Summer Rain

January 26, 2018

A lot has been made about the news that several large corporations are doling out bonuses to their employees, ostensibly as a side effect of the recent corporate tax cuts.

For example, Apple recently made news when they promised $2500 bonuses to their 120,000 workers.

Chase promised $1000 checks to 20,000 of their workers.

Disney is giving $1000 bonuses to 125,000 of its workers.

Walmart plans to boost their minimum wages by a dollar to $11 an hour and give up to a $1000 bonus.

It seems like every day there’s a new release about another mega-corporation giving out a generous reward for its loyal and hard-working employees.

Here’s a list of some of them.

Company	Bonus	No. of employees getting bonus
AT&T	$1,000	200,000
Alaska Airlines	$1,000	19,000
American Airlines	$1,000	130,000
Bank of America	$1,000	145,000
BB&T	$1,200	27,000
Comcast	$1,000	100,000
Fifth Third Bank	$1,000	13,500
JetBlue	$1,000	21,000
Nationwide	$1,000	29,000
PNC Financial	$1,000	47,500
Sinclair Broadcast	$1,000	9,000
Southwest Airlines	$1,000	55,000
Travelers	$1,000	14,000
U.S. Bancorp	$1,000	60,000
Walmart	up to $1,000	n/a

Isn’t it weird that even though all those companies benefitted from the tax reform in widely differing amounts, that the bonuses were nearly identical?

But let’s look at what is really happening.

Chase’s bonus affects 20,000 employees, but they currently employ more than 240,000 people. So what do the other 220,000 hard workers get? A ride on the Reading?

Walmart is boosting their pay rate but they still don’t guarantee a full 40-hour work week, a development that would force them to include benefits like health insurance. It is estimated that Walmart costs tax payers $6.2 billion per year in public assistance like food stamps, Medicaid and public housing. Even if Walmart paid every single employee (1.4 million of them) the $1000 bonus (which they aren’t), it would still not match the amount the federal government subsidizes them.

One of the most high profile examples was Apple’s dual announcement of the bonus plus investment in a new campus which could add up to 20,000 new jobs over the next five years. The bonus announcement comes on the heels of Apple brining home $250 billion in income they’ve stashed overseas in order to avoid paying taxes on it. They would have had to pay $86 billion but now they only have to pay $39 billion. That’s $47 billion of extra income. Of that, they are sharing only $300 million - or less than 1% - split between the 120,000 employees. That’s just a one time bonus and does not include any additional sharing of the revenue the company will continue to generate at the lower tax rate. In addition, that bonus is coming in the form of a restricted stock unit, which means the recipient won’t see a dime of it until it vests, which means they must remain an Apple employee until it does. Also, they’ll only get the cash value of $2500 once the unit vests. Undoubtedly, the company will use a large portion of the $47 billion windfall to buy back company stock which will drive the price higher. Unfortunately, those who are waiting for the vestment will see no increase in the value of their units, so the actual cash value of this bonus once it does will be less than it is today. So if the stock doubles by the time these units vest, those units will only be worth $1250 in today’s dollars. And by the way, since many of the executives at the top get actual shares of stock as compensation, they will be the ones actually benefitting from the stock increase. As for the money they’ve promised to invest in a new campus, only a fraction of it is coming from this one-time windfall. They had planned to do that anyway, regardless if there had been a new tax bill. And none of this addresses the continuing issue that Apple is building its products using Chinese labor with salaries so low that some human rights organizations have labeled it as “slave labor”.

The story is similar for all of the examples mentioned. The windfall from the tax reform was in the tens of billions, yet the sum that is being paid to all of the employees from these “generous” bonuses is a tiny fraction, often less than 1%.

I am reminded of the salary escalation that occurred in baseball some time ago. Before the 1980 season, Nolan Ryan became one of the most sought after free-agents in baseball, despite the fact that he was 33-years old. The Ryan Express showed few signs of slowing, leading the league again in strikeouts. But when the Astros signed him for the princely sum of $1 million per year (cue the Dr. Evil music), the baseball world went apocalyptic. “These rising player salaries will destroy the game!” “There was no way baseball teams can stay in business if they paid players so much money!” The year before, Ryan had been paid $200,000 a season which was among the highest any player was making. To give some perspective, Babe Ruth was paid $80,000 a year in 1930, so player salaries had hardly moved in half a century.

Move forward a little more than a decade. Was baseball in shambles as the naysayers had predicted? Hardly. In 1991, Comiskey Park was built for $137 million, almost entirely funded by public money. The following year, Camden Yards was built with public funding for $110 million. The debt service for both stadiums is still being paid by local taxes. As for player salaries, in 1991, Darryl Strawberry became the highest paid player, nabbing a contract worth $3.7 million per season and the following year Bobby Bonilla signed a contract that paid him nearly five and a half million per year with a guaranteed deferment that is still paying him thirty years later.

But how was this possible? How come escalating player salaries did not break the bank?

What happened was that the players (and by proxy, the public) discovered just how much money the owners were making and how much they were hiding in significant part due to their protection from anti-trust laws. We are seeing the same thing widespread throughout the corporate world due to the federal government’s lack of interest in enforcing the existing anti-trust laws. The amount of money on hand – estimates range from $2.5 trillion upwards of $5 trillion in cash offshore alone – is so large that much of the public can not conceive what they have been missing out on.

In baseball, the owners shifted the blame of rising ticket prices onto these “greedy players”, claiming they had to raise prices in order to afford them. There was absolutely no evidence of this, of course. Ticket prices are always rising and have been since the first exhibition, and do so to the point the public will pay for them. But once the public understood just how much money the owners were actually making they had to make it look as though they had accomplices. So if product prices suddenly rise and the news release states that it’s due to increased employee compensation, you’ll know better.

The point is that these “generous” one-time bonuses the companies are paying out are a pittance compared to what they are getting from the tax break and the workers are still not sharing in the profits. So for all the celebration that is being heaped on these so-called corporate Samaritans, that warm and wet sensation you might be feeling is definitely not summer rain.