CEOs Should Take Broad, Long View In Deploying Tax Cut Proceeds

tax cutEven as tens of millions of Americans start seeing a bump in their take-home pay this week thanks to the Republican tax cuts, CEOs are still unveiling plans to fuel the expected economic surge with their companies’ own contributions in the forms of one-time bonuses, extra stock awards, and permanent wage increases.

Yet these decisions need to take on a longer-term hue as well as comprise reactions that are calculated to optimize the moment for marketing or employee-morale purposes.

And, in fact, some analysts suggest that CEOs who don’t capitalize in some visible way on the possibilities provided by the tax cuts may live to regret it.

“Now that so many companies are doing this and considering doing this, it does begin to seem unwise to ignore,” says John Bremen, managing director of human capital and benefits for the Willis Towers Watson consulting firm, told Chief Executive.

In any event, it won’t take long for the huge new stimulus from the private sector to join personal income-tax cuts in translating to an even more robust U.S. economy: The Atlanta Fed already has predicted a whopping 5.4-percent GDP gain for the first quarter.

But done right, CEOs’ decisions about how to deploy savings from corporate tax cuts could benefit their companies and workers for years to come.

“Many companies are planning to invest more heavily not only in wages and salaries but also in benefits and ‘people programs.’”

Apple took a holistic kind of approach in announcing that, in the wake of the tax cuts, it would give employees part of the proceeds but also invest much more deeply and broadly in operations in the United States including a sort of second headquarters, somewhere, that would employ about 20,000 people.

Also, Honeywell International, for example, is repatriating at least $7 billion of the $10 billion in cash that’s held by its foreign subsidiaries and planning to “continue investing in our businesses in the U.S.,” CFO Thomas Szlosek told analysts. Honeywell also intends to leverage the cash to pay a bigger dividend to shareholders, to repurchase shares, and “to more aggressively seek out M&A, particularly in the U.S.”

Many traditional retailers are expected to use some of the savings to invest more heavily in e-commerce, where Amazon and others are eating their lunch.

“They’ll also do investments in store remodeling and in better managing their stores,” Deniz Caglar, principal with PwC Strategy and author of the book, Fit for Growth, told Chief Executive. “They also will invest more in training employees to upsell or cross-sell. I see many of those targeted investments.”

Many companies are planning to invest more heavily not only in wages and salaries but also in benefits and “people programs.” About two thirds of large and mid-size employers just surveyed by Willis Towers Watson are planning or considering making changes to their benefit programs or already have done so. The most common initiatives include expanding personal financial planning, by 34 percent, and increasing 401(k) contributions, 26 percent.

And 64 percent are planning or considering taking action on their broad-based compensation programs, or have already taken action. Options include 36 percent of those surveyed who are considering attacking pay-gap issues with the proceeds. More CEOs may look at the tax cuts as a way to help fund parental-leave programs under an expansion urged by President Trump in his State of the Union address.

“So many companies are benefiting from the change in tax law enough to give a serious look at investments in talent that probably have been contemplated for some time, but which many deferred because of no funding or other priorities,” Bremen said.

At the same time, Kimberly-Clark is using a chunk of its tax savings to accelerate plans that its employees can’t be happy about: closing plants. The Dallas-based CPG giant, maker of Kleenex tissues and Huggies diapers, said that it planned to use part of the tax-cut proceeds to pay for an ongoing corporate restructuring that includes its just-announce closure of two plants in Wisconsin and the loss of more than 600 jobs.

The windfall also can pose a dilemma for CEOs who have made a big point of opposing the Trump administration and its policies, even the president himself, in some outspoken way, and don’t want to be seen as hypocritically taking advantage of a federal action that happens to help them.

That didn’t stop Apple CEO Tim Cook, who harshly criticized Trump’s immigration ban. But other CEOs may want to gauge how they leverage the tax-cut proceeds in light of they and their company’s positioning on such issues.

“If you’re a company that has been openly antagonistic toward the West Wing, I’d look at allocating some of that windfall to charity, non-profits, more training for employees – doubling down on increasing the diversity and inclusiveness of your organization, maybe even allocating 10 percent of whatever proceeds to an organization that aligns fully with who you are and what the company stands for,” Steve Cody, CEO of Peppercomm, a marketing agency, told Chief Executive.

“It’s a great opportunity for the CEO to speak up and remind employees that they aren’t wavering in any way, shape or form in terms of stances against what’s been said and done by the White House.”

Dale Buss
Dale Buss is a long-time contributor to Chief Executive, Forbes, The Wall Street Journal and other top-flight business publications. He lives in Michigan.

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