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

42 Pages Posted: 21 Feb 2021 Last revised: 4 May 2021

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: May 3, 2021

Abstract

Many corporations shared their cash windfalls from the Tax Cuts and Jobs Act (TCJA) with rank-and-file employees through bonuses, higher wages, or increased benefits. We use novel data from Culture X to examine how the announcement of TCJA bonuses affects employee sentiment about their companies’ pay practices. Although employees are economically better off upon receiving these bonuses, prior literature suggests employees could be dissatisfied after receiving bonuses that they perceive as unfairly small. Using a difference-in-difference design, we find a greater decline in pay sentiment among employees at firms announcing a TCJA bonus relative to firms that do not. Consistent with dissatisfaction about receiving an unfairly small share of the company’s tax windfall, we document a larger decline in pay sentiment at announcing firms with larger increases in CEO bonuses and larger share repurchases around the TCJA. We provide new insights into how workers respond to changes in compensation stemming from corporate tax savings.

Keywords: Tax Savings, TCJA, Employee, Pay Satisfaction

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 (May 3, 2021). 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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