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

50 Pages Posted: 21 Feb 2021 Last revised: 24 Jun 2022

See all articles by Michelle Hutchens

Michelle Hutchens

University of Illinois

Dan Lynch

University of Wisconsin - Madison - Department of Accounting and Information Systems

Bridget Stomberg

Indiana University - Kelley School of Business

Date Written: June 24, 2022

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

Suggested Citation

Hutchens, Michelle and Lynch, Dan and Stomberg, Bridget, Sharing the Wealth: The Effects of TCJA Bonuses on Employee Pay Sentiment (June 24, 2022). Available at SSRN: https://ssrn.com/abstract=3753701 or http://dx.doi.org/10.2139/ssrn.3753701

Michelle Hutchens

University of Illinois ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Dan Lynch (Contact Author)

University of Wisconsin - Madison - Department of Accounting and Information Systems ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States

Bridget Stomberg

Indiana University - Kelley School of Business ( email )

1309 East Tenth Street
Indianapolis, IN 47405-1701
United States

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