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    Entries in Organization (68)

    Wednesday
    Apr042018

    UPDATE: Who benefits from corporate tax rate cuts?

    About a month ago I had a piece on the blog about the recent cuts in the corporate tax rate for US companies - more specifically, I looked at what companies were actually doing, (or have stated they will do) with the proceeds of these cuts, and how organizations may or may not be able to leverage these plans in their recruiting and retention efforts.

    Long story short, last month I said, (and shared some data) that said most companies are taking care of shareholders before and to a much more substantial degree than they are looking after current employees (with raises, bonuses, increased development opportunities), and potential future employees, (investing in new facilities, R&D expansion).

    Well, some more and more current data about corporate spending plans for their tax cut driven windfall is in, and sadly for (most) workers, the story has not changed all that much. Courtesy of Just Capital, a non-profit organization that has been monitoring what large US companies are doing and planning to do with these proceeds, have a look at how about 120 large organizations are allocating these new found funds:

    If you can't see the chart, (email and RSS subscribers may need to click through), the data breaks down by category of corporate stakehiolder or potential spending group as follows:

    Shareholders - 57% (stock buybacks, dividends)

    Jobs - 20% (commitment to job creation, capital investment intended to add jobs)

    Products - 7% (invesment in product quality or benefits)

    Customers - 6% (reduced pricing, increased service, privacy, safety)

    Workers - 6% (wages, bonuses, benefits, training)

    Communities - 4% (charitable giving, matching gifts, volunteering)

    Although the many announcements and rounds of one-time bonuses that many corporations have granted to employees have generated a lot of news, the Just Capital data continues to show that these programs and plans amount to an exceedingly small percentage of the total corporate benefit of tax cuts - estimated to be about $150B in 2018 alone.

    As I speculated the last time I looked at this data, organizations that were really making a meaningful and greater than average commitment and investment of these tax windfalls in their employees would likely be able to leverage the investments effectively as a tool for retention and increased overall employee loyalty. And potential new recruits could also be attracted and drawn to organizations that if not putting their employees first on the stakeholder pecking order, at least consider them to be more important (relative to shareholders for example) than competitors and industry averages.

    And here's one more bit of interesting information to consider for organizations and leaders trying to decide the 'best' allocation of tax savings. Just Capital periodically polls American's attitudes towards corporations - mainly to find out which corporate behaviors are seen as being the most 'just' or fair. In the most recent polling, how corporations treat their workers came in as the most important category in evaluating these corporations, with almost a quarter of respondents ranking worker treatment as number one.

    Shareholders? How corporations treat them came in last, with only 6.4% of respondents naming their treatment as most important when assessing corporate behavior.

    Lots to chew on here for sure. I will probably let this topic go for a while, as frankly its a little depressing. I suppose for most organizations, it is better to be a shareholder than anything else.

    Have a great day!

    Monday
    Mar052018

    How your company plans to use its tax cut windfall could be a great recruiting tool - or maybe not

    A couple of weeks ago I reviewed some recent research that analyzed how American companies plan to put to use their increasingly sizable cash hoards, (much of parked overseas but expected to start being repatriated), and which are expected to also be boosted by the recent reduction in corporate income tax rates.

    The TL;DRversion of that prior piece: Most of the cash is heading back to investors, either directly in the form of increased dividends, and indirectly as a benefit from increased share repurchases.

    Over the weekend I reviewed an even more comprehensive examination of what many of America's largest organizations have stated how they plan on putting this new cash to work, courtesy of Just Capital. There analysis of almost 100 large company announcements in the last few months shows a consistent picture - the data shows that so far, US companies plan to reward or grant new benefits or opportunities to employees comparatively poorly when compared to how these companies are treating shareholders.

    Here's a quick look at the summary of the analysis from Just Capital (and they have lots of detail at their site, I recommend spending some time digging through the figures)

    Since the chart at Just Capital is interactive in nature, it was hard to get a screen cap that showed the percentage breakdown across the uses of cash categories, so I will just list them out below:

    Shareholders - 58%

    Future job creation investment - 22%

    Products - 7%

    Employees - 6%

    Customers - 4%

    Communities - 3%

    Once again, according to the data compiled by Just Capital from hundreds of corporate announcements related to worker raises and bonuses, stock buybacks, capital expenditures, executive compensation, and other measures related to corporate tax reform, only about 6% of this windfall is directly benefiting current employees.

    There are some standout companies, from an employee welfare perspective, with respect to how they are allocating these cash flows.

    Boeing for example, is allocation over $200M to programs directly benefiting workers, and another $100M towards community programs. FedEx is allocating all of their increased funds to direct employee compensation increased and investments in future job creation. Finally, Apple plans to direct 100% of their tax cut savings into the creation of 20,000 new jobs.

    On the flip side, some companies, even ones who have allocated some of the tax reform savings to employee bonuses, (and have had these, usually $1,000 bonuses reported widely), are in Just Capital's analysis granting shareholders the vast majority of the benefits from corporate tax reform.

    You can dig into the data in more detail for sure, but the takeaway I think of corporate HR/Talent leaders moving forward is understanding where (and more importantly, why?) your organization shows up on this kind of list.

    While it is awesome to be known as company that is great for the shareholders, your job in HR/Talent is to keep creating, positioning, and communicating your organization as a great place for employees.

    It might be an awkward conversation down the line if some highly sought after candidate asks you why it is that your company decided only to give employees 1 or 2% of these tax cut savings and give the rest to the shareholders.

    There may be a great answer to that question, but you will only have it if you are prepared to be asked.

    Have a great week!

    Thursday
    Feb222018

    US companies are flush with cash, where does 'raise wages' fall on the priority list?

    Last week on the blog we noted the shift in the mix of annual employee compensation increases - companies have and are continuing to increase their use of one-time and variable comp increases like annual bonuses and lessen their use of base (and in theory, recurring), salary and wage increases. The argument, many companies make, is that variable comp awards tie comp more closely to individual and organizational performance measures and provide the organization more flexibility and adaptability to respond to changing market conditions and business performance.

    We have even seen this trend play out in the wake of two recent legislative decisions that have combined to create a pretty significant windfall of excess cash/after tax profit for many of the US's largest companies. One, the reduction in the 'stated' corporate income tax rate from 35% to 21%. And two, the reduction of the tax rate on the repatriation of US company cash that has been parked in overseas accounts, and now can be brought back to the US at a lower tax rate (about 15%).

    With all this additional cash available to many large companies (most of whom are large employers), it makes sense from an HR / Talent point of view to ask a pretty simple question: Will and to what extent will all this cash flow to employees in the form of salary/wage increases or bonuses?'

    Well, sadly for most employees, and for HR and Talent leaders who might be advocating for increased investment in people, the short answer to the question is 'Hardly'. Take a look at the chart below, from a Fortune piece citing some recent BofA Merrill Lynch research on just what these companies plan to do with their soon to be repatriated earnings:

    Looking though that list of top six likely uses of this repatriated cash, maybe you could argue that the one that came in sixth, 'fund pension' has some direct benefit to current employees. Share repurchases, which we will see again in a second when looking at the knock-on effect of lower income tax rates, could also benefit employees who participate in ESOP plans or have a decent bit of their 401(k) tied up in company stock. But that is an indirect, and incomplete benefit at best.

    Another review, this time by the financial firm Goldman Sachs, paints a similar picture of who the likely beneficiaries will be from lower corporate tax rates. From a piece reported by Marketwatch:

    Buyback announcements are up 22% this year to $67 billion in just six weeks, Goldman Sachs said in a note to clients. This follows a report by benefits consulting firm Aon Hewitt finding that 83% of large companies don’t expect the tax cut to boost salaries at all — just help pay for small bonuses companies like WalMart  and AT&T, gave workers, which reporters soon discovered were, themselves, skewed toward higher-paid, longer-tenured employees in many cases.

    And it comes as Goldman finds companies have raised guidance on re-investment in their businesses — the putative reason for cutting corporate taxes at all — only 3%.

    A couple of things to note here. CEOs and Boards do have a responsibility to their shareholders - some would certainly argue that the shareholders' concerns matter more to corporations than any other stakeholders. So moves to increase the share price (repurchases), and return profits to the holders, (increased dividends), are definitely proper and prudent uses of excess cash/profits.

    But the really small levels of internal re-investment, and commitment to improving the long-term compensation levels for employees is a little bit disconcerting. But it also reminds us of something really important. Namely, that for most large organizations labor cost, (and by extension, their investment in people), is just that - a cost that has to be managed.

    What the organization is willing to invest, and whether they are willing to increase this investment is subject to a complex set of variables - competition for talent, product/service strategy, overall labor market conditions, the impact of automation and outsourcing, and even the legal/regulatory climate.

    But what does not, yet, seem to be moving the needle on investment in people and employee compensation,(aside from the slew of copycat one-time $1,000 bonuses we heard all about), is this sudden windfall of excess corporate cash/profits as a result of recent corporate tax changes.

    More simply put, organizations increase what they are willing to pay for any resource only when they have to, not because they are able to.

    Apple won't volunteer to pay more per piece to their supplier of iPhone screens just because they can.

    And they won't volunteer to pay their engineers, accountants, and facilities staff more just because they can as well. Interesting times for sure.

    Have a great day!

    Tuesday
    Feb202018

    Learn a new word: Conway's Law

    Have you ever noticed the tendency for large, complex, and difficult to navigate organizations to create to create large, complex, and difficult to navigate products, services, and policies?

    Alternatively, have you noticed, (I am sure you have), how many startup companies (especially tech companies), who lack size, complexity and bureaucracy in their organizations tend to create much simpler, easy to use and intuitive kinds of products and services? 

    It kind of makes sense, even if we never really consciously thought about the connection between the organization, its size, methods of working, and structure and the outputs of that organization. But it is a phenomenon, in technology certainly, that has been observed for at least 50 years, and it has a name - Conway's Law - today's Word of the Day.

    Mel Conway, a programmer, came up with concept in 1967, and by 1968 it was dubbed his 'law'. What does the law actually say? From Mr. Conway's website:

    Any organization that designs a system (defined broadly) will produce a design whose structure is a copy of the organization's communication structure.

    Later, the Law was expanded to encompass not just the idea that an organization's communication structure would influence (and mirror) the systems that the organization produces, but the broad 'culture' of the organization has a significant impact on its products and services.

    Think of a corporate website, which often has separate sections of information that copies the internal organizational makeup, not necessarily aligned and architected with how site visitors want to consume information. Or an enterprise technology product that offers complex and lengthy workflows for transaction entry, routing, and approval that tends to reflect the creating organization's own internal processes and hierarchies that do not always reflect what their customers want.

    These kinds of examples show Conway's Law in effect - the way the fundamental elements of how an organization operates internally show up in the products they build, the services they offer, and more broadly, how they 'see' the relationship between themselves and their customers, shareholders, and community.

    I have written in a few places that when making decisions around HR and other enterprise technologies that HR and business leaders should evaluate the culture and vision of any potential technology provider just as closely, (if not more closely), than they evaluate the capability and functionality of a particular piece of software.

    Capability and functionality can change over time, and in mature markets tends to run together amongst established providers. But organization culture changes much more slowly, if ever, and no matter what new elements of functionality are introduced to the solution, the essential nature of the provider (and the priduct too), is likely to be pretty well entrenched.

    Have a great day! 

    Wednesday
    Aug022017

    Defining the competition

    There are two schools of thought on how an organization should think about its competition - for customers, market share, talent, brand awareness, etc.

    One approach is to study your competitors closely, monitor their strategies, actions and decisions, and devote a lot of resources and energy to roles like competitive intelligence gathering, market analysis, and the development of specific playbooks focused on your main competitors to prepare your salespeople for what they are likely to encounter in the field. I'd say that in enterprise tech, HR tech for sure, this is the approach that most medium-to-large providers take.

    The alternate approach is to largely ignore specific competitors and spend the vast majority of your time working on product, message, and lots of internal and specific capabilities like implementation, service, support and the like. This is often the approach startup tech companies take as they likely have to spend most of their time trying to define their own message, communicate their unique value proposition, and if they are truly innovating in the market their competition may not even actually exist. Or said differently, they often are competing against 'doing nothing' and not against a competing product or service. 

    And truly most companies probably exist somewhere in between these two extremes - thinking about the competition some, and other times taking a more internal focus. And this focus usually skews towards former as the company grows, enters new markets, or begins to attract new competitors (success breeds competition). 

    I thought about this 'competition continuum' when I caught this piece on Venture Beat - Amazon's name pops up on 10% of U.S. earnings conference calls, a nod to the retail/tech/distribution giant's outsize reach in the US economy right now.

    From the VB piece:

    Almost 700 U.S. companies have reported quarterly results so far this earnings season, and the e-commerce titan’s name has popped up on roughly one of every 10 earnings conference calls so far. And the retailers whose lunch has long been eaten by Amazon.com Inc haven’t even reported yet.

    In all, Amazon has been raised either in passing or with some urgency on 75 calls hosted by corporate chieftains in the past several weeks, according to a Reuters analysis of call transcripts from components of the S&P 1500. That’s well more than twice as many mentions as Google or its parent Alphabet Inc and over three times as many as Apple Inc.

    Everyone from traditional retailers to 'big tech' companies like Microsoft and IBM all the way to Dow Jones stalwarts like 3M and Johnson & Johnson all have at least one eye on what Amazon is doing.

    It is kind of incredible to think that Amazon is now a real (or imagined) competitive threat across such a wide range of industries and companies.

    But here's what at least I thought was the really interesting thing about the piece, and the reason for the post in the first place.

    Most organizations spend lots and lots of time, (maybe too much time), thinking about the competition. I get the feeling that truly amazing, game changing companies like Amazon don't spend all that much time doing that. No, they focus on doing the things that make others worry about them instead.

    And that is a much, much better place to be.

    Postscript - I am totally obsessed with the Amazon Echo and really annoyed at every other piece of technology I own that will not yet respond to voice commands. I think this is going to be a really big deal in workplace tech and sooner than we think.