Goal setting and performance measures.

• Author: Arlinghaus, Barry P.
• Position: By tax professionals in Fortune 500 companies

Managing the tax function in today's complex and changing environment requires more than filing returns and dealing with audits. Tax management must achieve the company's tax savings and compliance objectives in a resource-constrained environment. Managing the tax function is a more sophisticated process, and goal setting and evaluation of professional tax staff are part of this process. The use of consultants and the role of outsourcing are also part of the equation.

In preparing this article, the author surveyed senior tax persons at the Fortune 500 companies in order to learn more about the tax management process. This article summarizes the responses that focus on senior management's view of the tax department, tax department goals and performance measures, evaluation of the senior tax person, and professional tax staff goals and performance measures. A second article focusing on the organization of the tax department, the use of consultants, and the role of outsourcing will be published in a forthcoming issue of The Tax Executive.

The author wishes to express his appreciation to those who have helped make this study possible. First, Tax Executives Institute (TEI) assisted with the mailing list, and TEI Education Fund provided partial funding. TEI's Corporate Tax Management Committee and Institute members provided valuable insights in drafting the questionnaire. Miami University -- in particular, the Department of Accountancy -- provided a significant amount of financial support. The author was awarded a department research grant funded by PricewaterhouseCoopers in order to have the release time needed to work on the project. Department secretaries Theresa Hornsby and Betty Taylor, and a student worker, Chontae Pennyman, assisted with the mailing. Jon Patton provided invaluable assistance with the computer input and programming that resulted in output for analysis. The author's daughter, Anne Arlinghaus, also assisted in compiling the data.

Methodology

Information for the study was obtained through a questionnaire mailed in June 1998 to the senior tax person at the 1998 Fortune 500 companies. The first mailing was followed by a second request. There were 148 responses to the first request and 44 responses to the second request. The overall response rate was 38.4 percent. Questionnaires were numbered to facilitate the mailing of second requests. Confidentiality of responses was strictly observed.

To develop a meaningful questionnaire, the author conducted interviews with 11 tax executives at 9 companies. Draft questionnaires were sent to these tax executives and to members of TEI's Corporate Tax Management Committee. The draft was modified to reflect their comments.

Not all respondents answered each question, but most responded to the majority of questions. Comments were also solicited and are reflected in this article. Some of the concerns and remarks of those interviewed in the process of developing the questionnaire are also included.

Profile of Respondents

Tax executives from a broad cross-section of companies responded to the survey. Respondents by size of company, as measured by revenue, assets, and number of professional tax staff are included in Tables I, II, and IV. Table III shows the number of respondents by industry group that accounts for the greatest volume of the company's sales. The number of respondents by type of tax department organization structure is provided in Table V.

Table I Company (Including Subsidiaries) Revenues for Most Recent Fiscal Year

Dollar Amount of Revenue Respondents Percentage Under $3 billion 11 5.8 $3 billion to $5 billion 61 32.1 $5 to $10 billion 56 29.5 $10 billion to $15 billion 27 14.2 $15 billion to $20 billion 11 5.8 Over $20 billion 24 12.6 190 100.0 Table II Company (Including Subsidiaries) Assets at End of Most Recent Fiscal Year

Dollar Amount of Assets Respondents Percentage Under $5 billion 67 36.0 $5 to $25 billion 80 43.0 $25 billion to $50 billion 18 9.7 $50 billion to $100 billion 14 7.5 Over $100 billion 7 3.8 186 100.0 Table III Industry Group That Accounts for Greatest Volume of Company Sales

Industry Group Respondents Percentage Communications 7 3.6 Financial Products and Services 25 13.0 Mfg: Consumer Goods 32 16.7 Mfg: Non-Consumer Goods 30 15.6 Retailing 28 14.6 Services 13 6.8 Transportation 10 5.2 Utility/Energy 20 10.4 Other 27 14.1 192 100.0 Table IV Tax Professionals Working at Corporate Headquarters # of Tax Professionals Respondents Percentage 0 to 5 21 10.9 6 to 10 43 22.4 11 to 15 42 21.9 16 to 20 28 14.6 21 to 50 52 27.1 51 to 100 6 3.1 192 100.0 Table V Tax Department Organization Organization of Tax Dep't Respondents Percentage Along functional lines (compliance, planning, etc.) 20 10.8 By type of tax (federal, state, provincial, etc.) 47 25.4 Combination of functional and type of tax 97 52.5 Along similar lines to corporate organization (industry, division, subsidiaries, etc.) 10 5.4 Other 11 5.9 185 100.0 Table VI shows the number of respondents by the point at which the tax department becomes involved in the decision-making process. Respondents were asked to indicate on a scale of 1 (idea stage) to 7 (after transaction completed) at what point the tax department generally participates in the decision-making process.

Table VI Point at Which Tax Department Becomes Involved in Decision-Making Process

1 = Idea Stage 7 = After Transaction Completed Decision-Point Respondents Percentage 1 30 15.9 2 60 31.7 3 59 31.2 4 23 12.2 5 11 5.8 6 6 3.2 7 0 0.0 189 100.0 The Senior Tax Person's Perception of Senior Management's View

Senior tax persons were asked about their perceptions of senior management's view of the tax department. Such information provides a context for the discussion of goal setting and performance measures.

Respondents were asked to indicate which of four statements best describes their perception of senior management's attitude toward the tax department. The statements range from senior management viewing tax as primarily a compliance function to considering the tax department as an...