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The Trump tax cuts aren’t helping CenturyLink workers

Rick Newman
Columnist
CenturyLink

More than 80 companies have announced bonuses, raises or improved benefits for workers, now that a new tax-cut law is likely to boost after-tax revenue for most big U.S. companies.

But not CenturyLink (CTL), the embattled telecom provider based in Monroe, La., which informed employees recently that there will be no raises this year. In an email to employees on Jan. 11, CEO Glen Post said, “We cannot afford merit increases across the organization at this time…. I believe it is necessary that we not pay merit increases this year.” Here’s the email Post sent on Jan. 11, announcing the pay freeze:

Source: As provided to Yahoo Finance

The pay freeze affects non-union employees, who account for about 64% of CenturyLink’s 39,000 workers. Unionized workers would continue to get raises in line with their most recent contract. But in December, CenturyLink suspended holiday bonuses for unionized workers, who got a $200 holiday bonus in 2016.

As Post indicates, CenturyLink has been struggling for several years, amid retrenchment in the market for broadband and networking services. While still profitable, CenturyLink’s net income for the last 12 months ending in September was down 50% from the prior year, according to S&P Capital IQ. The company also faces several lawsuits over suspect billing practices.

The stock price has fallen 23% during the last year, compared with a 23% gain for the S&P 500. CenturyLink recently purchased Denver-based Level 3 Communications for $24 billion, in a bid to scale up the company’s base of commercial and residential customers.

A few key CenturyLink execs got large bonuses late last year, right before the company canceled rank-and-file holiday bonuses and companywide raises, which has rankled some of the company’s workers. Level 3’s former CEO and CFO received millions of dollars in bonuses and stock options for moving to the new company. At the same time, CenturyLink’s retiring CFO got an extra $1.4 million in severance. And a top sales executive who was with the company less than two years got an extra $300,000 when he retired. The cash bonuses alone, not counting stock and options, totaled $7.3 million.

CenturyLink’s stock, in dark blue, has tanked during the last 12 months.

One CenturyLink employee who did the math told Yahoo Finance: “If the $7.3 million paid out in bonuses to four guys in November had been spread across the company, it would’ve nearly equaled the $200 holiday bonus typically paid.”

In a statement, CenturyLink told Yahoo Finance: “CenturyLink, as all businesses, continually evaluates cost structure and business practices and adjusts operations to meet the needs of the business. As a result, we have made the difficult decision that there will be no merit increases given to employees in 2018. While we are confident we are on the right path to grow our company, we continually need to watch the fundamentals of our business, including revenue growth and expenses.”

It’s possible 2018 will turn out a bit better for the company. Analysts surveyed by S&P Capital IQ forecast an improvement in profitability, with net income likely to rise by 19% in 2018. And analysts rate the stock outperform. Maybe the Trump tax cuts will provide something to celebrate after all.

Confidential tip line: rickjnewman@yahoo.com. Encrypted communication available.

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Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman

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