Addressing The People Puzzle.

A new survey by Andersen examines how senior tax executives are managing their most important resource.

Increasing emphasis on the bottom line is causing corporate executives to examine value centers in attempts to realize additional value. As a result of their potential contribution, corporate tax departments are receiving more attention. With access to the right combination of people and information, the tax function can substantially improve a company's earnings per share and cash flow.

The supply of experienced tax professionals is shrinking, however. Attracting and retaining these skilled resources is more difficult than ever. Recognizing this trend, Andersen developed the "Solving the People Puzzle" survey, focusing on how senior tax executives at Fortune 500 corporations are managing this important resource. Participants were asked for their input on people-related issues such as recruitment, retention and managing change.

Chief survey findings included:

* When judging future tax professionals, surveyed executives said they would place "somewhat less emphasis" on traditional tax skills and "much more emphasis" on non-traditional traits such as being a strong communicator and understanding the business.

* The implementation of tax planning ideas will receive more emphasis than creation of those ideas, reflecting the increasing need for process leadership by tax professionals to realize the full value of tax planning.

* The traits tax leaders consider most important for promotion are also highly correlated with the traits that tax professionals most need to improve.

Recruitment

Successful hiring is critical to any tax department, since having the right person with the right skills in the right position is essential. It would seem that tax departments would take advantage of all resources available to meet their difficult recruitment goals, yet survey results suggested that human resource (HR) departments have minimal involvement in hiring tax department personnel. Only 7 percent of the tax executives surveyed indicated their HR departments helped develop strategies for new hires. However, many responded that they did rely on HR for more administrative tasks, such as initial screening of candidates (40 percent) and communication and negotiation of employment offers (50 percent).

Professional recruiters are paid to get the recruiting job done. When not using search firms, "word of mouth" from tax department personnel was a technique deemed "mostly effective" by 30 percent of those surveyed. Notably, intranets, the Internet and internal communications were "never used" or considered "rarely effective" by most respondents.

Not surprisingly, the pool of talent for recruiting consisted primarily of Big Five accounting firms and other large corporations. What was surprising was the lack of recruiting on college campuses, with 62 percent of respondents saying they "never" hire new accounting graduates. Internal company transfers were also considered an unlikely staffing option.

Candidates must also have the right combination of skills to be contributing members in any tax function. A large number of respondents said it is "difficult" to hire professionals with what would be considered highly specialized tax skills -- creative tax planning (90 percent), international income tax (92 percent) and partnership tax (72 percent). Only universal business skills such as computer usage, accounting knowledge and ability to learn were considered relatively "easy" to find.

With the need for increased participation in strategic and operational business decision-making, "soft skills" were considered almost as important as technical tax expertise. Surveyed tax executives ranked writing well, working well with others in a team, being personable and exhibiting professional behavior among those as "most important" in the hiring process.

Given the apparent shortage of skilled tax professionals, the effective deployment of these scarce resources, coupled with the use of technology to facilitate access to timely information, will be key to driving future tax department value.

Retention

Since recruiting is proving difficult, the ability to build and retain skills has become critical to the future of most tax departments. When asked, "What techniques do you use to plan/advance individuals' careers?", 57 percent of surveyed tax executives said they "often" used the development of expectation agreements to establish personal goals. Development of a tax training cirriculum (25 percent) and rotating responsibilities within the tax group (24 percent) were also popular options.

Many different compensation and reward techniques are utilized to help retention. Annual salary adjustments (86 percent) and company performance bonuses (76 percent) were the vehicles most often cited. Stock options (41 percent) and job titles (34 percent) were also considered effective.

In examining personnel turnover, the two most common voluntary reasons cited for leaving were family/personal reasons and better career opportunities. Although salary increases were not considered a major threat to respondents' departments, the "better opportunity elsewhere" response may really cloak a number of reasons, including pay.

Tax department turnover can be costly. Survey participants disclosed that job openings for experienced tax positions in their departments took, on average, 10 months to fill. Besides the hard-dollar replacement costs (i.e. recruiting fees, signing bonuses, retraining time), estimated at more than $60,000 per person, the opportunity cost of not having a role filled can be staggering.

Based on Andersen's Global Best Practices database, an average tax department returns more than $40 in cash tax savings for every $1 invested in federal planning. Rather than saving money, an open tax position can cost a company more than $11,000 per day in opportunity cash tax savings, assuming a professional at a fully loaded cost of $70,000 per year.

Retaining the right people means recognizing important skills through promotion and identifying skills most in need of improvement. Asked to rank the skills most important to promotion, tax leaders cited tax planning, leadership on tax projects and communicating with/understanding business unit personnel. These are also the traits cited as most in need of improvement.

Future Change

Two-thirds of responding tax executives "mostly agreed" they felt confident about their personal ability to manage changes required by their department's future direction. When this future was defined as a movement to a digital world, approximately half of the responding companies "somewhat agreed" their current tax professionals possess the necessary skills.

In reality, the median tax technology budget is currently between 5 and 10 percent of the total department budget. These percentages seem exceptionally low, considering the suggested future movement to a much more digital function. However, since a tax department's data-gathering abilities are usually reliant on the finance function, these percentages may be skewed by virtue of finance or IT absorbing most of the costs.

Predictions

Could we be poised for a major change in the way corporate tax departments address people-related issues? Most tax leaders and Andersen agree that the future promises a world of seamless access to data in which tax professionals work with business strategists to deliver value. However, unless a dramatic shift occurs on college campuses, Andersen foresees a moderate to severe shortage of tax professionals over the next five years. Therefore, it will become even more difficult for corporate tax departments to rely on traditional means to hire and retain personnel. The tax community, by necessity, will become more collaborative, with an increased focus on partnering and teaming.

In addition, most corporate tax functions today spend the majority of their scarce resource time in the reporting area -- producing and defending tax returns. In the future, these activities will be largely redirected towards timely and quality access to critical information necessary for planning and analysis, utilizing technology and process improvement. Tax departments will either team with outside providers to implement technology and process change, or they will make significant commitments to retrain tax reporting personnel to fill the technology and process roles of the future.

Gary Paice is a partner with Andersen. Based in Chicago, he is a member of the Tax Transformation practice and provides technology analysis and advice to process improvement teams of large, multi-national corporate tax departments. Meg Lyons is a senior manager with Andersen, based in Chicago, experienced in tax process improvement and tax technology integration with many Fortune 500 companies. Andersen's Global Best Practices group maintains the "Solving the People Puzzle" survey. To receive a complimentary benchmark report of your company's results against the survey population, contact Gary Paice at 312.507.2387 or [e-mail]. All responding companies remain confidential,