Will retailers regret raising worker expectations around corporate tax cuts?

Discussion
Photo: Home Depot
Jan 31, 2018

Back in the fall, as retailers were pushing to get corporate tax cut legislation passed, it was common to hear the argument based on a National Retail Federation (NRF) analysis, that the average employee of a U.S. “C” corporation was being paid nearly $4,700 less per year because of the previous rate.

In last night’s state of the union address, President Trump doubled down on the windfall promised American workers when he said, “We slashed the business tax rate from 35 percent all the way down to 21 percent, so American companies can compete and win against anyone in the world. These changes alone are estimated to increase average family income by more than $4,000.”

While few if any seriously thought passage of the Tax Cuts and Jobs Act would result in significant pay raises for workers, is it possible that the arguments made to get the legislation made into law will come back to sow discontent among retail associates who feel they’ve gotten the short end of the stick?

While not specific to the retailing industry, a poll conducted by Reuters/Ipsos between Jan. 12 and 23 found that only two percent of adults have received a pay increase, bonus and/or increased benefits due to the new law. While it is still early, those companies that have announced pay raises, bonuses or an expansion of benefits do not appear to be anywhere near the higher end figures used to drum up support for the legislation before it became law.

Home Depot, one of the highest profile retailers to announce an employee bonus that management attributed directly to the lowering of the corporate tax rate, has been criticized in the aftermath for its perceived stinginess.

A Los Angeles Times’ article points out that in the case of Home Depot, the $1,000 bonus only went to workers with 20 years or more with the company. But, even if it had paid that bonus to all 380,000 of its hourly workers, the company would have been out $380 million. In December, Home Depot’s board voted to buy back $15 billion in company stock based on the expectation that its corporate tax rate was about to fall.

DISCUSSION QUESTIONS: Have retailers made a mistake in appearing to promise that workers would see a significant increase in income and benefits as a result of the Tax Cuts and Jobs Act? Will the difference between the lobbying rhetoric and paycheck reality, for example, open an opportunity for unions to organize retail store employees?

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Braintrust
"What may come out of this is an opportunity for retailers to reexamine the pay structure for store associates, and anyone who is customer facing."
"Many employees in retail and across the board who feel this confidence and then don’t see any results will definitely be disappointed."
"If retailers over-promise any additional impact for their workers, that’s their fault."

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15 Comments on "Will retailers regret raising worker expectations around corporate tax cuts?"


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Paula Rosenblum
BrainTrust

Yes, it was a BIG mistake. Either that or American workers are dumber than I think. Look at Walmart already. Raises in base pay followed by no-warning closings of Sam’s Clubs and then layoffs. The best they can hope for in that scenario is “break even” emotion-wise, but mostly it came off as sleazy.

Brandon Rael
BrainTrust

Making such a broad statement about significant increases in income and benefits is risky, especially since the pay scales are far different across different industries. Historically, the retail store associates have been underpaid, and more than likely will not benefit significantly from the corporate tax reductions.

What may come out of this is an opportunity for retailers to reexamine the pay structure for store associates, and anyone who is customer facing. One of the key differentiators for consumers going to a store is the opportunity to have a face-to-face interaction, which helps to improve the overall customer experience.

Highly motivated, fairly compensated and incentivized store associates could make the difference in maintaining relationships with existing customers, drawing new ones in and being the evangelists that retailers need for their branding and overall image.

Mark Ryski
BrainTrust

I don’t think retailers have made a promise to significantly increase income and benefits as a result of the tax cut, it’s the government who has set the expectation. There’s no question the tax cut is a boon for virtually every business – more net income is a very good thing. However, I suspect that most of this windfall will be used by retailers for purposes other than paying employees, like stock buy-backs that are more directly advantageous to shareholders than employees. The employee cash bonus plans being announced by many businesses are helpful and while I’m sure employee recipients are grateful, the fact is these bonus payments represent a small portion of the tax savings.

Lee Kent
Guest

I’m with Mark on this one. I have only heard of a few retailers who are giving bonuses, etc. The tax cut is an incentive for businesses to grow and thrive and that doesn’t always mean wage increases from the get-go. There are many other ways to use that money advantageously. For my 2 cents.

Ben Ball
Guest

It is impossible to prevent some portion of any population from feeling slighted in any situation. Paradigms will always overcome math. But let’s start the discussion with simple facts. 90 percent of working American households will see more after-tax income as a result of this legislation. If retailers over-promise any additional impact for their workers that’s their fault.

Bob Amster
BrainTrust

Businesses are driven by the profit motive. Some exceptions consider the health and wellbeing of their employees on their way to seeking higher stock prices. The tax cuts are more likely to bring business (and jobs) back into the U.S. because of the lower taxes than they are to increase the income of the workers. It was a mistake to tout it and it will be short lived, unless the demand for labor rises.

Joan Treistman
BrainTrust
It’s been said that Trump is a better cheerleader than other presidents when it comes to touting his achievements or his perceived achievements. Tax cuts have proven to be one example where we heard loud and clear how advantageous they would be for workers. It’s not simply a question of retailers appearing to promise, it’s the administration in fact assuring that workers would see a significant increase in income and benefits. Consequently, citizens across the nation, whether they work for retailers, manufacturers or service organizations, etc. are expecting to see increases in income. Now the question becomes, will their personal perceived reality match those expectations? You know we’ve been able to lower expectations in the past year in a way that allows us to be pleased with less and ignore what might have seemed scandalous in another year. So it may be that there is discontent among those who don’t see significant increases in income. But it’s possible that they may chalk it up to something like “oh … it’s still coming” or “even a… Read more »
Tony Orlando
Guest

It all depends on the type of industry you are in, and for my industry huge raises are not going to be the norm, as profit margins are shrinking every year and hiring extra staff is the exception rather than the rule. Auto makers, manufacturing, oil and gas exploration, major tech companies and construction trades will benefit the most, and some very large big box stores as well.

I have no regrets giving annual raises, but $1,000 bonuses for me aren’t gonna happen, as the bottom line isn’t there for many small businesses in our area. For the businesses that are doing this, I say it is a wonderful thing, but over promising will create backlash as it may not be sustainable for next year. And what will happen next year cannot be predicted for any company.

Meaghan Brophy
BrainTrust
Meaghan Brophy
Senior Retail Writer
4 years 5 months ago
A lot of the promise came from our government. Though I agree some larger retailers definitely used this sentiment for positive publicity. Last night in the State of the Union, Trump talked about a small manufacturing business in Ohio that is already benefiting from the Tax Cuts and Jobs Act. The truth is, especially for small companies, they haven’t experienced any direct benefit yet. The year just started, and most small businesses won’t feel any type of direct financial impact from the tax cuts until they pay taxes next year. What many people are experiencing is the confidence boost and positive sentiment from this policy. This morning on The Daily podcast, White House correspondent Mark Landler said, “There might be a confidence boost that comes with recognizing that you might have a little more money in your pocket this time next year. President Trump has made this point repeatedly throughout his presidency that it’s not just concrete policies; it’s the intangible confidence that flows out of the policies. It’s like he’s saying he’s giving the… Read more »
Peter Luff
Guest

It’s way too simplistic to say that a tax cut will convert in whole to greater pay for retail staff. I am not sure retailers have entirely made that statement, I am sure there has been a little playing with the words for the sake of politics ends.

Many retailers will welcome the gift. It will help many to stay in business and thus keep retail jobs which should not be forgotten. Many will take the windfall and invest in the business to make it more competitive thus keeping more jobs. The money will flow in many ways is the hope but sharing some element directly with staff from a relations point of view is probably a good idea. We are all successful as a result of our teams and we need them on the journey with us, not against us.

Al McClain
Staff

Politics aside, the retailing industry is not a good path for entry level employees looking for a long career in a healthy industry, and the opportunity to earn a great income. There may be other reasons to join the industry, but the idea of getting wealthy or even doing real well financially shouldn’t be one of them.

Whether voters will realize the promises made in terms of greater income and better health care aren’t coming true is another matter.

Doug Garnett
BrainTrust
Doug Garnett
President, Protonik
4 years 5 months ago

It’s sad we focus so much on pay: Employees want to be treated with respect.

Mere focus on pay doesn’t do that. Instead, eliminate punitive (and silly) customer surveys that punish employees for store policies. Stop scheduling that tells employees “we’re too cheap to give you a lunch hour.” Don’t schedule people for 39.75 hours so you can get full time work and avoid benefits.

Those are far more destructive to employee morale than mere paycheck size — because they are invasive, daily reminders that “we’re the big store and you don’t matter.”

Yes, pay is important. But by focusing on wages retailers are creating problems for themselves — because they’re not solving what would have the biggest impact for them.

Harley Feldman
BrainTrust

Significant increases are in the eyes of the beholder. To someone making $10/hour, a $1,000 bonus represents 100 hours or over 2 months of work. Employees understand that this is a one time event. If the retailer is investing in the future of the business with the tax cut benefits, it will benefit all employees in the long run, assuring the employees a more solid future. This is the benefit most employees should feel good about.

The lobbying rhetoric is also in the eyes of the beholder. If the employee feels he or she is doing well and benefitted from the tax cuts, the rhetoric will become history. In any case, unions will only have leverage to organize if there is general discontent with the retailer and its compensation. The tax cuts with their benefits to the employees will create tough sledding for the union organizers.

Craig Sundstrom
Guest

“While few if any seriously thought passage of the Tax Cuts and Jobs Act would result in significant pay raises for workers….” Indeed, one could argue that only the most gullible saw this as anything other than political pandering. Companies have seen rising and record profits for years without substantial pay increases — of course in many cases the former is BECAUSE of the latter — so I see no reason to expect some kind of rush for the barricades now … whatever has prevented greater activism is still in place.

Daniel Reynolds
Guest
4 years 5 months ago

It was misleading to claim that the corporate tax rate reduction would increase wage rates. In the real world, business decisions are made using cost/benefit analysis on an after-tax basis.

Through 2017, the 35% corporate federal tax rate meant that every $1.00 spent on labor received an effective taxpayer subsidy of $.35. Thus, an employee earning, say, $100,000 had a net after-tax cost of $65,000 ($100,000 – $35,000).

Starting in 2018, the 21% federal corporate tax rate means that the corporation will now receive only a $21,000 tax subsidy; thus, increasing the after-tax cost of that employee to $79,000 ($100,000 – $21,000).

That means the after-tax labor cost to the corporation will rise by over 20%.

On the other hand, the expansion of bonus depreciation means that corporations will now have relatively more incentive to invest in automation. Such automation tends to have the short-term effect of reducing demand for labor.

Both of these factors should combine to have a negative impact on labor demand and wage rates over the next few years.

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Braintrust
"What may come out of this is an opportunity for retailers to reexamine the pay structure for store associates, and anyone who is customer facing."
"Many employees in retail and across the board who feel this confidence and then don’t see any results will definitely be disappointed."
"If retailers over-promise any additional impact for their workers, that’s their fault."

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