Sharing the Wealth: The Effects of TCJA Bonuses on Employee Pay Sentiment

Abstract

Many corporations publicly announced their plans to share tax windfalls from the Tax Cuts and Jobs Act (TCJA) with rank-and-file employees through some form of enhanced compensation or benefits. This study examines the association between the public announcement of these bonuses and workers’ pay satisfaction. Although employees are economically better off upon receiving this additional compensation, prior literature suggests employees can be dissatisfied with awards that they perceive as small or inequitable. By linking the bonuses to a corporate tax windfall, firms provided a reference point for employees to use when evaluating the relative fairness of their share. Using a difference-in-differences design, we find a greater decline in pay satisfaction among employees at firms announcing a TCJA bonus relative to firms that do not. Consistent with dissatisfaction being driven by employees’ perceiving their share of the company’s tax windfall as unfairly small, we document a larger decline in pay satisfaction at announcing firms with larger increases in CEO bonuses, larger share repurchases, and greater decreases in corporate taxes around the TCJA. Considering increasing income disparity in the U.S. and a heightened focus on corporate tax burdens, we provide new and timely insights into how workers respond to changes in compensation stemming from corporate tax savings.

Keywords: Tax Savings, TCJA, Employee, Pay Satisfaction, Compensation

JEL Classification: H25, M52