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

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.