Despite the current volume of non-financial information required under Regulation S-K, institutional investors are calling for more disclosure.
The burden of compiling the volume of non-financial information required under Regulation S-K often falls on the shoulders of the person responsible for compiling the financial information – the CFO – and the burden could be set to increase following the responses to a concept paper issued by the SEC in April.
Already the burden is a significant one. According to a survey conducted in March this year by software vendor CCH Tagetik, the non-financial information required under Regulation S-K (the “narrative”) accounts for 50% or more of the content in nearly half of financial reports – in some cases, the survey found, there is more than double the volume of non-financial information as there is financial information.
Typically, the narrative consists of an explanation of the results, a management and discussion analysis, and notes to the accounts. Whereas this level of narrative could be considered material non-financial information, institutional investors are calling for much more disclosure – so much more that concerns are being raised the volume of non-financial information that may be required under Regulation S-K could cause smaller investors an “information overload”.
CII Wants More Non-Financial Information Required under Regulation S-K
The SEC received more than 26,000 responses to the concept paper – among the bulk of them were letters calling for details to be disclosed about companies´ foreign subsidiaries and their sustainability plans – with many demanding that companies disclose their “human capital”. Brandon Rees, deputy director of the AFL-CIO’s Office of Investment, commented “Some two-thirds of the value of U.S. corporations comes from intangibles, and much of this comes from the employees, but if it’s not measured it’s not managed.”
Rees would like to see the disclosure of employee safety and health information, race and gender workforce composition, and employee turnover and retention rates; and Ken Bertsch, executive director of the Council of Institutional Investors (CII) agrees. Bertsch told CFO.com “employees constitute one of the primary drivers of value in companies, and companies don’t have to disclose much about them.” Bertsch would also like to see reasons for a change of auditor and much tougher controls on non-GAAP reporting.
When addressed with the question that his members could suffer from “information overload”, Bertsch replied: “We just have not heard from our members that there’s huge concern about the volume of disclosures, other than that they’d like to see a better organized 10-K and that the proxy statement is too long.” However, Robyn Bew, director of strategic content development at the National Association of Corporate Directors, disagrees. She feels that enforcing a higher volume of non-financial information required under Regulation S-K could have a negative effect on smaller investors.
Bew said: “One of the things that we hear from investors is that an unintended consequence of mandatory disclosure rules is more boilerplate. Everybody wants disclosures to be more effective, but that can mean different things to different people. Larger investors can say ‘Give it all to us and we’ll figure out what we want,’ while smaller investors don’t have the resources to do that kind of data mining.” Bew concludes it would be more useful if companies and boards could do more of their own thinking without regulation.
Likely No Drastic Changes in the Near Future
The trend in financial reporting is for companies to err on the side of caution and burden SEC filings with disclosures that are not material. However, this may be an unnecessary overreaction to investor demands. In recent years the SEC has aligned its definition of what it considers necessary “material information” closer to that of the Supreme Court. Currently, financial and non-financial information is considered “material”:
“When used to qualify a requirement for the furnishing of information as to any subject, [materiality] limits the information required to those matters to which there is a substantial likelihood that a reasonable investor would attach importance in determining whether to purchase the security registered.”
Disclosure for the sake of disclosure can shift investor focus away from information that is actually material to company operations. Fortunately for CFOs who would rather see disclosures streamlined and the burden of narrative reporting eased, the SEC does not look as if it is going to act quickly on the calls for more non-financial information required under Regulation S-K.
The SEC is still attempting to fine-tune its Disclosure Effectiveness Initiative and, if the calls to disclose more non-financial information required under Regulation S-K are acted on by the SEC, this could undo the good work already accomplished by the Initiative and negatively impact investors by obscuring relevant information in company filings.
An interesting debate is currently taking place at cfo.com with regard to whether or not the SEC´s rules for non-GAAP reporting are too stringent.
In 2003, the Securities and Exchange Commission (SEC) enacted Regulation G requiring public companies to include in any disclosed non-GAAP financial measure a presentation and reconciliation of the most directly comparable GAAP financial measure. Prompted by a series of major corporate accounting scandals (Enron, AOL, Xerox, etc.), the objective of the Regulation was to prevent companies from presenting a rosier picture of their finances than was justified and to provide investors with a balanced financial disclosure.
In 2010 and 2016, the SEC issued compliance and disclosure interpretations that first (in 2010) relaxed prohibitions on excluding recurring expenses and then (in 2016) tightened interpretations of the Regulation in order to prevent non-GAAP measures being given greater prominence than comparable GAAP measures. The consequence of the 2016 update varies according to whose opinion you read. Some experts feel that the SEC´s rules for non-GAAP reporting are too stringent, while others feel they don´t go far enough.
The SEC´s Rules for Non-GAAP Reporting are Too Stringent
One expert clearly of the opinion that the SEC´s rules for non-GAAP reporting are too stringent is Charles Lundilius – Managing Director of the Berkeley Research Group. Mr. Lundilius disapproves of the rules for non-GAAP reporting that prohibit a company from recognizing revenue at the point when a customer is billed. Although claiming to understand the SEC’s concern about misleading revenue data, he finds it difficult to understand why this information cannot be provided as a non-GAAP metric.
“It merely reflects the fact that a bill was sent to a customer on a certain date”, Mr Lundilius argues on cfo.com, “and it has a social benefit in that it provides a useful and comparable tool to analysts and other users of financial statements”. He continues his argument by claiming certain SEC´s rules for non-GAAP reporting prevent forensic accountants from monitoring and analyzing fraud, and concludes it with the statement – “The sales-as-billed prohibition is just one example of SEC overreach”.
The Rules are Needed to Keep Companies Honest
Two experts sharing opposing views are Jennifer Biundo and Kris Hutton. Ms. Biundo – a Senior Audit Manager at Mazars USA – argues that non-GAAP reporting can be relevant to help a company present critical operating measures of its business, but if not presented properly and consistently – and within the SEC´s rules for non-GAAP reporting – they can create ambiguities that can disrupt the true picture of a company´s financial health.
Both she and Kris Hutton – the Director of Product Management at ACL – believe the SEC´s rules are a response to faulty reporting standards. Mr. Hutton acknowledges traditional accounting metrics may not always be the most accurate way to judge a company’s value – especially in a fast-moving and evolving economy – but believes the SEC´s rules for non-GAAP reporting encourage better transparency, comparability, and consistency in non-GAAP disclosures.
Maybe it is Too Early to Decide
A fourth expert – Vincent Papa, the Interim Head of Financial Reporting Policy at the CFA Institute – joins the debate by commenting that it may be too early to tell whether the 2016 tightened interpretations of the SEC´s rules for non-GAAP reporting are too stringent. Although concurring with Charles Lundilius on the point that last year’s C&DIs may have adversely affected the usefulness of non-GAAP metrics, he adds that many investors expect sufficient regulatory oversight to ensure reporting is accurate.
The key appears to be balance. If companies only report such metrics to the extent management feels they are important for investors measuring the health of the business, this will likely create friction between analysts and company management. However, as Mr. Papa concludes his argument, the SEC objective of increasing transparency and pushing for greater comparability is aligned with investor interests and should continue – at least until the SEC ´s rules for non-GAAP reporting are universally considered too stringent.
Ian Charles – CFO of Host Analytics – was recently featured in CFO Magazine discussing the importance of finding the right pre-IPO growth-profits balance.
Host Analytics provides a scalable, cloud-based alternative platform to Excel that automates planning, consolidation and reporting. Based in Redwood City, California, the company was founded in 2001, and whereas many start-ups keep their cards close to their chest about their exit strategies, CFO Ian Charles has a very clear plan – an IPO offering within two years provided the company achieves the right pre-IPO growth-profits balance.
“Today,“ Charles told CFO Magazine, “you have to grow the business smartly, with a focus on unit economics and customer success. You can’t just go out and spend hundreds of millions of dollars anymore.” Profitability – Charles believes – doesn’t necessarily generate a premium for valuation purposes if it’s not backed by growth. However, it would appear there are substantial opportunities for growth for the enterprise performance management (EPM) systems vendor.
Less than 5% of the EPM market has been penetrated by cloud-based providers or cloud versions of on-premises EPM software sold by market leaders SAP, IBM, and Oracle – although the product is not for everybody warns Charles. “A relatively basic business that’s not growing rapidly shouldn’t be a customer of the product,” he said. Nonetheless, Host Analytics has a 700-strong customer base including familiar names such as the Boston Red Sox, the Mayo Clinic, OpenTable, and True Value.
Avoiding Churn is Key to a Stable Pre-IPO Growth-Profits Balance
Charles considers a good portion of the company’s success to date is due to its policy of walking away from businesses not suited for the product´s complexity. Charles says: “We can find a lot of bad customers that will be set up to fail and will churn at some point, whether in one, two, or three years,” and he believes avoiding churn is key to finding the right – or at least a stable – pre-IPO growth-profits balance. The company´s success can also attributed to the use of its own product.
Host Analytics employs a finance team half the size of any comparable company, yet the team analyzes 114 separate key performance indicators on a weekly basis. “When you eliminate Excel and replace it with purpose-built financial applications, you create a workflow that takes less time, makes fewer errors, and requires fewer people to perform,” he says. The same system is also used by the company for its marketing, services, engineering, and sales teams.
Another driver of the company´s success is the fact that Charles himself uses the Host Analytics´ ERM system. For the first time in his career, Charles is the CFO of a company that uses its own product. “I find myself in front of customers much more often than I have in prior roles,” he says. “For many of the larger deals, they want that CFO-to-CFO connection.”
The CFO-to-CFO connection is also helpful in measuring the market´s appetite for growth versus profitability. What constitutes the “right” pre-IPO growth-profits balance is a moving target, and being aware of market changes is critical in the run up to an initial public offering.
Analysts project an increase in the rate at which cloud computing is adopted but it is important to balance the benefits and costs of migrating to the cloud.
The benefits of migrating to the cloud are well chronicled. Zero hardware costs, lower management costs and the availability of platforms that adapt rapidly to competitive threats and opportunities are three of the primary motives, while many see cloud computing as a way of eliminating over-capacity and freeing up IT budget for innovation.
Such has been the rate at which businesses in the manufacturing, banking, and professional services industries have migrated to the cloud that Oracle co-CEO Mark Hurd predicts 80% of corporate data centers will disappear by 2025. Similarly, analysts from Morgan Stanley have forecast revenues for cloud service providers will increase by more than 30% per annum.
However, although cloud services have allowed many companies to scale quickly without the capital expense of building on-premise data centers, some analysts have warned the decision to shift from buying to renting compute capacity should not be taken without consideration of the costs of migrating to the cloud – both the direct costs and the, often overlooked, indirect costs.
All-or-Nothing Shifts are Not Ideal
All-or-nothing shifts to the cloud are not ideal according to Lydia Leong, a vice president at Gartner, because “Most companies starting on this journey don’t know what they don’t know”. Her advice is echoed by Edward Wustenhoff, the chief technology officer at Burstorm, who suggests it is better to move a fraction of applications to the cloud and learn the capabilities of the cloud at a modest pace.
This approach gives companies the opportunity to re-migrate applications back to the corporate infrastructure if the initial deployment fails to fit the business model. It also give companies the opportunity to evaluate whether its cloud deployment plan should be fine-tuned. “CFOs [should] periodically take the pulse of what’s happening in the market”, Wustenhoff advises.
Performance, Security and the Social Factor
Other potential concerns are performance, security and the “social factor” according to Timothy Chou, a lecturer in cloud computing at Stanford University. Chou points to a human error outage at Amazon that took several large websites – including Netflix, Reddit, Adobe, and the Associated Press – offline for eleven hours in February.
Chou also suggests companies should define their security requirements and find out if the service provider meets them. He notes that many cloud service providers have tools addressing these requirements, but companies will have to spend time familiarizing themselves with how the available tools can be built into their existing apps.
Chou also speculates that some organizations resist migrating to the cloud due to a social factor he describes as having nobody´s throat to choke when something goes wrong. He believes that a gradual migration to the cloud will help resolve these concerns over time as the C-suite sees far better pricing than the company would experience if it tried to do everything on its own.
A recent survey of top executives in the middle market has concluded that CFOs should not assume employees are educated about cybersecurity threats.
The survey – “Cyber and Data Security in the Middle Market” – was compiled using data from 316 online survey responses and 5 in-depth interviews. Focusing on companies with annual revenues of between $25 million and $500 million, the survey first asked what percentage of respondents had their business activities disrupted by cybersecurity issues within the past two years, and then what measures were being implemented to prevent future attacks. Phishing attacks are accelerating in 2017 and the problem will only get worse.
From the responses of the senior finance leaders, it was clear that virtual intrusions are commonplace. Although only 21% of respondents said their business activities were disrupted by hackers in the past two years, 60% admitted having lost time due to dealing with cybersecurity issues, 23% reported a loss of revenue due to a security breach and 19% acknowledged a loss of credibility with customers, suppliers or the public due to an adverse cybersecurity event.
Assumptions about Employee Education Can be Dangerous
One of the key findings of the survey was that more training on recognizing and acting upon cybersecurity threats is required further down the chain of command. CFOs clearly understand the threats from virtual intrusions – 82% agreeing cybersecurity was treated with “appropriate gravity” at the top level of their businesses. However only 24% of respondents felt employees approached cybersecurity with the same level of importance.
Considering that cyberattacks can be targeted at anyone within a business, the conclusion drawn by researchers was that finance leaders should be more pro-active in educating employees, and “set the tone at the top”. That conclusion was supported by findings that only 25% of CFOs feel their employees have access to adequate training and education, and that 46% of CFOs agreed there was room for improvement in their current training regimes.
But Are CFOs Responsible for Setting the Tone?
Most CFOs agree they should have some responsibility for managing cybersecurity. After all, it is often the finance department that suffers the most when a cyberattack is successful. However, only 12% of CFOs center their business´s cybersecurity on the finance function. Most (76%) rely on the IT function to organize strategies and manage risks – although acknowledging it is important for the two departments to collaborate.
One of the most important takeaways from the survey was not to solely trust cybersecurity defenses, but to verify them as well. This is where CFOs can take responsibility and set the tone at the top by testing their business´s own cybersecurity measures, improving access to employee awareness, and reducing the finance function´s vulnerability to cyberattacks by conducting regular audits.
According to Deloitte´s quarterly CFO survey, the concerns of CFOs in the UK about the impact Brexit will have on the future business environment are easing.
In June last year, citizens of the United Kingdom voted narrowly to exit the European Union. The decision to leave – termed “Brexit” – created a sense of uncertainty across the business environment not only for companies in the UK, but also for companies within the EU and those who trade with the EU.
However, in Deloitte´s Q1 2017 CFO survey, financial concerns appear to be softening. 20% of the 130 CFOs surveyed were more optimistic about the financial prospects for their companies than they were three months ago, and there was a significant shift in focus from defensive strategies to expansionary strategies.
Expand while Credit Conditions Remain Benign
One of the reasons for the shift in focus is that credit remains cheap and easily available – although there is uncertain confidence it will remain that way after the United Kingdom leaves the European Union. The surveyed CFOs said that debt finance remained the most attractive source of funding for the present, and that equity issuance has become more appealing as the result of stronger equity markets.
In relation to the cost of borrowing, most CFOs expect the current Bank of England base rate to increase from 0.25% to 0.50% within a year – although some believe it could reach 1.25% even before the full implications of Brexit are known. Because of the expected increase in the cost of borrowing, the majority of respondents to the survey expressed an opinion that operating margins would fall over the next twelve months.
Researchers Identify Decline in the Perception of Risk
In each quarterly survey, researchers ask CFOs for their perception in risk in eight key areas. In six of the eight key areas – the impact of Brexit and subdued domestic demand among them – Deloitte reported a decline in the perception of risk. The two areas in which the perception of risk had increased were:
- The prospect of higher interest rates and a general tightening of monetary conditions in the UK and US.
- A bubble in housing and/or other real and financial assets and the subsequent risk of higher inflation.
David Sproul, Senior Partner and chief executive at Deloitte, remarked: “The UK’s exit from the EU is a long and uncertain process and business sentiment is changeable. But it is clear from this survey that the UK corporate sector enters the negotiation phase of Brexit in far better spirits than seemed likely in the months after last year’s referendum vote.”
Changes to how the R&D tax credit is applied could have beneficial implications for companies of all sizes – provided they keep their documentation in order.
The Protecting Americans from Tax Hikes Act changed the way the R&D tax credit is applied. Effective for 2016 tax returns, companies that invest in research and development can factor a federal income tax reduction into their financial planning – rather than having to apply for it retrospectively – as the R&D tax credit is now a permanent fixture.
The changes to how the R&D tax credit is applied will save hundreds of thousands – or even millions of dollars – for companies of all sizes, and it is important to note that the credit is not limited to companies with recognized R&D departments. Any company that develops or improves products, software or processes could qualify subject to meeting the qualifying criteria.
Does Your Company Qualify for an R&D Tax Credit?
The qualifying criteria is vague and open to interpretation. It is suggested that any company that develops or improves products, software or processes seeks professional tax advice to ensure they qualify for the R&D tax credit, as this is one of the areas that comes under scrutiny during IRS audits. However, to be in the right area for a tax credit, a company has to invest in one of the following activities:
- Technological experimentation in the fields of engineering, physics, chemistry, biology, or computer science.
- The creation of a new or improved product or process that results in increased performance, function, reliability, or quality.
- The elimination of a technical uncertainty about the development or improvement of a product or process.
- Activities undertaken to eliminate or resolve a technical uncertainty that involve an evaluation of alternative solutions.
Costs that can be included in a tax return include salaries to employees involved in research and development, their managers and support staff. Related procurement, legal and computer leasing costs – including cloud computing services – can be included, as can a portion of payments made to U.S.-based contractors. Again, seek professional tax advice that relates to your specific circumstances.
If eligible, companies can claim the R&D tax credit retrospectively for the past three years (longer in some states with an extended tax statute) and carry forward credits if they have a zero tax liability or have previous made a loss. However, immutable documentation must be used to support the credit is essential, and it may save future headaches if you seek advice about what documentation is acceptable to support your claim.
Results from several recent surveys suggest the role of the CFO is changing and expanding into new challenges such as cybersecurity and event response.
Following a tumultuous end to 2016, the business world is becoming more accustomed to unpredictability. Although there is reason to be cautious about what events will hold for CFOs during the remainder of 2017, there is also reason to be optimistic. A likely cut in corporation tax should bring a welcome boost to business, while technological advancements should help business leaders be better prepared for future unpredictability.
However, technological advancements alone will not enable a business to manage its way through a changing landscape, and CFOs – having the responsibility to ensure the financial stability of their companies – are having to step up and tackle many non-financial challenges. Indeed, according to one study by Adaptive Insights, 76% of CFOs report their finance teams track some non-financial KPIs today, and 46% of CFOs anticipate that number will increase in the next two years.
Cybersecurity the Biggest Challenge
As CFOs control the most sensitive data within companies, it could be argued it is the CFOs responsibility to control how the sensitive data is protected. Managing cybersecurity threats is a whole-of-company challenge but, as the finance function becomes more business-centric, CFOs are drawing on their risk management know-how and becoming more involved in risks assessments, addressing vulnerabilities, and breach recovery planning.
An increasing number of CFOs have been involved in cybersecurity since the Framework for Improving Critical Infrastructure Cybersecurity Version 1.0 was released in January 2014 and, in a recent Grant Thornton survey of 912 CFOs, 38% of respondents identified the CFO as the position most often responsible for cybersecurity, while 44% of finance leaders said they felt the most significant concern for their organization today is cybersecurity. 57% said undetected breaches were what worried them the most.
Adopting to Technology for Event Response
In addition to cybersecurity governorship, CFOs are having to educate themselves about technological advancements to help them measure and monitor business performance in a timely manner, without exposing the business to risk, but enabling it to take advantage of every possible opportunity. The technology allowing data to be processed in real time can help with identifying risks at an earlier stage and better decision-making, but many CFOs are encumbered by legacy systems that do not allow reporting teams to extract forward-looking insight from large, fast-changing data sets.
This challenge, and trends towards zero-based budgets and rolling forecasts, mean that CFOs have to be more agile. No longer is it enough to put an annual plan together and crunch the numbers month by month. EY’s DNA of the CFO survey reinforced this perception of a CFOs changing role when respondents to its survey said that skills that can help inspire and generate loyalty such as empathy, innovation and imagination becoming equally important as those used to manage finance teams.
The IRS has issued further warnings to payroll and human resources professionals to beware of tax season phishing scams requesting details of company employees.
Despite tax season phishing scams receiving a high profile last year, the IRS has seen a 400 percent surge in phishing and malware incidents so far this tax season – many of the scams targeting payroll and human resources professionals to obtain employee data.
The IRS Criminal Investigation department is reviewing multiple cases in which scammers have tricked people into revealing sensitive data that the criminals can monetize by filing fraudulent tax returns for refunds. The emails appear to come from a high ranking executive and request a list of employees including their Social Security numbers. The IRS released details of three typical tax season phishing scams:
- Kindly send me the individual 2015 W-2 (PDF) and earnings summary of all W-2 of our company staff for a quick review.
- Can you send me the updated list of employees with full details (Name, Social Security Number, Date of Birth, Home Address, Salary).
- I want you to send me the list of W-2 copy of employees wage and tax statement for 2015, I need them in PDF file type, you can send it as an attachment. Kindly prepare the lists and email them to me asap.
Scammers Targeting Entities outside the Corporate World
The tax season phishing scams are not exclusively targeted towards corporate organizations with large payrolls. In one case being investigated by the IRS, the payroll of the Virginia Wesleyan College was disclosed to an unauthorized third party by a college employee who believed the phishing email was a legitimate internal request. On discovery of the disclosure, college officials immediately notified the FBI, IRS, state taxing authorities, and affected employees.
Within a month – although not promoted by the Virginia Wesleyan College incident – Governor Terry McAuliffe approved amendments to the state’s data breach notification statute. The amendments require employers and payroll service providers to notify the state’s Office of the Attorney General after the discovery of a breach of computerized employee payroll data that compromises the confidentiality of such data. Notification is required even if the breach does not otherwise trigger the statute’s requirement that the employer or payroll service provider notify residents of the breach.
The IRS is warning employers to be aware of a new development in a W-2 phishing scam that combines employee data theft with bogus wire transfers.
The W-2 phishing scam – in which fake emails request details of all employees and their Forms W-2 – first appeared during last year´s tax season. Its objective is to collect data that will assist criminals in committing identity theft and filing fake tax returns.
Due to a greater awareness of the W-2 phishing scam within the corporate world – and more safeguards being introduced to identify phishing emails – the IRS reports that many attempts to scam large-scale employers have been unsuccessful. However, criminals are now targeting other sectors such as school districts, tribal organizations and nonprofits.
The new development the IRS wants employers to share with HR and Finance professionals is that cybercriminals are following up their W-2 phishing scam with a further email requesting a wire transfer to a certain account. Some companies have lost thousands of dollars in addition to disclosing their employees´ tax details as a result of this scam.
How to Report a W-2 Phishing Scam
In order to protect themselves against data theft and financial loss, the IRS is urging all employers to create an internal policy on the distribution of employee W-2 information and conducting wire transfers. Employers are also being asked to forward emails identified as W-2-related scams to firstname.lastname@example.org with “W2 Scam” as the subject of the forwarded email.
In the event that a W-2 phishing scam is successful, the IRS wants employers to report the theft immediately to the Internet Crime Complaint Center, while employees whose identity may have been stolen (usually apparent when a tax return is rejected because of a duplicated Social Security number) should review the actions recommended by the Federal Trade Commission at www.identitytheft.gov.
IRS Commissioner John Koskinen described the W-2 phishing scam as one of the most dangerous scams he had seen in a long time. He said: “It can result in the large-scale theft of sensitive data that criminals can use to commit various crimes, including filing fraudulent tax returns. We need everyone’s help to turn the tide against this scheme.”
Using risk sensing to identify strategic risks can better equip businesses for future challenges and help them take advantage of emerging opportunities.
A recent report from Deloitte – “Facing (and Embracing) Strategic Risks” – demonstrated how much effort businesses put into identifying financial, compliance and operational risks, but how few resources are dedicated towards identifying strategic risks.
According to a survey of 155 C-level executives, most respondents could list a series of potential strategic risks that could impact their businesses over the next three years (pace of innovation, increased regulation, loss of talent or loss of reputation, etc.) but few made full use of risk-sensing tools to identify and track them.
Why So Little Focus on Sensing Strategic Risks?
The report blames human nature for the lack of focus on sensing strategic risks and identifies four “behavioral economic” factors that blinds senior executives from strategic risks that may be on the horizon and for which businesses should compile scenario plans. The four factors are:
- Overconfidence – leading us to trust our gut feelings and overestimate the truth of what the business believes.
- Availability – the surfeit or lack of which can cause a distorted view of the importance or likelihood of events.
- Confirmation – paying more attention to information that fits held beliefs while discounting contradictory information.
- Optimism – a natural human tendency that fools businesses to believe their plans will work out as intended.
This failings, the report claims, can cause a misunderstanding of the the likelihood of events that could reshape businesses or their ability to respond to the events. Furthermore, if cognitive failings were not enough to limit focus on sensing strategic risks, other failings – such as poor internal communication, an oligarchic leadership or simple bureaucracy – could prevent senior executives from expressing their concerns.
The Benefit of Using Risk Sensing to Identify Strategic Risks
Businesses able to overcome the behavioral economic factors can benefit from using risk sensing to identify strategic risks. By combining risk sensing with horizon scanning and scenario planning, businesses can course correct before significant financial issues impact the business as a result of changing competitive and regulatory landscapes.
At the same time, data gathered to prompt business-critical decision-making should be used to capitalize on new opportunities. Many business innovations have come as the result of capitalizing on strategic risks; although the report suggests a glut of data is not conducive to successful decision making. It recommends that strategic risk data should be presented in a way consistent with people’s ability to manage and navigate it.
CFOs Should Lead the Way for Strategic Risk Management
The report concludes that, as CFOs serve as strategic advisors on a host of issues, it is they who take the responsibility for strategic risk management. In their capacity, CFOs are well positioned to connect with CEOs, boards, and other senior stakeholders in the conversation about strategic risks.
Armed with the right tools, CFOs can accelerate how quickly strategic risks are discovered and fit them into their ongoing risk management processes. CFOs who achieve this will see how strategic risk – and the ability to name it, track it, and deal with it – can turn into an important organizational resource.
A report by Deloitte has identified three ways to strengthen the CFO-CIO partnership in order to enhance the value delivered by each to the business.
The report – “Three Ways to Strengthen the CFO-CIO Partnership” – was compiled following a poll taken during a recent Deloitte webcast that revealed less than one-third of CFOs and CIOs shared a strong partnership characterized by mutual understanding. The report´s authors considered that, in an age when technology is playing a larger role in every aspect of business, it is more important than ever CFOs collaborate closely and effectively with CIOs.
The authors claim that the majority of CFOs and CIOs already acknowledge the importance of building a strong partnership because of the significant proportion of a company´s budget dedicated to IT. However, Deloitte´s own survey revealed that just 22% of CIOs reported to CFOs – prompting the authors to suggest three key areas in which CFOs and CIOs could strengthen their partnership to enhance the value delivered by each to the business.
Understand, Communicate and Collaborate
The first key area is “mutual understanding”. The authors surmised that, despite there being key differences between the two roles, there were commonalities that CFOs and CIOs can identify to achieve a mutual understanding. In order to develop the partnership, CFOs should try to understand more about IT strategy (rather than focus on IT cost management), while CIOs should provide a better explanation of IT issues in a language that CFOs will understand.
The efforts made by each to develop the partnership will evolve into “effective communication” – the second of Deloitte´s key areas. The report´s authors claim that CFOs typically speak one language – the language of finance – while CIOs can only speak in the language of technology. They argue that different perspectives and communication styles can be overcome with a little effort to help each party communicate more effectively with the other.
The third key area is “collaboration”. A 2013 survey by PwC showed that organizations reporting strong collaboration between CFOs and CIOs were four times as likely as those with less collaborative teams to be top performers. Deloitte suggests CFOs and CIOs should identify opportunities to collaborate in order to improve strategies for managing IT and for providing better data and insight in order to strengthen the tactical efforts necessary to implement, maintain and upgrade mission critical information and financial systems.
The stronger CFO-CIO partnership that results, the authors claim, will create a successful framework for analyzing current and future IT capabilities and enhance the value delivered by each to the business.
Although it is fashionable to use key performance indicators (KPIs) in business management decisions, CFOs are being advised to balance their reliance on them.
“The issue with the KPIs is that there are too many PI’s and not enough K’s.” That is the view of Jason Balogh, principal at the performance management transformation practice The Hackett Group. The Hackett Group has recorded close to 100 KPIs in use across different industries, and Balogh suggests companies should consider the relationships between existing KPIs before devising new ones.
Balogh supports his view with the example of a low days-in-inventory delivering a good KPI for a chief supply chain officer, but quite the opposite for a chief customer officer who has to contend with product stock-outs and customer dissatisfaction. He says that many metrics designed to measure the performance of one department will cross over to affect the performance of another.
How Centralizing KPIs Helps Resolve the Issue
With business leaders in different departments being accountable for the performance of their departments, a broader picture is required. For this reason, more CFOs are assuming the responsibility of interpreting diverse KPIs in order to determine whether the metrics are connecting with actual company performance and to see if they are aligned with the company´s strategic goals.
According to a survey conducted by Adaptive Insights, nearly half of the three hundred respondents said that they acted as de facto chief data officers, and more than three-quarters said that their finance departments track some of the company´s nonfinancial metrics. John Mulhall from financial management consulting firm KPMG says it right that CFOs perform this role. He said:
“Many CFOs have a clear understanding of the company’s strategy, operating model, customer channels, and competitive challenges to ensure that the right financial and nonfinancial metrics are used to drive performance. They also have the ability to translate the numbers for the CEO, board of directors and shareholders.”
Is CFO Reliance on KPI Metrics Getting Out of Hand?
The fashion of using KPIs to influence business management decisions may be going too far claims an article in the Journal of Business Ethics. Authors Natalia Cuguero-Escofet and Josep Rosanas suggest that, in the pursuit of formal evaluation criteria, some businesses have abandoned factors such as company culture, managerial discretion and personal relationships.
Rating managerial performance against a number of objectively measurable indicators tied to the corporation’s strategic agenda – rather than less regimented forms of motivation and evaluation can have a negative impact on the performance of a company. The authors cite four examples of companies that failed to balance how business management decisions were made and paid the price.
The reason why so many CFOs are assuming responsibility of interpreting KPI data is because no one metric is perfect, and the article concludes by saying that a balance between formal systems and “soft management” is required to put companies in a better position when metrics go wrong. This will not only help prevent future crises, but also contribute towards creating a better workplace environment.
Sharing these tips for effective business email communication can help improve collaboration and productivity – and avoid difficult working relationships.
I received two pieces of great advice from a former mentor. First, always proof-read important emails (out-loud if possible) to avoid mistakes. I have caught many errors reading emails out-loud. Second, if you must send an email when you are a bit exercised always hold the email in draft form for 10 or 15 minutes after finishing…then re-read. Often, you will make key changes that will get your message across more effectively.
I remembered my mentor´s advice recently when I came across an article written several years ago about embarrassing business email blunders. My favorite concerned a company vice president who accidentally sent details of all his employees’ salaries on a company group email. Realizing his mistake, he set the fire alarm off to clear the office before deleting the e-mail from every inbox.
Best Practices Can Avoid Email Blunders
Perhaps proof-reading his email, or waiting ten minutes before sending it, might not have prevented his company losing several hours of lost productivity. We shall never know. However, after finding that story amusing, I browsed for similar email blunders and came across an email-related article written by the author of the excellent book “Leadership is Hell: How to Manage Well and Escape with Your Soul” – Rob Ashgar.
In his article, Ashgar does not dwell on the blunders, but provides advice on how to avoid them. Not all of his advice is related to business management, but I would like to share with you the best practices I found particularly relevant – the final one being a best practice I know many CFOs avoid at all costs. Hopefully some I know will read this article and realize the error of their ways. Hopefully.
Tips for Effective Business Email Communication
- Keep it Short and to the Point
Business emails should convey vital information at the beginning of the email. Nobody (apparently) reads the last lines of an email. If you have to write a long email to get the point across, use short sentences and paragraphs to make the email easier to read.
- Don´t Put Something in an Email You Don´t Want Forwarded
Sometimes you may write a comment in an email to a colleague that you would rather was not shared. The best way of ensuring it is not shared is not to write the comment at all. And, if you receive an email from a colleague with a thoughtless comment in it, don´t be the one to share it if you don´t have to.
- Respect Multi-Party Conversations
Be thoughtful about your conduct in multi-party conversations. Using “Reply All” is not always appreciated by everyone in the conversation and, when introducing others to the conversation, use the BCC button to inform the initiator of the conversation which direction it is heading in.
- Even When You are Busy, Send an Acknowledgement
In many business environments, no reply means “no”. Make sure you don´t give the wrong impression by acknowledging an email you don´t have time to attend to immediately. It only takes a few seconds to write “get back to you later about that”.
- Don´t Use Email to Avoid Tough Conversations
This is the big one. Your colleagues will not appreciate you initiating a tough conversation – or a conversation likely to deteriorate into a tough one – by email. Tough conversations are always better managed over the phone or face-to-face.
Email communications allow for assumptions to be made about motives or tones, and oftentimes the intended motive or tone can be lost in translation. Phone and face-to-face conversations give all parties the opportunity to convey what they want to say in a manner more likely to be translated accurately.
Finally, if you receive an email from a colleague who has avoided a tough verbal conversation, politely engage directly with the sender to give them an opportunity to clarify. A direct conversation can often diffuse follow-up email correspondence that can exacerbate tense situations.
If you share just one of these tips, please make sure it is the last one.
While uncertainty remains about future tax reforms and one-off tax discounts, corporations are being advised to wait before repatriating cash from overseas.
The news that two of Americas largest cash-rich companies – Microsoft and Apple – sold $27 billion of debt recently to fund their daily operations, repay maturing debt, and buy back shares, has got financial experts once again discussing potential tax reforms and President Trump´s pre-election pledge to offer a one-off tax discount to corporations repatriating cash from overseas.
The consensus of opinion is that whatever the future holds, corporations should refrain from bringing cash into the United States for the present, and follow the example of Apple and Microsoft – especially while borrowing rates remain close to their historic low of the last few years. This article explains the reasoning behind the consensus of opinion.
The Current U.S. Worldwide Tax System
Under the current arrangements for corporations with overseas operations, profits repatriated into the United States are subject to 35% tax, less a credit for any taxes paid in the overseas jurisdiction. For a corporation that returns a $100 million profit in an overseas jurisdiction with a 15% tax rate, this would mean a tax liability of $20 million if the funds were repatriated into the United States.
The current U.S. worldwide tax system is a disincentive for corporations to repatriate their profits if they are not required. The tax liability far exceeds the borrowing rate, which explains why Microsoft – with more than $100 billion on overseas cash assets – had to raise finance to complete the $26.2 billion acquisition of LinkedIn, and why Apple – with nearly twice as much hoarded overseas – borrowed $6.5 billion on 2015 to pay a dividend to company shareholders.
Would a Territorial Tax System be Any Better?
One of the options being discussed among a series of proposed tax reforms is a Territorial Tax System. This system would tax corporations on their domestic income only (as happens throughout much of the rest of the world), allowing corporations to repatriate cash from their overseas operations without having a tax liability other than in the jurisdiction in which the profit was made.
This proposal would seem to resolve Microsoft´s and Apple´s domestic cash issues, but it would be of no benefit to the Treasury – particularly if corporations removed money to low-tax jurisdictions to avoid paying the domestic rate of corporation tax. It appears that the only way a Territorial Tax System would work is if tax rates were significantly reduced to match those of overseas jurisdictions. Another loss to the Treasury.
Discounts Didn´t Work Before – Why Should They Now?
Among his pre-election pledges, President Trump was in favor of giving corporations a “one-time” tax discount on the cash they repatriated into the country. His plans included a 10% tax rate, followed by an end to the deferral of taxes on corporate income earned abroad. The tax revenues raised would help fund many other pre-election pledges and help create thousands of jobs.
Those with long memories may recall that, in 2004, the Bush administration passed the American Jobs Creation Act – an Act that permitted U.S. corporations to repatriate cash from overseas for a “one-off” discounted tax rate of 5.25%. The motive behind the Act was to “spur increased domestic investment”. In 2011, the U.S. Senate Permanent Subcommittee on Investigations reported there was no evidence of increased investment and that the money had gone into share buybacks, higher executive salaries and increased dividends.
CFOs who are busy analyzing KPI reports for benchmarking the broader organization should not neglect to benchmark the efficiency of their own finance teams.
With everything finance teams are expected to do in a working day, it is sometimes difficult to take a breath to look at how efficiently your finance team is working. However, benchmarking the finance team is more important than ever. By monitoring performance levels, CFOs can determine how teams can be streamlined, how efficiency can be boosted, and how to best incentivize team members to do a better job.
By taking a breath to evaluate and optimize finance teams, CFOs can trim excess capacity in less value-added activities, and reassign resources to more key areas. One example of how this would work is to eliminate redundant processes or automate tasks in order to increase capacity in more business-critical tasks such as analysis to further strategic objectives.
Key Metrics for Efficient Finance Teams
Some CFOs will argue that their finance teams are doing just fine and, of course, they do not have the time to assess performance. However, the time taken to assess the performance of your finance team can reap significant productivity benefits. The following key metrics for efficient finance teams can help determine whether or not your team is actually doing just fine, or whether there is some room for improvement.
In Accounts Payable, do you know:
- The total department spend divided by the number of invoices processed?
- The average time taken between its receipt and when it is processed?
- The percentage of invoices paid within terms and those that qualify for early pay discounts?
- The percentage of erroneous or duplicate payments, and the time taken to correct them?
In Accounts Receivable are you aware of:
- The days sales outstanding based on total accounts receivable/total credit sales?
- The best possible days sales outstanding that you can collect invoices in?
- The average number of days your invoices go past their due date?
- Your Collections Effectiveness Index or CEI – the amount collected within a time period compared to the amount of receivables within the same time period?
Where are you in Payroll with regard to:
- The cost per payroll payment?
- The cost per payroll enquiry?
- Payment errors and the time taken to resolve them?
- The number of manual checks cut?
It is important to note that the purpose of the exercise is not to catch errors and those most prone to making them. Indeed, it should be made clear from the outset that benchmarking the finance team has the objective of enhancing its value to the organization as a whole.
The price Verizon will have to pay to acquire Yahoo has been trimmed by $350 million after revelations of two significant data breaches in 2013 and 2014.
In July last year it was announced that Verizon had won the race to acquire the former web portal juggernaut Yahoo for $4.83 billion. Subject to regulatory and shareholder approval, the deal would see Yahoo integrated with another Verizon acquisition – AOL – to help the telecoms giant become one of the biggest players in the digital marketing industry.
Two months later, news broke that more than 500 million Yahoo accounts had been hacked in a 2014 data breach. In December, worse news was to come when a data breach dating back to 2013 was announced. The breach compromised user email addresses, passwords and dates of birth – data that could allow cybercriminals to locate more sensitive personal information elsewhere online.
Renegotiation of Acquisition Price Saves $350 Million
Following the revelation, the Yahoo Verizon deal was put on hold while the two companies assessed the implications of the data breaches and future possible impact. Negotiations over a revised acquisition price were also delayed by the involvement federal, state, and foreign government agencies investigating the hack; but finally a revised deal has been agreed.
On Tuesday, a joint press released revealed the revised price Verizon will have pay in order to acquire Yahoo is $4.48 billion. Yahoo´s CEO Marissa Mayer described the revised deal as “an important step to unlock shareholder value for Yahoo”. Ms. Mayer added that, despite the delays, the two companies have been working on more than 20 integration tracks to “bring Yahoo’s business into the fold”.
“Fair and Favorable Outcome” for Shareholders
Verizon´s executive vice president Marni Walden described the revised deal as a “fair and favorable outcome”, and although Yahoo shareholders may be relieved by the news, Verizon´s shareholders may be wondering why the haircut did not take more off the deal. Prior to the announcement, speculation existed that Verizon´s acquisition costs could have been reduced by up to $1 billion.
As a result of the announcement, shares in Yahoo! Inc. continued on their upward trend to approaching $46.00 – more than $10.00 above their prize when the Yahoo Verizon deal was first announced last July. The deal is expected to close during the second quarter of the year, with the two companies agreeing to share the legal and regulatory liabilities arising from the data breaches.
A Warning for CEOs and CFOs Everywhere
Although the $350 million haircut could have been a lot worse for Yahoo´s Marissa Mayer, the episode should serve as a warning to CEOs and CFOs everywhere to take a keener interest in their organization´s cyber-strategy. Investigations are ongoing into how the two cyberattacks occurred and, if it were not for Yahoo´s users maintaining their activity levels, the acquisition price could have been much lower.
As a result of the revised deal, Yahoo shareholders will receive about $0.37 less per share. Industry analysts speculated that the result would have been a lot worse for Yahoo shareholders were it not for Verizon deciding that the long-term benefits of the acquisition would be more beneficial than pulling out of the deal altogether.
A recent report by PricewaterhouseCoopers (PwC) suggests many CFOs find accurate cash-flow forecasting more trouble than it is worth.
In late 2015, the consulting firm Protiviti released its Financial Priorities Survey. The survey of 650 CFOs revealed their primary priorities for 2016 were margin and earnings performance, the management of cybersecurity risks and strategic planning. Cash-flow forecasting appeared in fourth place on the list – with many finance executives commenting they aimed to achieve more precision and efficiency in forecasting over the coming year.
Fast forward eighteen months and, according to PwC´s recent “The Virtual Reality of Treasury” report, little seems to have been achieved in realizing these goals. Although 80% of the CFOs surveyed by PwC ranked accurate cash-flow forecasting as a “high priority” or of “critical importance”, only 22% used a rolling 12-month forecast, while the majority relied on forecasting reports based on consolidation level input numbers rather than make use of the inputs at the transactional level.
The Issues Preventing Accurate Cash-Flow Forecasting
Both the Protiviti and PwC surveys identified issues preventing accurate cash-flow forecasting. Protiviti found that accurate long-term cash-flow forecasting was complicated by uncertainties about potential changes to tax laws and cash repatriation laws. PwC highlighted concerns about the reliability of the systems and processes used to gather up-to-date data. According to PwC´s survey, just 15% of respondents update their cash-flow forecasts weekly, 53% update them monthly and 23% update them quarterly.
The authors of the PwC survey also commented on the limited visibility CFOs have of cash balances. They report the average CFO has daily visibility on 71% of all bank accounts and 80% of their total cash balances. The reason given for the limited visibility is that organizations are maintaining relationships with an average of more than 370 banks – 25-30 at core level, and 340-350 at local level. Not only does the limited visibility complicate cash-flow forecast, PwC warns, but unmonitored accounts are potential targets for fraud.
Is Resolving the Issues More Trouble than it is Worth?
PwC concludes there are a number of significant issues that need to be resolved before CFOs can rely on their cash-flow forecasts to make insightful business decisions. The report´s authors suggest mechanisms to ensure the accuracy of data, effective data mapping and proper tooling need to be implemented in order to resolve the issues, but also question whether the benefits of accurate cash-flow forecasting justify the costs and personnel hours of “getting it right”.
The CFOs questioned to compile the survey appear to think not. Many doubted that cash-flow forecasting can get any better than it is at present, while others commented that the resources they would have to dedicate to the process would be unlikely to result in material improvement. With uncertainties remaining about potential changes to tax laws and cash repatriation laws, there is a strong argument to suggest that accurate cash-flow forecasting is more trouble than it is worth. At least for the present.
The increased sophistication of whaling emails has prompted the FBI to issue a warning to high-level executives about the threat from organized BEC scams.
The FBI has warned high-level executives to be on their guard against acting on emails that appear authenticate and request business-critical data or a transfer of funds to a third-party. The warning comes after the bureau identified a 1,300% rise in losses incurred by victims of business email compromise (BEC) scams.
The alarming rise in losses is being attributed to the increased sophistication of whaling emails – emails sent to high-level executives that request a specific action. The emails appear to be from an authentic source – or they originate from a compromised email account within a company – and usually contain information relative to the recipient.
Due to the effort required to create the impression of authenticity, and the data that has to be collected in order for the content of the email to appear convincing, the FBI believes that the majority of business email compromise scams are originating from organized criminal enterprises – many of whom operate in the same way as professional organizations.
During one investigation, Steve Meckl – a former technical operations unit chief in the cyber division of the FBI – found one unit following a Monday-to-Friday work week and even taking time off for Christmas. The organized nature of some criminal enterprises has now been given its own name by some security industry professionals – “the corporatization of cybercrime”.
The Work that Goes Into Whaling Emails
The whaling emails used to perpetrate BEC scams are not hit-and-miss affairs. Often they involve months of studying how a company operates after infiltrating its network via malware. The cybercriminals will study the company´s structure, its billing systems and the style of email communication between high-level executives.
Once a target is selected, further research is conducted across “open source intelligence” to collect as much information about the target as possible. The FBI has warned that social media sites such as Facebook, LinkedIn and Twitter provide key details about an individual and their lifestyle, and often provide key information cybercriminals can use to execute their scams.
Even when the profile of the target and the company he or she works for is complete, cybercriminals will choose the time to send the whaling email carefully. Often this will occur when the supposed sender of the email cannot be contacted by phone to confirm the instructions within the email, for example when a CEO or CFO is traveling or on vacation.
Sometimes bogus accounts are set up to receive funds that have just one or two digits different from the account funds are usually sent to. Typically mechanisms are already in place to take the money out of the bogus accounts as quickly as possible – making it impossible to reverse a payment and recover the funds once the scam is discovered.
CEOs and CFOs Particularly High-Value Targets
Due to being best placed to make, or order, high-value financial transactions, CEOs and CFOs are particularly high-value targets. Research conducted by the cybersecurity company Mimecast in 2015 found that 72 percent of whaling emails were either targeted at CEOs or CFOs, or sent to high-level executives appearing to have originated from a CEO or CFO.
The difficulty in detecting that these emails are BEC scams, according to Mimecast´s cybersecurity strategist Orlando Scott-Cowley, is that they do not contain hyperlinks or malicious attachments – typical red flags to most high-level executives with cybersecurity awareness. Scott-Cowley agrees with the FBI´s assessment that the volume of organized BEC scams is going to increase.
“Cyber attackers have gained sophistication, capability and bravado over the recent years, resulting in some complex and well executed attacks,” he said. “As whaling becomes more successful for cybercriminals, we are likely to see a continued increase in their popularity, as hackers identify these attacks as an effective cash cow”.
Other security experts also believe an increase in organized BEC scams is inevitable. The computer security researcher and author Markus Jakobsson believes the success of organized BEC scams will accelerate the “corporatization of cybercrime”, resulting in more and more sophisticated attacks with potentially devastating results.
Precautions to Take to Avoid Organized BEC Scams
In the latest warning about BEC scams, Harold Shaw – the special agent in charge of the FBI´s Boston division – said “As devastating as this crime is, it is equally easy to thwart. We must all develop the habit of verifying the authenticity of emailed requests to send money. The best way to do this is through in-person conversations or using a known telephone number.”
Shaw also suggested several best practices companies could adopt to avoid becoming the victim of future organized BEC scams:
- Verify changes in vendor payment details by adding two-factor authentication for online financial transactions.
- Use phone verification as part of the two-factor authentication, and use previously known phone numbers, not the phone numbers included in the email request.
- Create an email rule to flag communications in which the “reply to” address is different from the “from” address displayed.
- Create another email rule to flag emails with similar addresses to company emails. For example, to flag an email with the extension @abc_company.com when the company email extension is @abc-company.com.
- Color code emails so that emails from internal accounts are one color, and emails from external accounts are another.
When used correctly, employee total compensation statements can help eliminate potential pay issues, increase workforce morale and enhance productivity.
Compensation – or the lack of it – is one of the biggest causes of low workforce morale and decreased productivity. Just one unhappy employee venting their grievance to colleagues can create a general feeling of dissatisfaction that permeates throughout a workforce – no matter how unjustified the grievance is.
When the grievance relates to the lack of a traditional raise, or a smaller raise than usual, there is a straightforward way to overcome the grievance – by correcting using employee total compensation statements to communicate the value the business places on the employee in a meaningful way.
Employee total compensation statements should show employees how much the business is investing in them – not only week by week or month by month, but in comparison to how much was invested in them in the previous year. In this way, employees can see that their total pay and benefits are increasing at a higher rate than they imagined – eliminating potential pay issues and creating a more motivated workforce.
What to Include in an Employee Total Compensation Statement
Has the business had to pay more for employees´ health insurance this year? Have employees received extra paid time off? Has the amount contributed to employee retirement funds increased since last year? Probably all three, but unless businesses make employees aware of these increases, they will remain in the dark. Other items businesses should consider (where applicable) include:
- Any paid leave for personal time off, sick leave or vacation.
- Each employer-paid portion of insurance plan premiums should be listed separately.
- The business´s contribution to a retirement plan, such as a 401(k) or pension.
- Employee use of a company vehicle and associated costs such as maintenance.
- The value of any Employee Assistance Program on a per-employee basis.
- Tuition assistance or training courses paid for by the business.
- Home office benefits such as Internet use or cell phone service.
- Per Diem payments when travelling, paid for public transportation and parking.
- Other benefits such as fitness club memberships, on-site child care, and company-sponsored discounts.
How businesses present an employee total compensation statement is just as important as the items listed on it. It is okay to surface enhancements in a manner that informs employees of the value of benefits they receive, but not as an attempt to divert focus from a lack of straight pay increases. It can also help the communication of the message if a letter is enclosed detailing how employees can use the benefits being provided for them.
How to Avoid Issues over Compensation Statements
Naturally, employees will compare compensation statements in the same way as they compare paychecks, so it is important that employee total compensation statements are accurate and do not “double count” – for example, counting paid leave on top of salary when the amount received by the employee in pay and benefits does not exceed the base salary.
Other issues where sensitivity is required include advising an employee who uses public transportation that he or she has benefitted from a parking discount, or including health insurance payments for an employee not yet eligible to take advantage of a health insurance plan. As you can see, employers should be careful when presenting this information. While employee total compensation statements have the potential to be useful tools, they also have the potential to have the opposite effect.