The passage of the Tax Cuts and Jobs Act is a boon for corporations, which — among other changes — slashes the top corporate tax rate from 35 percent to 21 percent. Forbes states that over the next decade the tax plan will save corporations $600 billion with an additional $350 billion in savings for pass-through entities. Morgan Stanley analysts estimate that 43 percent of corporate tax savings will go to buybacks and dividends and just 13 percent will go toward bonuses and raises.
While there are benefits to rewarding shareholders with stock buybacks, corporations should also invest more heavily in human capital, which will create longer-term results for shareholders as well. Companies have the opportunity to improve individual skills and organizational capabilities, solidify their leadership bench, improve employee satisfaction and boost publicity — all of which contribute to long-term outperformance.
Learning and development leaders have a narrowing window of opportunity to make the case that some tax savings should be used for leadership development at their organizations. To help learning and development professionals make their case, we offer the following arguments that can be used to persuade key stakeholders across the organization.
Leadership Development Programs Increase Revenue
The best organizations have robust learning and development programs that generate leaders with the skills to propel their business ahead of competition. A study by Jack Zenger and Joe Folkman, cofounders of leadership development consulting firm Zenger Folkman, found that great leaders can more than double an organization’s profit. The study looked at the leadership qualities of 50,000 managers. Zenger and Folkman consider the top 10 percent of these managers to be great leaders.
Effective Leadership Reduces Costs and Increases Profitability
According to The Herman Group, 75 percent of employees who voluntarily leave their jobs do so because of bad managers and poor leadership. By investing in leadership development, organizations can increase employee retention and cut down on costly recruitment efforts. The Society for Human Resource Management estimates that, on average, each time a business replaces a salaried employee, it costs six to nine months of the individual’s salary.
Investing in Employees and Leaders Builds Brand Value
By investing in employees, corporations can generate positive press and strengthen the public’s perception of their brand. The Trump Administration argues the tax cut allows corporations to create new jobs and raise wages. Aside from these touted benefits, corporations can invest in the employees they currently have and then share their success stories. By doing so, corporations can improve their brand image and build political capital in Washington, D.C.
Boeing and Chipotle are examples. Boeing promised to invest $300 million on workers through training, upgraded facilities and charitable giving. Chipotle expanded training programs while also providing one-time bonuses of between $250 and $1,000 as well as parental leave.
Engaged Employees Increase Productivity
According to Gallup, employees who are actively disengaged cost about $500 billion in lost productivity annually. Through leadership development initiatives, organizations can train their leaders to engage employees and win back productivity.
Investments in Development Can Solidify Your Leadership Bench
CEB research shows that 38 percent of HR leaders are dissatisfied with their current succession management process. By investing in leadership development, organizations can improve their succession pipeline, which will minimize risk to the organization and produce leaders capable of driving long-term growth.
Further, investing in your leadership bench can reduce shareholder concerns about transitions.
Encouraging and Investing in Employee Growth is the Right Thing to Do
More companies and their executives are taking public stands on social and ethical issues — and, oftentimes, are being rewarded for it. With increased transparency through tools like company review website Glassdoor, companies are being watched and judged on the way they develop their employees.
According to Zeynep Ton, adjunct associate professor in the operations management group at MIT’s Sloan School of Management, ExecOnline educator and author of “The Good Jobs Strategy,” “The tax cut offers executives a unique opportunity to combine their moral reasoning with competitive forces in the (for example) retail industry to create an organization that is stronger today and better prepared for tomorrow.”
Taking a Long-Term vs. Short-Term Approach to Employees is Good for Business and Shareholders
While many companies have said they will be giving employees a one-time bonus, this alone isn’t a comprehensive strategy for employee engagement. According to Gallup’s “State of the Global Workplace” report, 85 percent of employees are not engaged or are actively disengaged at work. According to Ton, “Once a company has workforce stability, it can start working on other changes such as empowering and cross-training employees and engaging them in continual improvement. As other companies have found, those changes will improve service and productivity, which will improve profitability. In short, the initial investment in employees will — if followed up — more than pay for itself.”
Long-term success requires strategies that look beyond stock buybacks, dividend hikes and tactics to increase short-term employee satisfaction. It requires investing in leadership development initiatives. Companies that are able to advocate for development-related strategies will become the innovative enterprises that have more capable, skilled and productive employees, ultimately creating better results for the business and its shareholders.
Matt Lasov is vice president of finance & operations at ExecOnline. To comment, email email@example.com.
This story originally appeared in Talent Economy‘s sister publication, Chief Learning Officer.Filed under: StrategyTagged with: Boeing, Chipotle, corporate tax savings, human capital, Tax Cuts and Jobs Act