pay" was just 5.7 percent of employers' payroll budgets, and salary increases were 4.6 percent. Today, those numbers are 12.7 percent and just 2.9 percent, respectively.

Meanwhile, the speedy announcements about one-time bonuses that have come out in recent weeks give companies a chance to get good P.R. and foster worker goodwill even while many are more careful about base pay increases, said Andrew Chamberlain, the chief economist at the careers site Glassdoor.

"The way it’s supposed to work is that companies get a tax cut, they invest more, they expand their operations, and that investment makes workers more productive per hour. That raises wages," he said. "The fact that these bonuses are coming out surely has mixed motives -- it's partly the P.R. benefit, partly trying to get on the bandwagon because the tax bill has been in the news, and partly playing follow the leader" with other companies in their industries.

Indeed, many of the companies that have announced bonuses or base pay increases fall into similar industries, such as airlines and banks, which compete for workers. Chamberlain said more base salary bumps could come over time, but "that’s not going to happen overnight."

Even if employers do make investments that lead to pay raises -- rather than merely returning the money to shareholders in the form of dividends or buybacks, as some CEOs have said they'll do -- employers may still be cautious. "We might see a contraction in the economy, we might see a whole new political environment that wipes this out," Levinson said. "A one-time bonus that hits the books now and a more cautious approach going forward is what most companies will do, I think."

The Washington Post



US Fed Set to Hold Rates Steady in the Face of Trump Pressure

An eagle tops the US Federal Reserve building's facade in Washington, July 31, 2013. (Reuters)
An eagle tops the US Federal Reserve building's facade in Washington, July 31, 2013. (Reuters)
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US Fed Set to Hold Rates Steady in the Face of Trump Pressure

An eagle tops the US Federal Reserve building's facade in Washington, July 31, 2013. (Reuters)
An eagle tops the US Federal Reserve building's facade in Washington, July 31, 2013. (Reuters)

The US central bank is expected to keep interest rates unchanged for a fourth straight policy meeting this week, despite President Donald Trump's push for rate cuts, as officials contend with uncertainty sparked by the Republican's tariffs.

While the independent Federal Reserve has started lowering rates from recent highs, officials have held the level steady this year as Trump's tariffs began rippling through the world's biggest economy.

The Fed has kept interest rates between 4.25 percent and 4.50 percent since December, while it monitors the health of the jobs market and inflation.

"The hope is to stay below the radar screen at this meeting," KPMG chief economist Diane Swonk told AFP. "Uncertainty is still very high."

"Until they know sufficiently, and convincingly that inflation is not going to pick up" either in response to tariffs or related threats, "they just can't move," she said.

Since returning to the presidency, Trump has slapped a 10 percent tariff on most US trading partners. Higher rates on dozens of economies are due to take effect in July, unless an existing pause is extended.

Trump has also engaged in a tit-for-tat tariff war with China and imposed levies on imports of steel, aluminum and automobiles, rattling financial markets and tanking consumer sentiment.

But economists expect it will take three to four months for tariff effects to show up in consumer prices.

Although hiring has cooled slightly and there was some shrinking of the labor force according to government data, the unemployment rate has stayed unchanged.

Inflation has been muted too, even as analysts noted signs of smaller business margins -- meaning companies are bearing the brunt of tariffs for now.

At the end of the Fed's two-day meeting Wednesday, analysts will be parsing through its economic projections for changes to growth and unemployment expectations and for signs of the number of rate cuts to come.

The Fed faces growing pressure from Trump, citing benign inflation data, to lower rates more quickly, a move the president argues will help the country "pay much less interest on debt coming due."

On Wednesday, Trump urged Fed Chair Jerome Powell to slash interest rates by a full percentage point, and on Thursday, he called Powell a "numbskull" for not doing so.

He said Powell could raise rates again if inflation picked up then.

But Powell has defended US central bank independence over interest rates when engaging with Trump.

- 'Cautious patience' -

For their part, Fed policymakers have signaled "little urgency" to adjust rates, said EY chief economist Gregory Daco.

He believes they are unwilling to get ahead of the net effects from Trump's trade, tax, immigration and regulation policy changes.

Powell "will likely strike a tone of cautious patience, reiterating that policy remains data dependent," Daco said.

While economists have warned that Trump's tariffs would fuel inflation and weigh on economic growth, supporters of Trump's policies argue the president's plans for tax cuts next year will boost the economy.

On the Fed's path ahead, HSBC Global Research said: "Weak labor market data could lead to larger cuts, while elevated inflation would tend to imply the opposite."

For now, analysts expect the central bank to slash rates two more times this year, beginning in September.

The Fed is likely to be eyeing data over the summer for inflationary pressures from tariffs, said Ryan Sweet, chief US economist at Oxford Economics.

"They want to make sure that they're reading the tea leaves correctly," he said.

Swonk warned the US economy is in a different place than during the Covid-19 pandemic, which could change how consumers react to price increases.

During the pandemic, government stimulus payments helped households cushion the blow from higher costs, allowing them to keep spending.

It is unclear if consumers, a key driver of the economy, will keep their dollars flowing this time, meaning demand could collapse and complicate the Fed's calculus.

"If this had been a world without tariffs, the Fed would be cutting right now. There's no question," Swonk said.