Compensation trends for in-house tax professionals.

• Author: Levine, Howard J.

While compensation levels in the United States have progressed rather conservatively in the range of 3.5-4.5 percent annually for the past 15 years, certain functions have commanded a pay premium in the marketplace from time to time because of supply-and-demand forces. For example, in the late 1990s, information technology jobs were considered "hot" as organizations responded to the Y2K challenge and the "dot com" companies were aggressively hiring. More recently, the enactment of the Sarbanes-Oxley Act of 2002 and the scandals uncovered at companies such as Enron and WorldCom have created a demand for greater numbers of audit and finance professionals. As a result, there are some evidence of higher compensation movement in these key functions in both the professional accounting firms and general industry. Moreover, there is now some thinking that perhaps the Tax function will also see some market pressures to accelerate pay in light of some of these recent trends.

Mercer Human Resource Consulting was asked by the Tax Executives Institute to present on compensation trends in the tax profession at the Second Annual Senior Tax Executive conference, which was held in Colorado Springs in May 2005. This article presents the highlights from that presentation and the key findings.

Setting the Stage

In virtually every region around the world, businesses are dealing with fast-paced changes that require constant attention to the cost of labor--and the return of their investments. Executives are faced with the challenge of balancing pay, benefits , and career development needs with their business requirements. These rewards must meet both the business needs of the employer and the personal needs of employees--and fall within tight cost constraints dictated by recent economic trends. Reward strategies must not only strike this balance now, but must also sustain it in what will likely be a constantly changing future. The challenge is to achieve an effective total rewards strategy in an environment of cost management as opposed to the overheated late 1990s when the focus was on creating a marginal edge in rewards programs to attract and retain employees in the newest and hottest disciplines. During that period, as the stock market exploded and health care cost trends were far more controlled, employers felt they could--and had to--attract and retain key talent with offerings that were geared to the life styles of their workforces.

Today the picture is quite different. Top-line growth and pricing power remain elusive. The stock market has proven once again that what goes up must come down, while health care costs seem to defy gravity and go in only one direction--up. In response to these trends, organizations reduce costs through layoffs, offshoring, conservative increases to base pay, and benefits cuts. The United States is experiencing a "jobless recovery" where the economy is growing but employment is not. These actions are challenging companies on how to reward even their top performers much less the average employee. That said, the need to attract, retain and engage the "right" employees is as strong as ever. Thus, a balanced approach to total rewards that acknowledges the needs of both the business and its employees is more essential and challenging than ever before.

Best practice companies are adopting a more holistic view of total rewards that encompasses compensation, benefits, and careers, as follows:

Compensation

* Base pay

* Short-term incentives

* Long-term incentives

* Recognition

Benefits

* Health and group benefits

* Retirement

* Work/life programs

* Perquisites

Careers

* Training and development

* Lateral career movement

* Stretch assignments

* Career Incentives

The key point here is that pay by itself is not the overriding key component of a total rewards package for employees in any functional area including Tax. In fact, for many organizations the value of careers can turn out to be a very significant component of total rewards. As labor markets tighten, and employees face more choices, organizations will have ample opportunity to demonstrate the power of their career management systems--or their absence. We suggest that organizations wishing to build and motivate the right workforce not only focus on pay and benefits but also emphasize the value of their careers over the long term. Clearly, in a small Tax function, this can be challenging but organizations need to make the extra effort to engage their employees and broaden job duties if career steps are...