Executive compensation forecast: Fair weather ahead
Businessweek recently reviewed the 2009 pay for the chief executive officers at a handful of Canada’s largest banks, including Bank of Nova Scotia, Bank of Montreal and Royal Bank of Canada. They found that the CEOs received an average increase of 10 percent last year, with some going as high as 29 percent. And, they discovered the trend was continuing in 2010.
On the other hand, the Vancouver Sun’s Top 100 Executive Pay list for publicly traded companies in British Columbia in 2007 was dominated by the executives of mining companies. However, the Sun also found that CEO’s in other industries were beginning to claim more spots in the top 100.
THE SURVEY SAYS
Perhaps the most compelling evidence that fair weather is ahead for Canada’s executives comes from the Conference Board of Canada, a non-profit, applied research organization specializing in economic trends, organizational performance and public policy issues.
To compile its Compensation Planning Outlook 2010, subtitled “Cautious Optimism on the Road to Recovery,” the CBC sent out 2,028 surveys to businesses in Canada, of which 435 were returned. Respondents, from a wide variety of industries and from both private and public entities, projected modest wage increases across the board ranging from 1.8 to 4 percent.
The increases are projected to vary not just among industries but also among the provinces, and between union and non-union workers. The survey found that wages should increase 3.4 percent in government and 3.2 percent in the construction, high technology, chemical and pharmaceutical industries. Companies in Saskatchewan predict an average increase of 4 percent while those in B.C., Quebec and Ontario are expecting boosts ranging from 2.4 to 2.6 percent.
And, according to the CBC report, the big picture is trending accordingly, with real gross domestic product projected to be up 2.9 percent this year; corporate profitability is predicted to grow 23 percent in 2010.
The report breaks down 2009 actual and 2010 projected increases by employee group. Senior executives who received an increase in 2009 saw a boost in compensation of 4.3 percent on average and are expected to see increases in the area of 3 percent this year. Executives received an average increase of 3.9 percent last year and are projected to receive an average increase around 3 percent in 2010.
VARIABLE PAY PLANS
As can be expected compensation packages are rarely just salary based. The Conference Board found that the majority of respondents had at least one “variable pay” plan in effect: 79 percent offered cash bonuses or incentives; 12 percent offered profit sharing; and there were other forms of compensation reported, such as team-based incentives and “gainsharing.”
Variable pay plans were most frequently offered to senior executives and executives, the CBC found, as compared to other employee groups; 75 percent of senior executives and 71 percent of executives were receiving packages that included more than one type of compensation. In addition, the report breaks down the prevalence of long-term incentive plans, the most common being traditional stock options.
Another research institute, the Canadian Centre for Policy Alternatives, offers details on executive compensation packages in its list of Top 100 CEOs. The list, compiled from publicly reported figures, shows that with few exceptions CEOs receive more than one type of compensation. In many cases, the base salary is a small piece of the overall package.
The CCPA reports the top total package as $36,595,233 (Thomas Glocer at Thomson Reuters Corp.) and the lowest of the 100 as $3,213,781 (Rupert Duchesne of Groupe Aeroplan Inc.). For each CEO, the package is broken down into base salary, bonus, shares, options, pension and other, and every package is unique.
The bulk of Glocer’s package, for instance, is shares, $28,169,591 worth. Bank of Nova Scotia, on the other hand, comes in at #20 on the list with a package worth $9,191,705 (Richard Waugh), but the total is spread more evenly across all five forms of compensation: $1,000,000 base salary, $500,000 bonus, $3,010,000 shares, $3,010,000 options, $514,000 pension and $1,157,705 other.
Each of the reports mentioned here approaches executive compensation from a slightly different perspective and in more detail than could be included in this story, but all point in the same direction – executive compensation packages are still trending upward, despite the recession. Although some executives can expect only modest increases, as an employee group they should fare well going forward.
Six issues at the top of tax and finance leaders’ agenda
New Deloitte research reveals that tax leaders are under increasing pressure to add strategic value as companies accelerate business model transformation, from undergoing digital transformations to rethinking their supply chains or investing in green initiatives.
According to Phil Mills, Deloitte Global Tax & Legal Leader, to “truly deliver value to the business, the tax function needs to rethink its resourcing model and transform its technology infrastructure to create capacity and control costs”.
And the good news, according to Mills, is that tax and business leaders have more options at their disposal to achieve this.
Reflecting the insights of global tax and finance executives at global companies, Deloitte’s Tax Operations in Focus study reveals the six issues at the top of tax and finance leaders’ agenda.
Trend 1: Businesses seek more strategic counsel from tax
Companies are being pushed to develop new digital products and distribution channels and accelerate sustainable transformation and this is taking them into uncharted tax territory. Tax leaders say their teams must have the resources and skills to give deeper advisory support on digital business models (65%), supply chain restructuring (49%) and sustainability (48%) over the next two years. This means redrawing the boundaries of what tax professionals focus on, and accelerating adoption of advanced technologies and lower-cost resourcing models to meet compliance requirements and free up time.
According to Joanne Walker, Group Tax Director, BT Group PLC, "There’s still a heavy compliance load today, but the vision for the future would be that much of that falls away, and tax people become subject matter experts who help program the machine, ensure quality control, and redirect their time to advisory activity.”
Trend 2: Tipping point for resourcing models
Business partnering demands in the tax department are on the rise, but 93% of tax leaders say their department’s budget is remaining flat or falling. To ensure that the tax function can redefine itself as a strategic function at the pace that is required, leaders are choosing to move increasing amounts of compliance and reporting to a combination of shared service centers, finance departments, and outsourcing providers that have invested in best-in-class technology.
Trend 3: Digital tax administration is moving faster than expected
in addition to the rising focus of the corporate tax department partnering with their business counterparts, transformative changes to the way companies share tax information with revenue authorities is also creating an imperative to modernize operations at a faster pace. Nine in 10 (92%) respondents say that shifting revenue authority demands on digital tax administration will have a moderate or high impact on tax operations and resources over the next five years—and several heads of tax said the trend is moving faster than expected.
"It’s really stepped up in the last couple of years," says Anna Elphick, VP Tax, Unilever. "Tax authorities don't just want a faster turnaround for compliance but access into a company’s systems. It's not unreasonable to think that in a much shorter time than we expect, compliance will be about companies reviewing a return that's been drafted by the tax authorities."
Trend 4: Data simplification and lower-cost resourcing are top priorities
Tax leaders said that simplifying data management (53%) and moving to lower-cost resourcing models (51%) must be prioritized if tax is to become more proactive at delivering strategic insights to the business. Many tax teams are ensuring that they have a seat at the table as ERP systems are overhauled, which is paying dividends: 56% of those that have introduced NextGen ERP systems are now highly effective at supporting the business with scenario-modeling insights. Only 35% of those with moderate to low use of NextGen ERP systems said the same.
At Stryker, “we automated the source P&L process for transfer pricing which took a huge burden off of the divisions," says David Furgason, Vice President Tax. "Then we created a transfer price database to deposit and retrieve data so we have limited impact on the divisions. We are moving to a single ERP platform which will help us make take the next step with robotics.”
Trend 5: Skillsets are shifting
Embedding a new data infrastructure and redesigning processes are critical for the future tax vision. Tax leaders are aligned — data skills (45%) and technology process experience (43%) are ‘must have’ skills in a tax department of the future, but more traditional tax specialist knowledge also remains key (40%). The trick to success will be in tax leaders facilitating the way these professionals, with their different backgrounds, can work together collectively to unlock lasting value.
Take Infineon Technologies, which formed a VAT technology and governance group "that has the right knowledge about how to change the system to ensure it generates the right reports", according to Matthias Schubert, Global Head of Tax. "Involving them early was key as we took a greenfield approach, so we could think about what the optimal processes would look like and how more intelligent systems could make an impact
Trend 6: 2020 brought productivity improvements
Improved productivity (50%) and accelerating shifts to remote working (48%) were cited as the biggest operational benefits to emerge from COVID-19-driven disruption. But, as 78% of leaders now plan to embed either hybrid or fully remote models in the tax function long term, 34% say maintaining productivity benefits is a top concern. And, as leaders think about building their talent pipeline and strengthening advisory skill sets, 47% say they must prioritize new approaches to talent recognition and career development over the next two years, while 36% say new processes for involving tax in business strategy decisions must be established.