Happy New Year, everyone! 🥳
Before we get too far into 2020, let’s take a look back at 2019. But, in true Comp + Coffee fashion, we’re reviewing the year through the eyes on compensation!
Join us for this quick rewind through some of 2019’s biggest comp moments and hottest comp trends.
If you like what you hear make sure to subscribe wherever you listen to us! (And don’t forget to give us a 5-star rating while you’re at it!)
Shawn: I feel like the further we’ve gotten into the season the more that I’ve had to edit.
And we’re BAAAACK.
Kaite: That’s absolutely terrifying.
Bill: Back from what?
Shawn: Bill’s rolling to 2020 like a train down the tracks, it takes energy. Kaite, what’s your resolution?
Kaite: To never hear that again.
Bill: Just trying to build up the excitement. It’s been probably four weeks.
Kaite: Excitement but also that was a wee bit terrifying.
Shawn: Glad I accomplished my goal then. Before we get too far into 2020, though, it’s time for a look back.
Bill: Oh, okay.
Kaite: I feel like we need some transitional music here now.
Shawn: Well, now I’m gonna be forced into adding that in. And we’re doing it through the lens of comp.
Bill: We might be the only podcast covering it that way.
Shawn: Hey-o. 2019 was an interesting year, period, but also when it comes to comp. And I don’t know, I started to write down a bunch of stuff that it caused me to think about. Maybe what happened with some trends in 2019 and talk about what they were and maybe even where they’re at now as we start to look forward. The first thing that we hammer on this one a lot, a lot, 3% cost of living increase again. I think that’s been the trend since 2008. Basically, since the last great recession.
Bill: It’s been pretty constant for a long time. It might even, for the most part, before that.
Shawn: Yeah. It’s almost viewed as a…you know, it is what it is now. Everybody kind of accepts that as the raise.
Shawn: Right or wrong. And we’ve talked about in other episodes better ways you might wanna think about that. If you have a budget better whereas you might want to utilize it, but it’s kind of viewed as a defector not only by comps, I’d say but probably about employees, too.
Bill: Right. People, I think, a large part of the workforce has now gotten used to raises are just gonna tick up, tick, tick, tick. But there are lots of other components to pay. And I think our listeners here are getting smarter and savvier about other ways of rewarding people, and recognizing them, more promotions, more bonuses, spot bonuses, annual incentive plans, things tied to performance.
Shawn: A previous podcast, I’m going to forget the title where Mark Szypko joined us. He said, “Well, even if that is your budget, is there a bet…like even if you have a 3% budget, are there better ways that you can work with managers to use it?” So, in other words, everybody’s gonna have 3%, you want to reward your top performers. Ten percent, nobody gets nothing, or something of the sort.
Kaite: Whereas we talk extensively, shameless plug here, we talk extensively about this in our Comp Strategist Field Guide.
Shawn: All right. Email email@example.com if you wanna get that. Bill personally wrote it. But I think also in line with that, one of the things that’s emerging, Bill, is a trend of…and I think these things… I don’t wanna say they go hand-in-hand because they don’t. But I think there’s a relation to me, the 3% cost of living increase, but also we’re starting to see the emergence of jobs-based pricing. And the reason I say that there’s a…not a correlation at all, but a little bit of a relationship is, we’re starting to try to think more about who really matters to the business and how we reward them well, and not just giving everybody the same thing. And to me, those two are the same there.
Bill: Correct. And I would guess that that’s sort of an unintended consequence, but a good one, you know, the discipline of, how do you spend a thin budget, is a good way to figure out where your money has the most value to the business. If salary increase budgets were 20% a year, managers would be throwing money around all over the place.
Shawn: You wouldn’t have this problem?
Bill: Right. But you’d have a different problem. We’ve talked about that before too, where you get all the…you get…nobody ever wants to leave. And there are some people that should wanna leave most organizations. Just bad fit, it’s not bad people.
Shawn: Sure. Unless they are bad people.
Bill: Yes, there could be some of them.
Kaite: The ex-murderers out there.
Shawn: How do you know?
Kaite: Been wondering about Bill.
Shawn: Well, 100%, 100%, when he’s like, “Oh, yeah. I spent the break touring around Florida,” there’s a correlation there. No doubt. But go on, Bill. What was your point?
Bill: I don’t know.
Shawn: No, when we see the jobs-based pricing emergence, we see the use of skills trying to identify, and I think it’s the point you were making, other than ex-murderer, trying to identify what’s unique about a person or a set of people or whatever, what’s unique about drivers of the business that you want to reward.
Bill: Correct. And what is critical versus what is important to have, versus what is nice to have, versus what is just table stakes, for lack of better of a term.
Shawn: Right. Just to be able to have a business, and keep people there and all that kind of stuff.
Bill: Commodity jobs, which could be different in different organizations.
Shawn: Why are you looking at me when you say that?
Bill: I’m trying to carry on a conversation, Shawn.
Shawn: I thought you were trying to commoditize my job.
Bill: No. Not yet.
Shawn: You wanna take over the podcast, Bill?
Kaite: You are the star.
Bill: There’d be nobody to make fun of me. Nobody for people to complain about.
Shawn: To be clear, I don’t make fun of you. I joke with you, with you. The other thing we’re seeing in relation to this, though, because skills, I’m jumping from one topic to another here, but skills are becoming more important in terms of how you look at a job, how you price a job. So it’s not just…we use the example of an engineer, a software engineer. It’s a software engineer with Dotnet skills. It’s a software engineer that has AI skills. And what does that do to the job? Well, to figure that out we have to know what is the job that you’re pricing. Does it need those skills? Is that a requirement? And what does that do then to the market pricing of it? It’s not just a software engineer, then all of a sudden as a software engineer with those skills. So, as we’re seeing the emergence of skills, we’re seeing comp wanna be in control of the descriptions then, too.
Bill: Right. And that was sort of a big 2019 talking point, was skills-based pay, skills-based market pricing. I think that the practitioners are very interested in that, and how that works, but are also a little challenged by collecting the data themselves. Because there aren’t a lot of databases inside companies right now that tie people or jobs to the skills they have or what they need. And the industry is sort of growing into it also. I think it’s probably being led mostly by the tech industry, but the idea of using skills sort of in every job as a way of distinguishing the market pricing is a coming trend, or it is a trend. It’s not coming, it came, and…
Kaite: It’s here.
Bill: It’s here.
Kaite: It’s ready.
Bill: But, I think it’s sort of…it made it to the list in 2019.
Shawn: Yeah. Hey, we say, we use the example all the time because maybe it’s the most relatable, the tech industry. But, we’ve heard this exact same thing from insurance industries, where different actuaries have different skills and different specializations. We’ve heard this from manufacturing, we’ve heard this from truck drivers or drivers, I should say, and the different versions thereof. I mean, there are a million different versions of the same thing. It’s just that maybe because of the world we’re close to, maybe it’s just because of the visibility of how quickly tech changes, that that’s a thing. But this is…it’s almost ubiquitous.
Bill: Yes. Right. But the historical collection of compensation data was not robust enough to collect that kind of information.
Shawn: The problems are the same no matter where.
Bill: But collecting skills and then aggregating and reporting on that, and then being able to publish surveys that had market pricing for every job with every skill or combination of skills is difficult. And maybe also, you know, separate issues. I still think there’s confusion over, how do you deal with skills and market pricing. We’ll see that in 2020, and the whole idea of this, you know…a given job, for a given job, 88% of the people have a set skill, and that skill has a 7% differential. You’re like, I go, “Well, wait. That doesn’t make sense.” If that’s part of almost every job…
Shawn: That is just part of a job.
Bill: It’s just part of the job. And it’s not a differentiator, and there is no differential.
Shawn: As opposed to if it’s software engineer with specific skills, to keep using an example.
Shawn: Probably, I don’t know what percentage. I’m gonna make something up. Probably 20% of people have machine learning skills or AI?
Bill: Correct, right. And that’s where you see this stuff making a difference because it’s sort of the job with the core set of skills, knowledges, capabilities is worth one thing, and then the job with the cutting-edge, the harder to find thing is then worth more.
Shawn: Yeah, that makes sense.
Bill: And it does…it spikes early. Like AI is a great example. AI jobs are more valuable, or jobs where people have AI experience is more valuable. But as time goes on, every job that needs AI will have AI, and it will become a core component of the job and not a value-added skill. It’ll be a core skill.
Shawn: Yeah, it’s a supply-demand shift. It’s needed right now for cutting edge industry. So there’s a premium for that. But I don’t know, 15, 20 years ago, I’m going to date myself and also expose myself as just a tech-illiterate right now. I think it was like PHP. They’re just…most people were coming out with C-Sharp or associated languages. Java was kind of cutting-edge at the time. But everything was starting to be coded and because of Facebook, PHP. And so people that understood that at the time when I was a young lad, there was a premium because you could just plug in, understand a language and start helping them code right away. So you’re right. It’s this constant, whatever’s new, you need to be…there’s a premium place because it’s just not enough people out there, but it does become more common.
Shawn: Yeah. And we see this too, Kaite, in marketing a lot. Right?
Shawn: I think there’s a lot of trends between engineering and even marketing. Because, again, constant new technology, constant new skills that we need to keep up on.
Kaite: No, but all…and we see it with trying to hire and grow the team. Like we there are areas that not just us but, as you talked to other people, at least in our network, they’re hiring for the same roles and having a really hard time finding the right skill set to match it. It’s evolved a lot in even the short amount of time that I’ve been in my career.
Bill: I was gonna say in a word, help.
Shawn: Well, either they’re scattered or they’re in an HRS system. It’s not well made for it, and it’s an add-on. And so comp needs these skills more than they ever had before to be able to match and price the right job. But also, what was just literally given to comp before was just like, “Oh, we have this HRS system. They happen to have this module, why don’t you just use that?”
It’s not doing it anymore. Primarily or one of the main reasons is just what we talked about. And it’s not easy to use, you can’t keep track of things well. It’s in a different system for your probably market pricing. And you need to be able to pull that stuff together and easily and understand the effects of things like skills on the job.
Bill: Right. And I think, back to 2019 is sort of the crossing point where you see the comp people saying, “We need to own this. We need to own the job description.”
Shawn: It is important to us, for our jobs.
Bill: And own it, standardize it, make sure it has the right information in it, but other things back to skills but other things.
Shawn: It’s the most recent one that exists. I don’t want to hunt for it.
Kaite: How much has the pay equity conversation fueled this too?
Shawn: Equal pay for equal work probably plays another big role in it, I’m sure.
Bill: Although I think… and that is a big topic for 2019.
Kaite: Yeah. Not to segue, but…
Shawn: You’re jumping me ahead of my way.
Kaite: Sorry. I didn’t mean to. I just…
Bill: But it is, and it’s… I think that’s also… I think it was predicted in 2019, you’ll see in 2020, that that will sort of cause a minor but a real pivot in job descriptions because now they’re going to be rewritten or at least edited with that in mind that this is the thing that we’re using to say, you know, “Kaite’s job is this and Shawn’s job is that. They are not the same job.”
Kaite: I don’t think there’s any confusion that there was.
Shawn: Podcast host, podcast host.
Shawn: And Bill. Bill in his Allbirds.
Shawn: Don’t know it’s Yeezy’s.
Kaite: I like that you like, “Yeezy’s,” like faintly mention it. Get it right, Shawn.
Shawn: But yeah, I was just talking to somebody the other day about the emergence of those laws. So we’ve had it where we’re broadcasting from here in Massachusetts. Was it…when did it…
Shawn: Coming toward…
Bill: This summer.
Shawn: 2018 was the first year. We’ve had it for a few years in Massachusetts.
Kaite: Wasn’t it July 2018?
Bill: Right. The law passed first in Massachusetts, but it wasn’t…
Shawn: There was a year delay.
Bill: A year delay.
Kaite: And it was effective July 2018, because we had our friend on the podcast who was going through this at her company.
Shawn: So, we’re broadcasting from our ivory towers. But I was just talking to somebody the other day. Colorado is enacting it in 2021. So it’s law now, but the same thing. Doesn’t take effect until 2021. And they’re joining California, Illinois, Maryland, Massachusetts, as we mentioned. New Jersey, New York, Oregon, and Washington are having strong protections for equal pay for equal work. So there’s going to be an emerging trend. It’s going to continue on in this front, it seems. And the way you…I think what we’ve heard, Bill and Kaite, do way that you start to think about that, or the way most are approaching it maybe it’s what I want to say, because I am not a lawyer, in case anybody’s confused.
Kaite: No, you’re not.
Shawn: Is they start to look at to make sure that your descriptions are lined up, that they are accurate as possible, always fresh. So that’s the baseline for starting to figure out if you’re paying equally for equal work.
Bill: Right. You need the baseline is, what’s equal work?
Shawn: What is the work they’re doing?
Bill: And if I could wave my magic wand and get anyone out there listening to standardized across the states and maybe that like a lot of other laws it will roll up and we’ll have, in a few years, a federal law that sort of, I guess, supersedes or takes over for all these state laws because…
Shawn: Yeah. There’s federal for equal pay but it’s only works for the equal work part. They don’t have that element.
Bill: Right. It’s just a different law.
Shawn: It’s like a 1963 law. Well, then, Kennedy signed it into law.
Bill: But as both a practitioner and as an employer it’s different laws in different states…
Shawn: Not great.
Bill: …is a nightmare.
Shawn: This is the trend that I would think we’d see, which is nine, I think at least eight. And I know Puerto Rico has this too. So, you’re starting to see the emergence.
Bill: Right. In some cities too.
Shawn: Some cities too as well. You’ve started to see that emergence. And so I think that’s the…it’s the precipice of it, for sure. I think you’ll start to see whenever, year two, years three, years more of a snowball effect will just cause it to be. One of the other things, while we’re talking about state laws that we’re seeing, is, and again, this is not just tape, but it’s municipal as well, is minimum wage laws coming into effect. So over the holidays, I was talking to my parents who are Pennsylvania residents about, like…I forget how it came up. But I think that minimum wage in Pennsylvania…
Kaite: You were schooling them on comp?
Shawn: Probably. I think the minimum wage in Pennsylvania, it hasn’t changed since I was there. I was there’s like $7.85 or something. It’s basically the…
Shawn: It’s basically the federal…
Bill: The federal.
Shawn: Yeah. It’s the same as the federal minimum. And it hasn’t changed there. Even though they’ve had a governor for six years now, five or six years pushing for it, they can’t get it passed. But you’re seeing like Philadelphia, I think, is pushing for $15 an hour minimum wage.
Kaite: It’s crazy.
Shawn: Certainly New York, Boston, San Francisco. Major metropolitan areas where the cost of living is higher, you’re starting to see them push for a higher minimum wage. And so again, A, be aware of that, but B, as you see those trends, it’ll probably be getting more common, more nationalized.
Bill: And I guess part of the challenge with Pennsylvania is the graphics of the state. And that I’m guessing it’s harder for them to commit to make the employers pay more.
Shawn: Maybe. They have a divided legislature. So, it’s tough for them to get anything passed either way. For them to get a budget done every year is a nightmare. But I think you’re right. You have very different costs of living. You have very different demographics between Philly, Pittsburgh, and then everything else. And so the cost of living there would be really difficult probably for somebody in Altoona to pay $15 an hour and be able to increase the value of their products or services by that same amount to account for it. It’s not the same in a major metropolitan area. So that’s a good example. Massachusetts, a little bit, a little bit outside of Boston. But Boston’s kind of influence spreads almost halfway through the state.
Kaite: When we get out to Western Mass in the Berkshires.
Shawn: It’s cheaper cost of living, for sure.
Shawn: So there’s got to be geographic differentials here. But you’re starting to see more metro areas go towards 15. But you do see states marching that way, too.
Bill: Yes, absolutely.
Shawn: They’re putting steps in place for the next two, three years to get up to a certain amount. Typically, 15 is their target right now, it seems.
Bill: It’ll keep happening.
Shawn: Sure. Yeah. I think it’s a trend for sure. And it’s tough to monitor and stay on top of all that. So, make sure we do. Other point with this is because those are changing… Well, just minimum wage and we talked about the proxy effects sometimes too. So, Amazon moves into your area, sets up a distribution plant, distribution warehouse, and all of a sudden you have to pay $15 an hour minimum wage because that’s their rule.
Bill: Right. That’s what they do.
Shawn: So they’re going to take all your talent, all your…
Kaite: I mean going back to your reference of, what did you say, Altoona?
Shawn: Altoona, Pennsylvania, what up.
Kaite: Was it your hometown, Shawn?
Kaite: Okay. If they do move into more rural.
Shawn: Typically the distribution centers are in more rural areas.
Kaite: So, that would cripple the other organizations?
Shawn: Yeah. I mean, we hear about this. It’s the bi-proxy minimum wage. It’s like the Amazon effect. Everybody else now has to pay that same rate or risk losing people continually.
Bill: Right. But if you think about it, I don’t think any of us here is an economist, so let’s pretend.
Kaite: We’re certainly not.
Shawn: Finance major.
Bill: All right. Finance major, but so if you have…
Kaite: English major over here, so I’m kind of close.
Bill: Math. So if you have a big pool of people, we’ll call them the Amazon employees that come into a rural area and are getting paid $15 an hour, you’re injecting a lot of money and spending power for new people to buy products from those legacy rural businesses. So hopefully those businesses will float up, will do better, make more money and then be able to afford to pay their people more.
Shawn: I took both micro and macroeconomics so I feel qualified to say this right now. I’m just joking.
Bill: So did I.
Kaite: Yeah, I did it.
Shawn: No, no, but I did it too.
Bill: Mine was older, though. It was little and big economics when I took them.
Shawn: Little and big. They made a way to make them sound more important. I think you’d see one of two things happen, either the divide is exacerbated. And you have…which is kind of like the national trend that we see. You have more people that can afford stuff. But on a micro-level like that, it might actually be that case where most people have to raise that, raise what they’re paying to inline are pretty close to it, or offer additional benefits to make up for it. In which case, yeah, it should bring about, you’re right, more spending power and help everybody do a little bit better. But again, that’s theory for sure.
Bill: Yeah. I mean, if you’re a small business owner in one of those places, I am sure it’s quite scary.
Shawn: Hundred percent. If you’re paying, take Pennsylvania, $7.85 an hour and now it’s $15.
Kaite: Yeah, that’s double.
Shawn: What are you doubling otherwise?
Kaite: More than double.
Shawn: Yeah. What are you doubling otherwise? Not quite more than more.
Bill: Not quite.
Kaite: [inaudible 00:21:31] major.
Shawn: Pretty close. Pretty close but not quite.
Bill: So macroeconomics coming in handy, Shawn.
Shawn: I took both micro and macro. Because these things are changing the landscape so quickly, either like we’re talking about by proxy or keeping up with minimum wage laws, or skills that are driving up the cost of somebody’s job, because things are changing so quickly, we see companies trying to figure out a different way.
This one of the trends in 2019, a different way to keep pace with the market. So, in a lot of areas either at the low-end there what we’re talking about or in highly skilled jobs, or jobs with more certifications or requirements needed, the market can move more quickly because of what we’re just talking about, the supply and demand. So it’s harder to keep on top that. So once a year is not enough anymore. We’re seeing them trying to figure out how to get data more readily and more frequently. So, we see a lot more companies trying to do that to keep pace of the market more quickly because it’s just changing more frequently than it used to. It’s just not enough to set it and forget it anymore. And we also see companies trying to be proactive about that.
So, in speaking of setting it, setting notices so that as the market starts to move, and they’re keeping track of that, that if they see their range is no longer within that, if they’re falling behind, or if they need to pay attention to a change that they get reminded about it proactively. Not, “Oh, damn. It’s six months later, and I’m only finding out about this because employees are leaving now.”
Bill: Right. Keeping your fingers on the pulse.
Shawn: Yeah. exactly.
Bill: Because, again, it’s one of those things that it’s now possible to watch the markets move more than once a year to see. And I just think, just to be clear, every job’s not bouncing all over the place. It’s a small number of jobs. But back to the beginning of this discussion, it’s a small number of jobs that you really care about are the ones that are moving fast.
Kaite: Yeah. And if you lose those employees, then you’re not screwed.
Bill: Right. Yeah. I mean, it’s pain. I mean, a given team or overall company has a problem if you lose the key people for the key functions.
Kaite: Yeah. If you’re a software company, and you’re not keeping up with those jobs, then…
Shawn: You’ll find out pretty quickly. The other end of the low end though, unless you have 300% turnover baked into your business model, which some do, you need to make sure that you’re keeping pace with minimum wage or the bi-proxy minimum wages. So it’s like I’d say it’s almost both ends there. Like highly skilled, or highly credentialed, or some high jobs. And then that low-end to that just somebody in your town, we’ll use Amazon as example. But, anybody in your town decided they’re going to bump that up can have a dramatic effect there. Quarter an hour is all it takes, a lot of the times, to get somebody to move. So keeping track of that stuff’s incredibly important now. And the last thing that I could think of a trend here, and we can go all day on this, and take comments.
Bill: The 2019 trend?
Shawn: 2019 trend, we can take comments from listeners as well. Just comment on the episode or comment on the series. This is your favorite, Bill.
Bill: My favorite.
Shawn: We touched on this a couple of times. I think is one of the early episodes even where we said, I think I remember the title is, “Your Raise is Now a Bonus,” where we talked to started to talk about incentive practices and those things. But the tax cuts from…it was 2018, that were made were, at the time, it was Home Depot. I remember Home Depot, AT&T, BestBuy, I kinda remember Verizon too, got a lot of press for saying that they’re gonna take those tax cuts and give bonuses to their employees. And then you dug into it, and you had to find out that, like, you had to be there for a long time to get the full 1,000 or whatever it was.
Bill: Well, I think it was different for different companies. But it was…
Shawn: Yeah, just one example there.
Bill: But yeah, there were, you know, what, 200, 300 companies that sort of got headlines because they took the tax cut and said, “We’re…”
Shawn: Took a portion of the tax cut.
Bill: Took a portion of the tax cut and said, “We’re giving it to employees as a bonus,” or something along those lines. And they did it in different ways. Some interesting, some kind of boring, and some big, some small. But I remember when we talked about that when it came up, it’s like, “What happens in 2019? Because the tax cuts are annual, and these were one-time bonuses, are they gonna do it again?” My prediction, cynical Bill said no.
Kaite: Yeah. You said no.
Shawn: So here’s the answer. I have a couple of different sources on this. So I’ll try to make this not terrible, not just me reading. But, the one thing I found was the “New York Times,” this is an exact quote and we can put the link in the notes. It said, “Corporate earnings of the…” This was written earlier in 2019. It was about a year after the tax cuts went into effect. “Corporate earnings over the last several quarters show why companies with such enthusiastic cheerleaders of the tax cuts by cutting the corporate tax rates of 21% from a high of 35%. The law reduced the effective tax rate that many companies pay. It fueled after-tax corporate profits, which rose nearly 20% in the third quarter last year, 2019, from the previous year.” So it’s huge rise.
“The tax law was clearly a driver that increased because profits before taxes rose in a much slower rate.” So just to be clear there, they’re not growing as fast, they’re just reading more profits because they’re paying less out. “In the last half-century, the American economy has been rare for after-tax profits to grow so much faster than before-tax profits. Usually, it only happens around recessions.”
And so, analysts noted that the handouts to workers amounted to a relatively small share of the roughly $200 billion in federal income taxes that corporations avoided, thanks to the cuts. Stock buybacks by publicly traded companies continued to set records. And what we saw then was that cynical Bill was probably right. Those things weren’t lasting.
Shawn: Those things weren’t lasting. Very few companies did wage increases, although we did see those tick up last year, to be fair. And they did bonuses because they could still read the windfall from a lot of this in other ways and use it, for example, stock buybacks, but get good PR for it in the short term. So it was cheap PR basically.
Kaite: And that’s what we said at the time too. We were like, “This is clearly…” and I think we the three of us were all cynical about it. We said, “This is clearly just a PR stunt in many ways.”
Shawn: But I think the biggest indication of this, it said, this was from the Wall Street Journal, “Private sector company spending on non-production bonuses,” right, so spot bonuses or windfall bonuses, “fell 24% in the first quarter of 2019 from a year earlier.”
Bill: What percent?
Shawn: Twenty four, the largest decrease for the category dating back since 2005.
Bill: Yeah. Although that’s one of those tricky statistics because it could be the reason it dropped is because there was a one-time spike. So you’re obviously gonna have a bigger drop after the spike, unless…
Shawn: Well, I think that’s what it’s saying, is there is clearly a one-time spike and then it dropped. Is there a Freakonomics discussion we should get into there otherwise or is that…?
Bill: We could. Although the Freakonomics discussion I was gonna bring up was, to your previous point, of the companies that didn’t give one-time bonuses but they give pay increase. Like just yet raise the pay. That one’s a little trickier because if you raise somebody’s pay this year or in 2018, if you raised somebody’s pay 5% and then 2019 going forward to go back to your usual 3%, you get the compounded benefit of that. And so the company is continuing to pay that every year because you’ve moved up, you’ve moved the line up.
Shawn: Which, in theory, going back to my microeconomics class, I took macro, too.
Bill: I’ve heard that somewhere.
Shawn: Which, in theory, if that’s the case though, and your tax cuts stay permanent or it stays for the long-term, then that’s fine because you’re still benefiting from that.
Bill: Correct. Every year you are benefiting. That was my point, is like if those companies that did that actually are sharing their tax cut, at whatever level they did it with the employees permanently.
Shawn: “Permanently.” What will be interesting, though, is like, okay, so, let’s say that rate goes back up to 30% or 35%?
Bill: That’s their corporate tax rate.
Shawn: Yeah. Did they take that to employees not getting raises for a while? Was does that mean?
Bill: No, although that’s when you slow it down because it has the same effect if your three becomes a two, that’s permanent.
Shawn: Right. So you just don’t increase the slant as much.
Shawn: The one thing I did find interesting while I was researching this is there was this great quote, because we talk about behavioral economics a lot here, kind of.
Bill: Is that behavioral micro or macroeconomics?
Shawn: Well, I took both. But there was an interesting quote that they were talking about some of the behavioral economics behind these types of rewards. And I just found this little area was interesting. This is an “LA Times” one. There was a quote from Nicholas Epley, a behavioral scientist at the University of Chicago. And he said, “Money is never just money. Money is something you have to interpret. What is the money for? Where did it come from?” And he went on to talk about how it depends on the terms that you use. So, if you go back to President George Bush, when they did tax rebates, when something is called…this is all just windfall money. It’s not something you did not expect otherwise.
But when it’s a rebate as opposed to a bonus, which I think is… Well, certainly how the company’s phrased amount of tax cuts. But, Bush, when he gave the tax rebates, he called it a rebate. That’s categorized in people’s brains as old money that’s being returned to you to furnish existing needs like retirement, savings, or mortgage payments. Whereas, if something’s a bonus, you’re more likely to spend that on what economists call…I took micro and macro. What economists call hedonistic purchases. So, it’s indulgent. It’s a pleasure. It’s raised…
Kaite: You’re treating it like found money.
Shawn: Yeah. “I’m gonna go take a vacation with this, or I’m going to go dine out with this, or I’m going to buy new clothes with, like new, like special clothes.”
Kaite: Is that how special clothes like ball gowns and your tuxedo?
Shawn: Yes. I don’t know maybe you go out and buy…Bill goes out and buys a new pair of Yeezy’s.
Kaite: Yeezy’s. No, no, no. I get it.
Bill: It’s discretionary.
Kaite: Is this actually…are there stats, do you know, around how people spend bonuses? Is this how most people spend their bonuses?
Shawn: Well, it depends on how to categorize them as opposed…because these are unexpected.
Bill: Unexpected is different from expected.
Shawn: And Bill, tell me your theory on bonuses.
Bill: My theory on bonus is… No, my theory…
Kaite: But if it’s a bonus that’s baked into your salary structure that you know of, will you still spend it this way?
Shawn: Well, Bill, tell me your theory on bonuses.
Bill: I think I’m worried I’m gonna get the answer wrong. I got my own theory.
Kaite: It’s a lot of pressure.
Bill: If your bonus is stable and predictable from period-to-period, year-to-year, typically, then you think of that as an entitlement and salary, and you roll it in.
Shawn: And you’re planning for it.
Bill: And you plan for it.
Shawn: You spend it on something that’s a rare treat. You’re going to be like, “Oh, I’m going to use that to pay off my car loan. Or I’m gonna just…well, I know that’s coming. So I know what I’m gonna do with it.”
Kaite: Whereas a spot bonus…
Bill: You mentally budget it. A spot bonus, you’re like it’s a windfall. It’s not going… It wasn’t accounted for in anything. I didn’t know it was coming.
Shawn: I didn’t expect this at all. Now, I’ve got 1000 bucks.
Kaite: Gonna go buy some Yeezy’s.
Shawn: Gonna go buy some Yeezy’s.
Bill: But what’s funny is that what I was gonna say before you put me on the spot, was that, it’s funny that the Bush rebate, part of that was to stimulate the economy. But the interpretation here, of that behavioral economist is, they should have called it…
Shawn: A bonus.
Bill: …a bonus, or given it some sort of windfall value because what happened in 2018 with the…
Shawn: The tax rebates.
Bill: The Trump tax cuts…
Shawn: Tax cuts.
Bill: Yeah. What happened with those bonuses, even though they only happen once, is that those were a windfall, and people spent them and that was the point, was to…part of the point was to stimulate the economy.
Kaite: Stimulate the economy.
Shawn: Yeah, it’s interesting…
Bill: To not say that…
Kaite: And when the rebates happened previously.
Bill: The Bush rebates?
Kaite: Yeah, then you were…
Bill: Well, they’re more likely to put it in your 401(k).
Kaite: To put it in your mortgage or in something.
Shawn: Yeah. So, I’m wondering now on a… I took micro and macro, so I’m going to switch over the macro now.
Bill: Which one is it?
Shawn: I’m wondering on a macrolevel of that matter. So if I remember right, and I’m going to conflate too here. I think the Bush tax cuts were right after he entered office and had a surplus from the previous year. But I remember for sure, Obama wanted to do the same thing when he came in because we were in almost in the depths of a recession, if not in the depths, but he did it through a payroll tax cut.
Shawn: Yeah. So you got more money in your paycheck immediately, you don’t have to think about it. It was a payroll tax cut that they decrease the tax that you had to pay there. So, my point is the same for both, though, because of the point that you were just making. I wonder if it matters, because as long as people have that money, even if it goes in there for 401(k), well, somebody’s making money off that.
In your 401(k) there’s a transaction cost, there’s a management fee, whatever. Somebody’s making…you use it to pay your electric bill, whatever. Somebody’s making money off that, it’s going back into the economy. Not as much in a splurge fashion but in the sense that it’s, I don’t know. From a macro standpoint, I wonder if that matters or not.
Bill: I think it does. And, I think, maybe Tesla should be trying to book a better guest for this topic than us.
Shawn: Let’s go, Bill.
Bill: But I think there’s a whole lot of…
Kaite: From the economics expert? Sure.
Bill: Yeah, exactly. There’s a whole lot of…
Shawn: I took macro, we’re good.
Bill: And micro. There’s a whole lot of drag when your money is being invested. If you put in the 401(k), then the mutual funds are getting it, and they’re investing in companies, and their companies are taking the money and then it’s sort of…
Bill: How does it trickle down? Not to link it back to the Regan. But, how does it get to the mom and pop shops on Main Street, and whatever to…
Shawn: Any good politician where the result wants that immediate…
Kaite: Me, I’m saying…
Shawn: Any good politician that wants their immediate effect from… Any good politician wants an immediate effect from that.
Bill: Right. Because they want it associated with them.
Shawn: That’s right. So, yeah, you’re right. And the other aspect of that that you would say is, somebody’s gonna pay their electric bill either way. So if they would use the rebate to pay their electric bill or pay their mortgage, they’re gonna pay that anyway, so that’s what they want that list of discretionary spending.
Bill: Right. You want people to spend money in ways they wouldn’t spend it if you’re trying to stimulate the economy.
Kaite: But if Bill is already buying Yeezy’s then…
Shawn: Bill’s in his own world, top 1%, top 1%.
Kaite: Yeezy’s for his trip to Tahiti. Was that where he was or was it Bali?
Shawn: What he did in Tahiti actually, and I shouldn’t share this. This is gonna expose too much about Bill.
Bill: Stays in Tahiti.
Shawn: Bought a pair of Yeezy’s, cut the tops off of them, and fashioned them into flip flops.
Kaite: So they’re like sandals. Interesting.
Shawn: Yeah. That’s how hard he balls.
Shawn: So those are those trends that we saw in 2019. I saw that last…that last little divergence I just found fascinating. It’s one of those behavioral economic things as we think about how you should categorize some of them.
Kaite: I always find that stuff so interesting.
Shawn: Yeah. We should bring a behavioral scientist on here sometime.
Bill: To start the year off right with an idea for a future podcast, I think the sort of second order takeaway from that behavioral economics and discussion is like how do you as a comp person, when you’re giving your employees, what do you want them to do with it? Do you want them to spend it when… When the CEO says, “Hey, let’s give people a bonus.” And you think you want the comp people to be thinking like, how do you want the employees to react to this?
Shawn: Yeah. What’s the perception of this?
Bill: Do you want them to be excited? Or do you want them to be…you know, like feel more security?
Kaite: Or you want them to now feel entitled to this every year or…?
Shawn: So, take for example that we’re just talking about there. The payroll tax that was decreased under Obama, you don’t really know what’s happening. All of a sudden you just see a little bit of extra money in your paycheck. So it doesn’t really have that same effect as like, “Boom, here’s 1000 bucks. Go spend it.” So, to your point, if you’re in comp you want…I would think, you wouldn’t want that all of a sudden, like you’re…you know if you have let’s just make it easy math. If you have $1,000 to spend and give an employee, you don’t wanna space that out over months, and have, to your point, for also about somebody thinking that it’s a given, and spend that, a divided amount. Whether it’s every month or every week, or whatever that you would give to them and slow roll that, you’d want that immediate. You want that immediate, endorphins are released. “Oh my God, my employer’s awesome.” You want that perception with it? So that was 2019. I don’t know. Maybe we’ll do a future cast at some point. And take a look at…
Bill: A future cast, I like it.
Shawn: We’ll take a look into the predictive comp magic ball.
Kaite: Crystal ball. Bill has one in his office. Have you ever seen it?
Kaite: It’s in the back. It’s behind the box.
Shawn: Is that where all the steam comes up from?
Kaite: Yeah. You’ve wondered.
Shawn: I just thought it was a bad radiator.
Bill: There’s a lot of editing to be done with this podcast.
Kaite: Oh, no.
Shawn: All right. Well, this one was a little long, but there was a lot to cover. There’s a lot going on in 2019.
Kaite: Of a whole year.
Bill: It was a long year, yeah.
Shawn: We found a lot to talk about in 2020. So we’re glad to have everybody back. You’re gonna have another great year in comp. Gonna be interested to track these, what we saw happening 2019 what continues to happen in 2020 and how we react to it. Some of those laws that we talked about are still coming into play.
Bill: Oh, yeah. Big law podcast is coming, I think.
Shawn: Can’t wait. You know, I love getting deep into legislature.
Bill: AB5 in California is already creating a storm.
Shawn: Cannot wait. We’ll tackle Colorado. Yeah, lots ahead, lots ahead. And join us, mostly Bill, on our upcoming webinar. You can go to the work site and check out their webinars. Bill’s gonna be hosting an upcoming webinar on how to measure comp.
Kaite: It’s literally what the webinar’s called. They’re just subtitles but…
Shawn: All right. Thanks, everybody. Let us know your thoughts on this. Let us know what you saw happening in 2019 that you think might continue or not, or what might emerge in 2020. Leave a comment.
Kaite: Rate us.
Shawn: Rate us. Give us those six stars because Bill is nothing but an egomaniac. He refreshes every minute. Help feed his soul.
Kaite: Bill’s actually super humble. I just want everyone to know that.
Shawn: And with that, we’re back to a regular schedule. So we’ll see on a regular basis. Holiday’s disrupted it a bit but we’ll be back every other week now with more comp news you can use.