It was going to be a benefit of one of the biggest tax reforms in US history. But instead of going toward raises, company leaders plan to direct extra tax benefit funds toward another area: training and development.
A new Korn Ferry survey of 152 senior leaders across industries found that 86% of them don’t plan on increasing base pay, and 91% said it was unlikely they would pay a one-time bonus to employees due to the tax savings. The responses are consistent with expected annual wage increases in 2019 of around 3% across all levels. Despite record economic growth, historically low unemployment and a battle for properly skilled talent, wage growth has remained around 2.5-3% since 2011.
“The sentiment that compensation will increase as a result of the new legislation appears to not be panning out,” says Tom McMullen, senior client partner and leader of Korn Ferry’s rewards thought leadership.
At the same time, however, 34% of executives surveyed plan on using tax savings to increase their investment in training and development programs. According to Don Lowman, senior client partner and leader of Korn Ferry’s Executive Compensation and Governance practice, more funding for skills development is both a way to invest in employees and drive engagement. To be sure, employees, particularly younger workers, often cite the ability to grow professional skills and opportunities to share expertise as more valuable thancompensation. “Organizations aren’t putting money into the pockets of employees in terms of wages, but upskilling in the long run makes them more valuable inside and outside the company,” Lowman says.
One factor impacting how leaders are using tax savings is the omnipresent fear of an economic downturn. That is evident in the fact that 41% of executives surveyed plan to use tax savings to increase cash reserves. Though there are no obvious data signs pointed to a slowdown, corporate leaders continue to be concerned about future volatility. Indeed, many executives surveyed suggested that savings from tax reform would be offset by new international trade tariffs. “Corporate leaders are looking to limit fixed expenses while investing tax savings in other ways that are less inflationary,” says Bob Wesselkamper, Korn Ferry’s rewards and benefits global solutions leader, noting that is why organizations are increasing funding for training and development over salaries.
Another factor may be timing; nearly half of senior executives said organizational leadership has not yet met to discuss how to deploy tax savings. Only a third said their organizations are very firm on what they will do with the savings, while 46% said they are not yet even sure how much savings to expect. “This is the most sweeping tax overhaul in decades, and it is critical that organizations work quickly to put in place comprehensive strategic plans to address a range of investment alternatives,” says McMullen.