UPDATE: Who benefits from corporate tax rate cuts?

About a month ago I had a piece on the blog about the recent cuts in the corporate tax rate for US companies - more specifically, I looked at what companies were actually doing, (or have stated they will do) with the proceeds of these cuts, and how organizations may or may not be able to leverage these plans in their recruiting and retention efforts.

Long story short, last month I said, (and shared some data) that said most companies are taking care of shareholders before and to a much more substantial degree than they are looking after current employees (with raises, bonuses, increased development opportunities), and potential future employees, (investing in new facilities, R&D expansion).

Well, some more and more current data about corporate spending plans for their tax cut driven windfall is in, and sadly for (most) workers, the story has not changed all that much. Courtesy of Just Capital, a non-profit organization that has been monitoring what large US companies are doing and planning to do with these proceeds, have a look at how about 120 large organizations are allocating these new found funds:

If you can't see the chart, (email and RSS subscribers may need to click through), the data breaks down by category of corporate stakehiolder or potential spending group as follows:

Shareholders - 57% (stock buybacks, dividends)

Jobs - 20% (commitment to job creation, capital investment intended to add jobs)

Products - 7% (invesment in product quality or benefits)

Customers - 6% (reduced pricing, increased service, privacy, safety)

Workers - 6% (wages, bonuses, benefits, training)

Communities - 4% (charitable giving, matching gifts, volunteering)

Although the many announcements and rounds of one-time bonuses that many corporations have granted to employees have generated a lot of news, the Just Capital data continues to show that these programs and plans amount to an exceedingly small percentage of the total corporate benefit of tax cuts - estimated to be about $150B in 2018 alone.

As I speculated the last time I looked at this data, organizations that were really making a meaningful and greater than average commitment and investment of these tax windfalls in their employees would likely be able to leverage the investments effectively as a tool for retention and increased overall employee loyalty. And potential new recruits could also be attracted and drawn to organizations that if not putting their employees first on the stakeholder pecking order, at least consider them to be more important (relative to shareholders for example) than competitors and industry averages.

And here's one more bit of interesting information to consider for organizations and leaders trying to decide the 'best' allocation of tax savings. Just Capital periodically polls American's attitudes towards corporations - mainly to find out which corporate behaviors are seen as being the most 'just' or fair. In the most recent polling, how corporations treat their workers came in as the most important category in evaluating these corporations, with almost a quarter of respondents ranking worker treatment as number one.

Shareholders? How corporations treat them came in last, with only 6.4% of respondents naming their treatment as most important when assessing corporate behavior.

Lots to chew on here for sure. I will probably let this topic go for a while, as frankly its a little depressing. I suppose for most organizations, it is better to be a shareholder than anything else.

Have a great day!

How your company plans to use its tax cut windfall could be a great recruiting tool - or maybe not

A couple of weeks ago I reviewed some recent research that analyzed how American companies plan to put to use their increasingly sizable cash hoards, (much of parked overseas but expected to start being repatriated), and which are expected to also be boosted by the recent reduction in corporate income tax rates.

The TL;DRversion of that prior piece: Most of the cash is heading back to investors, either directly in the form of increased dividends, and indirectly as a benefit from increased share repurchases.

Over the weekend I reviewed an even more comprehensive examination of what many of America's largest organizations have stated how they plan on putting this new cash to work, courtesy of Just Capital. There analysis of almost 100 large company announcements in the last few months shows a consistent picture - the data shows that so far, US companies plan to reward or grant new benefits or opportunities to employees comparatively poorly when compared to how these companies are treating shareholders.

Here's a quick look at the summary of the analysis from Just Capital (and they have lots of detail at their site, I recommend spending some time digging through the figures)

Since the chart at Just Capital is interactive in nature, it was hard to get a screen cap that showed the percentage breakdown across the uses of cash categories, so I will just list them out below:

Shareholders - 58%

Future job creation investment - 22%

Products - 7%

Employees - 6%

Customers - 4%

Communities - 3%

Once again, according to the data compiled by Just Capital from hundreds of corporate announcements related to worker raises and bonuses, stock buybacks, capital expenditures, executive compensation, and other measures related to corporate tax reform, only about 6% of this windfall is directly benefiting current employees.

There are some standout companies, from an employee welfare perspective, with respect to how they are allocating these cash flows.

Boeing for example, is allocation over $200M to programs directly benefiting workers, and another $100M towards community programs. FedEx is allocating all of their increased funds to direct employee compensation increased and investments in future job creation. Finally, Apple plans to direct 100% of their tax cut savings into the creation of 20,000 new jobs.

On the flip side, some companies, even ones who have allocated some of the tax reform savings to employee bonuses, (and have had these, usually $1,000 bonuses reported widely), are in Just Capital's analysis granting shareholders the vast majority of the benefits from corporate tax reform.

You can dig into the data in more detail for sure, but the takeaway I think of corporate HR/Talent leaders moving forward is understanding where (and more importantly, why?) your organization shows up on this kind of list.

While it is awesome to be known as company that is great for the shareholders, your job in HR/Talent is to keep creating, positioning, and communicating your organization as a great place for employees.

It might be an awkward conversation down the line if some highly sought after candidate asks you why it is that your company decided only to give employees 1 or 2% of these tax cut savings and give the rest to the shareholders.

There may be a great answer to that question, but you will only have it if you are prepared to be asked.

Have a great week!

US companies are flush with cash, where does 'raise wages' fall on the priority list?

Last week on the blog we noted the shift in the mix of annual employee compensation increases - companies have and are continuing to increase their use of one-time and variable comp increases like annual bonuses and lessen their use of base (and in theory, recurring), salary and wage increases. The argument, many companies make, is that variable comp awards tie comp more closely to individual and organizational performance measures and provide the organization more flexibility and adaptability to respond to changing market conditions and business performance.

We have even seen this trend play out in the wake of two recent legislative decisions that have combined to create a pretty significant windfall of excess cash/after tax profit for many of the US's largest companies. One, the reduction in the 'stated' corporate income tax rate from 35% to 21%. And two, the reduction of the tax rate on the repatriation of US company cash that has been parked in overseas accounts, and now can be brought back to the US at a lower tax rate (about 15%).

With all this additional cash available to many large companies (most of whom are large employers), it makes sense from an HR / Talent point of view to ask a pretty simple question: Will and to what extent will all this cash flow to employees in the form of salary/wage increases or bonuses?'

Well, sadly for most employees, and for HR and Talent leaders who might be advocating for increased investment in people, the short answer to the question is 'Hardly'. Take a look at the chart below, from a Fortune piece citing some recent BofA Merrill Lynch research on just what these companies plan to do with their soon to be repatriated earnings:

Looking though that list of top six likely uses of this repatriated cash, maybe you could argue that the one that came in sixth, 'fund pension' has some direct benefit to current employees. Share repurchases, which we will see again in a second when looking at the knock-on effect of lower income tax rates, could also benefit employees who participate in ESOP plans or have a decent bit of their 401(k) tied up in company stock. But that is an indirect, and incomplete benefit at best.

Another review, this time by the financial firm Goldman Sachs, paints a similar picture of who the likely beneficiaries will be from lower corporate tax rates. From a piece reported by Marketwatch:

Buyback announcements are up 22% this year to $67 billion in just six weeks, Goldman Sachs said in a note to clients. This follows a report by benefits consulting firm Aon Hewitt finding that 83% of large companies don’t expect the tax cut to boost salaries at all — just help pay for small bonuses companies like WalMart  and AT&T, gave workers, which reporters soon discovered were, themselves, skewed toward higher-paid, longer-tenured employees in many cases.

And it comes as Goldman finds companies have raised guidance on re-investment in their businesses — the putative reason for cutting corporate taxes at all — only 3%.

A couple of things to note here. CEOs and Boards do have a responsibility to their shareholders - some would certainly argue that the shareholders' concerns matter more to corporations than any other stakeholders. So moves to increase the share price (repurchases), and return profits to the holders, (increased dividends), are definitely proper and prudent uses of excess cash/profits.

But the really small levels of internal re-investment, and commitment to improving the long-term compensation levels for employees is a little bit disconcerting. But it also reminds us of something really important. Namely, that for most large organizations labor cost, (and by extension, their investment in people), is just that - a cost that has to be managed.

What the organization is willing to invest, and whether they are willing to increase this investment is subject to a complex set of variables - competition for talent, product/service strategy, overall labor market conditions, the impact of automation and outsourcing, and even the legal/regulatory climate.

But what does not, yet, seem to be moving the needle on investment in people and employee compensation,(aside from the slew of copycat one-time $1,000 bonuses we heard all about), is this sudden windfall of excess corporate cash/profits as a result of recent corporate tax changes.

More simply put, organizations increase what they are willing to pay for any resource only when they have to, not because they are able to.

Apple won't volunteer to pay more per piece to their supplier of iPhone screens just because they can.

And they won't volunteer to pay their engineers, accountants, and facilities staff more just because they can as well. Interesting times for sure.

Have a great day!

Take that for data: Who you hire and fire signals your culture

Apologies in advance for the pretty deep NBA-themed take with a back story that you may not be familiar with unless you are a NBA League Pass junkie like me. But I will try (as always) to share enough of the sports side of the tale in hoped that the connection to HR and the real world makes sense. Or at least almost makes sense.

Here's the sports side of the take. 

On Monday, the NBA's Memphis Grizzlies fired head coach David Fizdale, their coach of slightly more than one season, after the team lost its 8th straight game and fell to a record of 7-12 on the season. Of note, one of the team's best players Mike Conley, (probably their best player), has been injured and has not played in the last 7 games. 

Last season, Fizdale's first in charge, the team finished 43-39, and lost in the first round of the playoffs giving the coach a total record of 50-51. 

Oh, two more things to toss into the blender before we try to connect this story to something the rest of us can relate to. One, Fizdale has a ton of respect around the league with high-profile players and coaches, (LeBron James, Vince Cater, Gregg Popovich who shared their surprise at the firing and admiration of Fizdale). Here's LeBron's reaction after hearing the news:

I need some answers. Feels like my man was a fall guy

— LeBron James (@KingJames) November 27, 2017

And two, Fizdale has been at odds with one of the Grizzlie's top players, Marc Gasol, the two reportedly not seeing eye-to-eye on many aspects of how the team was being led. In the NBA, star players have a ton of influence and power, as there are not that many of them, and teams know they need two or three of them to have a chance to compete.

Oh, there's a three, (sorry), in Fizdale's last game in charge, a loss to the Brooklyn Nets, Fizdale benched Gasol for the entire 4th quarter, (an unusual move for a coach to bench a star player in a close game). Gasol was quoted widely after the game indicating that the benching had never happened to him before and he was ticked off.

A day or so later, word leaked out the Fizdale was fired.

Got all that?

So here's the thing about the Fizdale firing that we should think about in the context of our own organizations. Fizdale was fired for (at least 75% of the reason anyway), for not getting along with one of the team's best, and most popular players in Gasol. The reasons why the two didn't gel are unclear, but what was clear was that the coach Fizdale was probably tired of clashing with the player, and sitting him on the bench in a close game was meant to send a message to Gasol, the rest of the team, and more importantly, to team management and ownership that he (Fizdale), runs the team on the court, not Gasol, or any of the other players.

And for that, or for mostly that, Fizdale was fired. Team management and ownership essentially sided with the player, leveraged the (convenient) recent losing streak as a primary reason for the firing, and made their star player, who is under contract until the end of 2020 and owed about $65M more from the team, happy.

The clearest signs of any organization's culture is who is hired, who is fired, and by extension, the reasons why people are fired.

Fizdale was fired for a personality and/or philosophy clash with one of the team's stars. And for that, he had to go. The message about the Grizzlie's culture is clear.

Players, (at least star players), come first. The team has invested truck loads of cash in these players, the team needs them to perform in order to win (and sell tickets), and the team has concluded the best way to accomplish that is to keep the players happy.

I will repeat it, the clearest sign of your organizational culture is who gets hired and who gets fired.

The Fizdale story shows us what kind of culture the Grizzlies want to have.

Take a look at your last 10 or 20 hires and fires and think about what signals these decisions are making to the rest of the employees, to candidates, to customers, and to the world.

Finally, I will let you go with this small tribute to Fizdale - his now classic 'Take that for data' rant after a close playoff lost last season. (Email and RSS subscribers click through)

Good luck coach on your next gig.

On corporate reactions to current events

I don't think I need to recap the series of political and policy events here in the USA over the last few days that have seemingly set thousands if not millions of folks (and almost EVERYONE) on Twitter afire.

In the aftermath of a contested, contentious election, the first days of the administration have been, depending on your point of view, either a colossal and dangerous train wreck, or simply the expected result and consequences from a series of campaign promises/threats that have been acted upon.

Since it doesn't matter to you what I think about these actions, and no matter what I think I would not change anyone's mind anyway (and I am not really interested in changing your mind. Make up your own mind), I'd rather make a couple of comments on what I have seen from the many 'corporate' responses to the events of the last few days.

From what I can observe, there have been three major categories of 'corporate' response, (or non-response), to the recent Executive Orders from the new President.

1. 'We' (meaning the corporation, even though I would suspect that the individual CEOs that are penning these responses are not really able to consult or poll all of their employees in just a day or two), are 100% in opposition to these policies, and we are actively working to see them overturned or ended. We are donating to the ACLU, providing free services to those affected (see Airbnb), and want everyone to know that we are NOT COOL with this. This has been the response from many high-profile companies, many of them from the tech space.

2 'We' (again the corporation), have a culture of openness, inclusiveness, tolerance and fair treatment towards all. We support all our employees regardless of race, ethnicity, religion, sexual orientation, etc.. We will extend direct services to our employees who may be impacted by these policy changes. This is sort of a toned down version of response 1, focusing more on their internal people and their families. It could be seen (and has been by some), as the more pragmatic CEO/corporate response, particularly for organizations that have business and dealings with the various arms of the Federal government. See Elon Musk/Tesla for a decent example of this approach.

3. Nothing publicly announced at all. This is actually the majority of organizations I would think. For every big tech company CEO who has issued a statement or a Tweetstorm condemning the recent events and policy changes, there are 100 if not more organizations who are not commenting on it at all, or at least not publicly. There a a million reasons to do/say nothing publicly as a CEO/organization, and saying nothing does not mean necessarily that the CEO/organization does not object or rebuke these new policies.

Wait, I just thought of a potential 4th response. The one where the CEO comes out openly and aggressively in support of the recent Executive Orders on immigration, placing him or herself in line with the new President an Administration. Note, a quick scan of headlines while drafting this post has resulted in zero examples of this actually happening. Doesn't mean it hasn't, but I have yet to find any CEO/organization, (at least a national brand), coming out in support of these policies.

I know what you might be saying, that this particular policy change and set of orders are SO egregious, so un-American, so divisive that there is no way, no person, no CEO, no organization could support them. In fact, they are such an affront to what we like to think makes America a great country that it really is not controversial at all to come out strongly against them. And you might be right be that.

Why think about these 'corporate' responses/stances to current event, particularly as and HR/Talent pro?

Because once the CEO of the organization takes a public stand on issues as divisive as these, it sets down a kind of organizational culture marker that will be just about impossible to ignore or alter in the future. When the CEO comes down hard in opposition (or support) of these kinds of flash point debates, and if he/she commits organizational resources (time, money, products, services), on one side or another, the message gets pretty clear, pretty fast.

And no matter what side of this (or the next big issue) that the CEO does come down on, (and one last reminder, I am not telling you what I think about this, or what you or your CEO should think), there is almost certainly going to be a cohort of stakeholders, (employees, customers, candidates), that are not going to see eye to eye with your CEO, and by extension, your organization.

And that might be fine by you, as and HR/Talent leader, to have this element of the organization's DNA and culture laid bare such that employees and candidates that find themselves in stark opposition to the accepted (or at least stated) views will naturally begin to self-select out. They either will resign, will start looking for another job, or decide not to apply in the first place. Either way, you have maybe saved yourself some time in trying to answer the 'Is he/she a 'fit' for the job here' question.

But that is not really the point, at least not the main point. The word 'divisive' implies that at least some people are on the other side of that divide from you. And I think we have to be very careful that we don't forget that. Because the next 'divisive' issue might not be so clear cut. It might not be so obvious which side your CEO and your organization should be on, (assuming both of those things matter). The next issue might have very cool-headed, rational, logical people on completely opposite sides. And should both of those kinds of people be welcome in your organization?

Lastly, and this is I swear the end of this (too long) post, you also as an HR leader should probably ask yourself this question:

Is a person's opinion on the current political debate of the day a valid, predictive, appropriate screening question for employment at your firm and whether they meet the criteria for the ever tricky idea of organizational 'fit'?

Have a great week. Be good to each other.