Transparent Salaries: From Hourly Employees to the CEO

Salary TransparencyAt most companies, salaries are rarely disclosed or discussed. Employees speculate and gossip around the water cooler, wondering how much the CEO pulls in every year or if they're making as much as someone else in their department. Discussing salaries is often a taboo subject, but some companies are implementing salary transparency policies that reveal just how much every employee at the company is making, from a newly hired employee to the CEO.

Whole Foods pioneered the policy of transparent pay. Co-CEO John Mackey introduced the concept in 1986, six years after the company was founded. Eliminating the secrecy around salaries, Mackey allowed any employee in the company to look up anyone else's salary or bonuses for the previous year, even Mackey's own compensation. He also extended the sharing of information beyond salaries: each store and region post daily sales data and detailed reports for each location's profitability, and sales are available for any employee to view.

Buffer, a social media start-up, has taken transparency to a new level. Last year, Buffer's co-founders Joel Gascoigne and Leo Widrich instituted a completely transparent policy around compensation for all employees and for the public as well. Buffer decided to disclose not only what each individual was making at the company, but also the formula used to decide how much a person will make. Anyone can find that Gascoigne, the CEO, makes $158,800 while the front-end engineer makes $88,000 a year. Buffer instituted this policy because it believes "transparency breeds trust, and trust is the foundation of great teamwork." Like Whole Foods, Buffer does not just extend transparency to pay. All of the equity distribution is made public, along with revenue; user numbers; and performance in customer support, media, and business. In the month after announcing this change, Buffer received more than double the amount of job applications than it had in the previous 30 days. Gascoigne said Buffer's new policy "scares the right people away," like potential employees who are not a good fit with company culture.

Proponents of these policies -- like Buffer, Whole Foods, and the market analysis start-up SumAll -- claim that increased transparency leads to increased trust. CEO of SumAll, Dane Atkinson, also says that it allows for more rational and open conversations about not just what an employee is making, but why they are making it. An employee challenging compensation opens the door to discuss how the person can add more value in order to reach a higher pay rate. Transparency advocates insist that revealing compensation improves company trust and employee morale, lessening the divide between employees and managers while also eliminating suspicions of favoritism or discrimination. Supporters like Atkinson believe that transparency "is the single best protection against gender bias, racial bias, or discrimination bias." Atkinson does not pay all of his employees the same salary, but his stance demands that higher salaries be justified with demonstrable reasons why that employee is adding more value and eliminates gender, race, and other factors from the equation.

Companies could also find more profit in public pay. A recent study by the University of Berkeley found that when people were informed of their relative earnings position, they increased output and productivity by 10% (A Field Experiment of Relative Earnings and Labor Supply, 11/2013). However, skeptics of ending salary secrecy can simply point to different studies that have found that not disclosing information about how an employee ranks actually increases productivity by 11% (Rank Incentives: Evidence from a Randomized Workplace, 07/2012). Additionally, informed workers may not necessarily be happy workers. In one study, when a university published all salaries to staff, high earners were not necessarily more satisfied with their jobs, and low earners got discouraged and began looking for new work (National Bureau of Economic Research, 10/2010).

Also, employees themselves may not want to switch over to salary transparency, preferring to maintain confidentiality. Public pay may not fit with the culture of that organization, and once you implement public pay, you cannot backtrack. Demystifying compensation brings with it a huge amount of chaos as well as difficult conversations about why some employees are being paid more than others.

Readers, would you want to work at a company that disclosed all employees' salaries? Why or why not? Send us your comments at:

Wearables in Wellness: The Next Step in Corporate Health Care

Workers Take the Stairs for HealthThe Great Recession was characterized by layoffs, pay freezes, and spending cuts, but one part of Corporate America managed to dodge slashed budgets and even see considerable growth in the economic downturn: wellness programs. In 2005, 27% of companies offered wellness programs to employees; in 2011, that number rose to 44% and in 2013, more than 90% of companies offered a health improvement program for their workers (Fidelity and National Business Group, 2/20/14). Wellness programs have grown into a $6 billion industry, and Fidelity estimates that spending on these plans will increase by 15% this year.

Although growing rapidly, wellness programs are a relatively new addition to benefits packages, and a consensus on whether they merit the cost has not been reached. One study from Harvard found that for the 36 large companies they analyzed, company medical costs fell by $3.27 for every dollar spent on wellness programs (Harvard Business Review, 2/21/14). Academy Health published research on PepsiCo's wellness program, the Healthy Living Program, which examined the plan for seven years after its introduction in 2003 – the longest study of a wellness initiative. The report found that the program did reduce health care costs; however, costs savings took three years to materialize and the bulk of the savings came from disease management, which targets helping employees with chronic diseases such as hypertension and diabetes, not from lifestyle management, which focuses on nutrition, fitness, and smoking cessation (Academy Healthy, 2/26/14).

Recently, corporate wellness programs have started going digital to track the progress of employee health goals that qualify them for incentives. Many companies issue laptops and cell phones to their employees, but now some businesses have started giving staff wearable fitness devices to more efficiently measure an employee's health, including nutrition, exercise, and sleep patterns. Fitbit, Nike FuelBand, Jawbone Up bands, and a variety of other gadgets are starting to become common apparel in the workplace. ABI Research estimates that within the next five years, more than 13 million wearable devices will be incorporated into wellness plans (ABI Research, 10/13).

Fitbit for Corporate Wellness ProgramsJames Park, CEO of Fitbit, says corporate programs are the fastest-growing part of his business; Fitbit now works with 30 Fortune 500 companies to integrate wearable technology into their wellness agendas. BPAmerica introduced company-issued Fitbits last year as part of its program. According to BP, 90% of employees participate in the voluntary health-initiative, and the technology has improved the morale and health of the employees as well as lowering the insurance rates for the company and for individuals. BP is not the only company encouraging individuals (and management) to track their health. The multinational software company Autodesk also introduced wearable technology into their health program and had more than 50% of employees opt to use the devices. Smaller companies are also starting to introduce wearable gadgets as an avenue to promote health as well as improve the company culture. Buffer, a start-up social media firm, gives Jawbone Up devices to all of its employees, and Biosyntrx employees in Colorado come daily armed with a Fitbit on their wrist.

Wearable devices that track health not only allow employees to monitor their activity, food, and sleep patterns, but also inspire friendly competition between staff to meet their goals. Employees at Bates College, which issues Fitbits to workers, started to see who could park furthest away from the office to get the most activity points for their "Ready, Set, Go" competition, even during a harsh New England winter.

Wearable technology allows for greater data accuracy, tracks progress and behavior changes, and can also boost social connection. But some worry what will happen to the health data compiled by a wearable device. Is the data owned by the employee or by the company? Can it be sold or shared with third parties? How does the data collected relate to HIPAA? Would the results have any bearing on an employee's performance review? As a new evolution in corporate wellness programs, the merits of wearable tech in the workplace are still uncertain and the questions that their data collection raises also have yet to be answered.

Readers, would you want your company to offer a wearable fitness device? Why or why not? Answer our reader question this week and we'll send you a free pedometer to make sure you're getting your 10,000 steps a day!

September 2014 Jobs Report

September Unemployment RateThe U.S. economy added 248,000 jobs in September while the unemployment rate decreased slightly to 5.9%, according to the Bureau of Labor Statistics' Employment Situation Summary. The unemployed rate dipped below 6% for the first time since the 2008 recession. The number of long-term unemployed persons was essentially unchanged at 3.0 million and accounted for 31.9% of the total unemployed.

In September, job growth gained the most traction in professional and business services (+81,000), retail trade (+35,000), and health care (+23,000). Employment in other major industries including manufacturing, transportation, and government changed little over the month. Temporary help services increased in September with 19,700 new jobs, up 0.7% over last month.

Wages were flat month-over-month and up 2% on a year-over-year basis. The average workweek for all employees edged up by 0.1 hour to 34.6 hours.

A World Without Email?

Email Usage by YearThe first email was sent in 1971; now there are over 140 billion emails sent every day, 90 billion of which are sent for business purposes (The Radicati Group Inc., 2013). The average professional spends 28% of their work week checking and responding to email (McKinsey & Company, 2012). Email has infiltrated the workplace and become the default medium for communication, however some organizations are trying to re-establish boundaries for employees and diminish the reliance on email.

Both France and Germany have passed agreements trying to temper burnout and keep employees from feeling obligated to check and respond to work emails after hours. France's agreement ensures an "obligation to disconnect" for independent contractors that guarantees them a minimum rest period of 11 hours per day. France already has stringent labor laws on the books, including a 35-hour work week and a 10-hour day limit. However, independent workers are not covered by those laws and this new guideline aims to help them avoid burnout. Germany's employment ministry banned managers from emailing employees after hours except for emergencies and forbade managers from penalizing employees if they switch off mobile devices or decline to respond after hours.

Although such guidelines are rare across entire countries, individual companies have started to set policies that allow employees to disconnect after work, and some businesses have begun to ban internal email altogether. When the Advisory Board Company surveyed its 1,750 employees, they found that the expectation of answering after hours email was dragging down morale and causing frustration for workers. In response, the board's chief executive, Robert Musslewhite, encouraged all of his employees to practice an email-free Labor Day weekend. After the holiday, he continued to encourage employees to keep emails within work hours. Similarly, PBD Worldwide instituted a policy of "work emails can wait." Employees at PBD now enjoy nights and weekends free from the obligation of answering emails.

Bandwidth, a company focused on communication technology, enforces a total embargo on email for all employees while they are on vacation. The company's policy is that, while taking a holiday, you should not be communicating with the company and the company should not be communicating with you. Bandwidth claims that not being able to communicate during vacation not only allows employees to relax and rejuvenate, but also forces managers to develop and trust their teams.

Employees EmailingAdvisory Board, PBD, and Bandwidth still operate with email, but some companies are abandoning email altogether as a means of internal communication. Cristian Rennella, the CEO of El Mejor Trato, a South American travel site, does not allow any team members to communicate internally via email. Rennella sees email as a distraction that interrupts his workers' productivity. Since it can take up to 23 minutes to become fully engaged in a project once you've been distracted, Rennella wants to minimize interruptions and increase focus and productivity. El Mejor Trato only has 34 employees, but larger companies have also taken up the campaign against email. Atos, a global information technology company with almost 80,000 employees, started its zero-email initiative in 2011 and allowed 18 months to make the transition. Thierry Breton, CEO of Atos, claimed that only about 10% of the 200 emails his employees got a day were relevant and important. Atos' goal was to have zero internal email by the end of 2013. Although the company did not reach this ultimate objective, email was reduced by 60% and the company is on track to reduce email by 80% this year (Gartner, 6/12/14).

With eradicated or reduced email, companies instead turn to social platforms to collaborate and communicate. The Las Vegas-based company All Western Mortgage dropped email in 2013 for all 450 employees. Like Atos and El Mejor Trato, the company replaced email with an internal social networking system that allows employees to "talk" in internal rooms, post to message boards, share documents, and even video chat. Entire companies converting to zero email environments still remains the exception rather than the rule. No Fortune 500 companies have converted entirely to a zero email system.

Jeff Bezos of Amazon does not advocate the elimination of email, but he does try to enforce his "2 pizza rule" for teams: that a group should never grow larger than what two pizzas can feed. Bezos, unlike some leaders, does not necessarily encourage more communication or "keeping everyone in the loop." He would prefer that team stay small with fewer connections, because as team size grows, so does the amount of communication and coordination needed to get anything done.

Readers, do you feel overwhelmed by email at your job? Would you want to work at a company that eliminated internal email?

The Power of Online Opinions

Customer Feedback Positive ReviewToday, a customer can get closer to businesses and products than ever before. Social media and review sites have removed barriers to giving feedback and allowed almost anyone to air their grievances in real-time. If a patron at a restaurant thinks they've waited too long for their food, all they need to do is pull out their mobile phone and write about their dissatisfaction.

Some 95% of customers share bad experiences online, while only 87% share positive experiences. Most consumers use others' reviews as guides for their purchasing decisions: 90% of people say that positive reviews about a product or service influenced their choice on whether to buy or not.

The information age has made positive reviews and 5 star ratings highly coveted. Some even become viral sensations that can help or harm companies. A few weeks ago, a pair of Tesla owners took out an advertisement in a local Palo Alto newspaper to thank Elon Musk for his innovation, express love for their cars, and also make a few recommendations for the new Model S automotives. Elon Musk responded to the ad via Twitter, promising that "many of the suggestions will be implemented soon."

Tesla has already won multiple awards including Motor Trend's Car of the Year and Automobile's Automobile of the Year. But these prestigious honors didn't garner Tesla nearly as much publicity as the praise of two loyal customers and Musk's acknowledgment of their feedback and promise to improve.

Alternatively, bad reviews and how a company handles them can go viral just as quickly and damage a business irreparably. Last month, a hotel in Hudson, NY came under fire for a written policy on their website that stated guests could be charged $500 for any negative review:

"If you have booked the Inn for a wedding or other type of event anywhere in the region and given us a deposit of any kind for guests to stay at USGH, there will be a $500 fine that will be deducted from your deposit for every negative review of USGH placed on any internet site by anyone in your party and / or attending your wedding or event."

Although it's unclear whether the hotel ever actually charged guests the fee for reviewing their business negatively, the policy alone sparked a slew of comments on Yelp that skewered the company and pummeled their rating.

Elon Musk Customer FeedbackLegally, the hotel and other companies have the authority to penalize patrons for negative reviews if the customer has signed an agreement which includes a non-disparagement clause. Consumers who sign these contracts but then take to Yelp or another site and submit a negative review can be sued or fined by the business. The New York hotel's viral policy is not the only one to make the news: a photographer threatened to sue a bride $350,000 for a bad review she wrote, and a patient at a dentist has claimed the practice threatened to sue him $110,000 after he wrote a negative review of them on Yelp.

However, the ability for businesses to sue consumers for negative reviews that violate non-disparagement clauses may soon change. Last week, Congress introduced a bill that would make it illegal for companies to penalize customers who post negative reviews online. Called the "Consumer Review Freedom Act," the bill is the first federal law that would make it unlawful for a business to sue or fine consumers for poor reviews. The law follows legislation recently signed by Governor Jerry Brown which bans non-disparagement clauses in California.

The "Consumer Review Freedom Act" is the first federal legislation to make it unlawful to insert a stipulation into a consumer contract that waives the right for the consumer to make "any statement" about the goods or services purchased. It wouldn't, however, bar a business from bringing a defamation lawsuit if a person is lying about a product or the business. The law also does not prohibit businesses from including non-disparagement clauses in contracts between employers and employees, only between consumers and companies.

Readers, have you ever written a negative review of a company online?

Paid Sick Leave Spreads in Time for Flu Season

A Woman Home without Paid Sick LeaveThe end of summer means the start of flu season. For many U.S. workers, catching a cold means either working through the sickness or giving up a paycheck. The Bureau of Labor Statistic estimates that about 40% of workers nationwide are not covered by a sick leave plan (U.S. Bureau of Labor Statistics, 08/13). These workers, usually part-time employees, must then choose between getting paid or getting well.

However, a string of recent legislation could be changing that. In 2011, Connecticut became the first state to mandate that all workers must have at least 5 days in paid sick leave available to them. The state estimated that the law benefited between 200,000 and 400,000 workers.

In April of last year, New York City became the largest city in the nation to require paid sick leave for workers, covering an estimated 1.2 million employees who were not previously able to take paid time off when they fell ill. The Big Apple followed in the footsteps of San Francisco, Seattle, and Portland, which had already passed mandatory sick laws. As of June 1, workers in Newark are also eligible to earn one hour of paid sick time for every 30 hours they work, allowing them to care for themselves or a sick family member if necessary. Similar laws have been passed in five other New Jersey cities, and a statewide law is making its way through the legislature. If passed, New Jersey would become the third state to pass a mandate for paid sick leave.

Parent with Sick ChildThe latest win for sick leave proponents occurred last week when Governor Jerry Brown of California passed the nation's second state-wide law requiring that all employers grant workers at least three days in paid sick time. Brown signed the law, stating that "Whether you're a dishwasher in San Diego or a store clerk in Oakland, this bill frees you of having to choose between your family's health and your job." Advocates claim it will benefit 6.5 million workers, many of whom work in the hospitality and service industry.

The spread of required sick time has driven 10 states, including Florida, Arizona, and Georgia to pass preemptive measures prohibiting cities and counties within the state from enacting sick leave ordinances. Opponents of the law are concerned that the cost of providing sick days will put too great a burden on small businesses and lower productivity from possible abuse of taking sick time off. A study from the Employment Policies Institute found that of the 86 Connecticut businesses affected by the law, 38 said they were less likely to hire in the future, 31 predicted they would cut benefits, and 12 said they would scale back employee hours (Employment Policies Institute, 02/13).

However, so far in Connecticut, fears of catastrophic costs and businesses closing or moving have not materialized. The Center for Economic Policy Research found that since Connecticut's law was passed, employment rose in key sectors affected by the law, including hospitality and health services (Center for Economic and Policy Research, 02/21/14).

These recent laws have spurred Massachusetts to put its own state-wide measure on the November ballot. If passed, the state would be the third to mandate sick leave for all employees, even part-time workers. And six others have paid sick leave on their legislative agendas for 2015, including Colorado, Vermont, and Maryland. These laws have only started to gain momentum within the last few years; it maybe several years more before it is determined if they are a benefit or a detriment.

Readers, do you think it should be mandatory for employers to give paid sick leave?

Should We Raise the Minimum Wage?

Minimum WageLast week, Americans enjoyed a three-day weekend in honor of the country's working class and their contributions to our nation. Many people fired up barbeques while President Obama tried to light a fire of support for raising the federal minimum wage, saying that "America deserves a raise."

The President's address came just a few days before Michigan's increased minimum wage took effect on September 1. Governor Rick Snyder signed legislation back in May that would raise the minimum wage to $9.25 an hour by 2018. Last week was the first in a number of gradual increases that raised the wage from $7.40 to $8.15 an hour. Michigan joins 13 other states that have raised wages in 2014, including California, Connecticut, Delaware, Maryland, Minnesota, and others. The minimum wage debate continues to sweep across other states and be both applauded as a measure that will expand the pillar of the middle class and criticized as economic folly that will eliminate jobs and actually hurt the low-wage workers it aims to help.

President Obama has pushed for a federal minimum wage increase from $7.25 to $10.10 an hour; however, Congress has shelved the initiative and it is unlikely that any legislation to raise the federal wage will be passed in the near future. But the heated debate still makes headlines as states and cities raise minimum wage requirements. In 2014, 38 states introduced some kind of minimum wage bill (National Conference of State Legislatures, 9/2/14).

Arguments advocating and condemning a higher federal wage all focus on one thing: the economy. Will employers cut jobs because of the higher cost of paying workers? Or will a higher wage mean increased spending and a boosted economy?

Industries Earning Minimum WageWhat will happen to jobs?

Earlier this year, the Congressional Budget Office (CBO) released a report that predicted that if the federal wage were raised to $10.10 an hour, the economy would lose 500,000 jobs (Congressional Budget Office, 02/2014). Opponents of this increase point to what happened in 2009, when the minimum wage was raised and the economy lost 600,000 jobs in the following six months - even while the economy was growing at 4%. When jobs are eliminated, low-skilled workers are more adversely affected, as their jobs are the ones lost and they have a harder time finding employment.

On the other hand, proponents of raising the wage argue that those states who introduced higher minimum wages in 2014 have actually added jobs at a faster growth rate than those who did not. The 13 states who boosted wages added jobs at 0.85%, while those states that did not raise their minimum wages grew at a rate of only 0.61%.

Will it help or hurt the economy?

Although the federal wage was raised in 2009, advocates of raising the wage again point out that inflation has eaten away at the previous bump's real value, which has slipped back to where it was in 1998. Additionally, a wage hike to $10.10 would lift workers out of poverty. The CBO predicts that 900,000 workers would be lifted above the poverty line and wages would be increased for 16.5 million workers. Other research forecasts even more positive expectations, estimating that 4.6 million people would be lifted out of poverty (Minimum Wages and the Distribution of Family Incomes," 12/2013). Critics are quick to point out that raising 900,000 out of poverty out of a total of 45 million does little solve the problem of poverty as a whole.

Furthermore, raising the wage will act as a stimulus and boost consumer spending, according to supporters. Opponents counter that any money used to increase wages must be passed on either to the business, resulting in lost jobs, or to the customer, resulting in higher prices. Additionally, there are no guarantees that an increase in wages would go directly into the economy or toward businesses.

Politicians, businesses, and other leaders have been drawn into the battle surrounding the minimum wage. Recently, Gap Inc.'s CEO Glenn Murphy decided to raise the wage for 65,000 of its workers to $10 an hour by June 2015. Murphy said that the move was not political or tied to any side of the debate but was motivated by Gap's commitment to "invest in front-line employees." Regardless of whether the company wanted to join the national discussion, they are now part of it; President Obama applauded the company and urged other businesses to use them as an example and work to raise wages for their employees in the absence of a higher federal wage.

Readers, do you think the federal minimum wage should be raised?

August 2014 Jobs Report

The U.S. economy added 142,000 jobs in August while the unemployment rate decreased slightly to 6.1%, according to the Bureau of Labor Statistics' Employment Situation Summary. The number of long-term unemployed persons declined by 192,000 to 3.0 million and accounted for 31.2% of the total unemployed.

Major industries with gains in August included professional and business services (+47,000), health care (+34,000), food and drinking places (+22,000), and construction (+20,000). Temporary help employment increased 2.4% from July and 7.9% year over year.

Despite the downward tick in the unemployment rate, August posted the smallest job gain in eight months. Average hourly pay rose six cents to $24.53.

Stop Rewarding Overwork

WorkaholicTwelve-hour days, 7 days a week... Sound like your office? Actually, it's the environment during the Industrial Revolution. Harsh working conditions during that era incited protests and rallies that led to safer working environments, more manageable hours, and the induction of Labor Day, the "working person's holiday" that we celebrated this week. It commemorates blue-collar laborers and their contribution to the country. Increasingly however, America is shifting to a white-collar workforce. In 1970, a quarter of U.S. workers held a manufacturing job (Business Week, 4/28/14), but now only 8.2% work in manufacturing (Bureau of Labor Statistics, 12/13).

Comparing conditions during the Industrial Revolution to today's work environment is admittedly a stretch; children no longer labor in factories, and work environments are much safer and more regulated. However, the lines between work and leisure have been become blurred in ways never experienced before. Technology makes workers available 24/7, and success has become tied to the amount of hours that someone works. The highest earners in the U.S. work 60-80 hours a week (Quartz, 9/13/13), equaling around 3,430 hours a year, much higher than the average 1,700 hours of other Americans.

But does working more actually make someone a better worker or more qualified to succeed? Some companies are not convinced. Netflix outlined their company culture in a widely disseminated document; the company asserts that "hard work is not relevant" and "sustained A-level performance, despite minimal effort, is rewarded with more responsibility and greater pay." Netflix doesn't reward or promote employees for the amount of time they spend at the office. Managers should take a cue from Netflix and do everything within their power to stop creating a work environment that values overwork, unnecessary stress, and unlimited connectivity to their jobs.

Woman Working LateFirst, managers should understand that overwork is about culture, not about rules. For instance, Wall Street companies like Merrill Lynch and Goldman Sachs are infamous for their harrowing hours, all-nighters, and working weekends. But the companies do not have written rules that tell junior bankers to spend nearly every waking moment in the office. There are no policies requiring that they come in on Saturday and Sunday or work through the night, but the cultural expectation is that they should and will.

One of the hardest things for managers to understand is that rather than monitoring hours, they should be monitoring results. Companies with cultures like Netflix don't require employees to spend a certain number of hours in the office; instead they look at what the employee produces. Netflix isn't concerned about clocking in specific hours; they'd rather focus on the quality of your work, your ability to improve and innovate, and whether you're the type of person who is going to "pick up trash lying on the floor."

Finally, employees who don't fit or don't perform should not be part of your team. A member who doesn't pull their weight will put a larger burden on your top-notch people, making them feel overworked and resentful. Someone who operates better with schedule stability and regulated hours probably won't function well with freedom and flexibility. Netflix offers people who are bad fits or bad performers a generous severance package but commits to moving them out of the organization so that someone who does fit can fill the spot.

In a world that increasingly values, and even reveres, long hours, managers should take a second look at whether that culture is as successful as previously thought. Quantity does not always equal quality, and in many cases, managers should sever the connection between overwork and rewards.

Readers, do you feel overworked? Are long hours rewarded at your workplace?

Tax Inversions: Shady or Savvy?

Burger KingAs their long-time slogan states, Burger King wants you to "have it your way." Well, Burger King also wants it their way, according to some critics of the American fast food company's move to relocate their headquarters to Canada in order to take advantage of lower corporate tax rates.

On August 24, Burger King confirmed that it is in talks to merge with Tim Hortons, the Canadian coffee and donut chain, and move their headquarters across the border (Yahoo Finance, 8/24/14). Such deals, referred to as "tax inversions," consist of American companies buying foreign firms in order to move their headquarters to a lower-taxed country.

Tim HortonsBurger King is not the first company to consider this kind of deal; so far in 2014, nine tax inversion transactions have taken place, the most in any one year (Reuters, 8/25/14). But the Burger King merger is unique. Most past deals have involved companies buying much smaller foreign corporations. However, the iconic American chain and Tim Hortons are similarly sized; Burger King has a market capitalization of $9.6 billion while the Canadian company has $8.4 billion (Forbes, 8/24/14). Additionally, most companies that have struck deals are medical device companies like AbbVie or MedTronic, not an American household name seen on street corners all over the country (The New York Times, 8/24/14).

America has one of the highest corporate tax rates in the industrialized world at 35%, and when combined with state taxes, that number reaches 39% (Forbes, 8/25/14). If Burger King moves their headquarters to Canada, they'd benefit from the second-lowest tax rate in the G-7 at 15% (Forbes, 8/24/14). Ireland, which has a tax rate of 12.5%, has also become a common country for American companies to relocate to in tax inversion deals.

Businesses also consider tax inversions because it allows them to bypass paying taxes to the United States on their worldwide profits. Most nations employ a territorial tax system, which means that income is only taxed when it's earned domestically. However, America's tax structure is a mix of both a territorial and worldwide system, meaning all income is taxed, regardless of whether or not it was earned inside the country. For instance, if a U.S.-based company sold products or services abroad, they would pay the taxes of the foreign country as well as taxes from domestic sales.

Tax inversions have started a heated debate between proponents and critics. Supporters insist that tax inversions allow American companies to stay competitive and profitable in the American worldwide system and amid high corporate tax rates. Contrary to accusations, proponents claim there is nothing "unpatriotic" or "unethical" about cutting costs to run your business. Rather than shaming companies that are trying to increase profits, America should focus on revising the tax system and lowering the statutory corporate tax rate to help companies remain competitive.

Corporate greedMeanwhile, opponents blast the deals, saying they are motivated by unveiled greed that passes on costs to individuals and small businesses. While those businesses are technically based in a foreign country with more attractive corporate tax rates, they can still take advantage of the conditions that make America a positive environment to conduct business, such as the American educational system, R&D capabilities, innovative culture, and a skilled workforce. Critics also argue that tax inverted corporations put a greater burden on small businesses and individuals to maintain the country's infrastructure, national defense, and education, all of which corporations benefit from and depend on (The Washington Post, 7/27/14). Finally, while acknowledging that the nation does have one of the highest corporate taxes of industrialized countries, opponents claim that most companies avoid paying the full tax rate by applying tax credits, subsidies, loopholes, offshore tax havens, and a long list of other accounting tricks that reduce many multinationals' tax rate considerably, sometimes to as low as 10% (Citizens for Tax Justice, 5/19/14). President Obama himself called these companies "corporate deserters."

Meanwhile, the Joint Commission on Taxation estimates that the United States could lose about $19.5 billion in corporate taxes over a decade from tax inversions (The Wall Street Journal, 7/14/14). Time will tell whether this practice will help or hurt American business and the economy.

Readers, what do you think? Are tax inversions just good business tactics or a shady strategy for profit? Comment and let us know!

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