Kempner: Pay bonus boom isn’t because the boss just wants to be nice

Home Depot announced bonuses of up to $1,000 for its hourly workers, thanks to tax cuts recently passed by Congress. But some businesses may use tax savings in ways that cut jobs.

Home Depot announced bonuses of up to $1,000 for its hourly workers, thanks to tax cuts recently passed by Congress. But some businesses may use tax savings in ways that cut jobs.

Just a few weeks into Republicans’ delivery of hefty federal tax cuts for businesses, the impacts keep piling up for employees.

Most of it looks quite nice, as hundreds of thousands of Home Depot hourly workers are finding out with "one-time tax reform" bonuses of up to $1,000.

But there’s also the potential for pain, because some companies will use their tax savings for changes that could be hard on workers.

For example, Kimberly-Clark, which has a big presence in metro Atlanta, expects to use some of its new-found money to help pay for a "restructuring" that includes elimination of 5,000 to 5,500 jobs company wide.

I’m sure some companies will use the tax windfall to buy equipment that increases automation. That may well help their bottom line, but also slash certain jobs in the process. (Yeah, I know: and create new tech jobs. Except I’m not convinced we can continue to count on automation’s job gains compensating for all its job losses.)

Government doesn’t decide

When government doesn’t take as much tax money, businesses get to do as they please with it.

It works that way for individuals, too, of course. I don’t expect the government to tell me out how to spend the money I didn’t pay in taxes.

That’s part of the reason why nobody really knows exactly where the nation in general — and workers in particular — will end up in the wake of the tax cuts.

Plenty of people have guesses, though.

Here’s mine: the tax savings for business will turn out to be a very good thing for our economy and most companies, despite the likelihood that the tax cuts will load us (and our children and grandchildren) with more national debt.

Shareholders — that means you, if you have a 401(k) — will get rewarded with a piece of the proceeds. CEOs will get extra compensation, as if they should get credit for the actions of Congress.

Lots of regular employees will profit, too.

But not all of them.

Kimberly-Clark, which makes Kleenex, Huggies, Scott and Cottonelle, has about 1,100 employees in Georgia, mostly in the Roswell area as well as some at a plant in LaGrange. No word yet on whether many of them will be hit by the “restructuring” ax.

Maria Henry, the company's chief financial officer, said in a recent call with analysts  that benefits from tax reform provide "flexibility to continue to allocate significant capital to shareholders, while we also fund increased capital spending and our restructuring program over the next few years."

The company said it expects to close some plants, expand others and set itself on a better path for the future.

Congress passed tax changes that included a big cut in corporate taxes. Now some major businesses are passing a portion of the savings on to employees. (Olivier Douliery/Abaca Press/TNS)

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Who’s giving employees goodies

For now, though, more big companies seem to be rushing to announce sweet things for employees: bonuses, increases in minimum pay thresholds and boosted company contributions to 401(k) plans.

I'm thinking there might be some competitive pressure involved. Giants such as AT&TStarbucks and Apple are just a few of those that have given out goodies. So have some Georgia-based companies, including SunTrustTSYS and AFLAC, as well as Home Depot.

The Big Orange retailer said it expects a tax benefit in the coming year, it just hasn’t put a specific number on it yet.

The company paid over $4.5 billion in income taxes last fiscal year. I’m no accountant, but I’m happy to guess that its tax rate might eventually drop by about 40 percent. (It’s effective income tax rate had been just over 36 percent. The top new corporate rate is 21 percent.)

See why this could be big for business?

Why now?

In truth, it’s early for most companies to have reaped some of the biggest tax benefits yet. For many of them, the savings only began in the last few weeks. (And some actually have higher tax expenses briefly because they had money overseas that is now being brought home and taxed, though at a lower rate than it would have been under past rates.)

So why are so many companies announcing nice things for employees now?

Gregg Polsky, a University of Georgia law professor who specializes in tax issues, told me some businesses could come out better on taxes if they give the bonuses in 2017 or their equivalent fiscal year, before new lower corporate tax rates kick in.

Polsky said he suspects companies are trying to get a PR image boost while also scoring points with politicians.

But he also said companies are under growing pressure to keep employees happy in an increasingly tight labor market. Money is one way to do that.

“… not the way it works.”

What about just wanting to be nice to employees?

“That’s not the way the world works,” he told me.

Public companies are working with shareholder money. They aren’t supposed to give it away to be nice, he said. They are supposed to use it to boost the business or reward shareholders.

Some businesses will pass a bunch of their tax savings on to shareholders through higher dividends. Some will buy back more stock or debt. Some will put the money into new equipment.

Those that boost pay might make their workers smile. But don’t expect many companies to spend most of their tax savings that way.

“It is still a rounding error in terms of what the company is saving,” said Tom Smith, an economist and Emory University finance professor.

And some are focused on giving employees special bonuses: one-time kisses compared to pay raises that last longer.

Smith told me he assumes the tax cuts will be “good for employees and really good for their companies.”

Unexpected $1,000 bonuses are a fun way for employees to start the year. But employers should keep in mind that with growing competition for workers, it might not be enough.

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AJC Unofficial Business columnist Matt Kempner offers you a unique look at the business scene in metro Atlanta and beyond. You'll find more on, including these columns:

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