CFO Advocate
Quarterly Newsletter of the CFO Roundtable  -  Fall 2006

Keeping Employees

A common theme I am hearing at the Roundtable is loss of good employees or the need to attract new employees. We all know the result – you and your staff pick up the slack and prioritize doing the most critical tasks while hoping to catch up later. Unfortunately, every department has similar issues. In rapidly growing companies, the need is acute. So, how do you keep good employees and attract new talent?

We all know the cost of employee replacement is huge. Costs include: the time gap the slot is empty, the time gap required to train a new employee, recruitment costs, higher new hire starting salaries, etc. David Payne shares in this newsletter about two popular helpful suggestions: flex time and telecommuting. Particularly in Atlanta, I strongly recommend their consideration. I use them in my business.

The bottom line is, “How can we be employers of choice, without breaking the bank?”

One major trend is reviewing the employee benefit package. No, not spending more money unless your company is under what is average for your industry. Here are some new ideas that are gaining marketplace adoption.

• For key executives: Long Term Care Insurance for personal or spousal
  personal care (nursing homes or home-care)

• For casual (low paid) employees:

  • Employee-Paid Pay-Cards (debit cards funded by direct deposit
    eliminating check cashing fees)

  • Employee-Paid Mini-Med Health

  • Employee-Paid Mini-Med Life

  • Employee-Paid Mini-Med Disability

• For all employees:

  • Employee-Paid supplemental health insurance

  • Employee-Paid life insurance

  • Employee-Paid pre-pay personal legal services

  • Employee-Paid pre-pay identify theft protection services

The math is simple. Except for key executives, the company pays nothing. HR support is minimal. Pay-Cards can actually create an employee salary increase (eliminating an average of 7% in check cashing fees) while not changing what the company pays out! Some coverage’s can be paid with pre-tax dollars resulting in lower FICA payments for the company while the employee saves in FICA and taxes. The company may be offering benefits that their competitors are not offering, resulting in an Employer of Choice status.

The employees can accept or reject whatever they believe is appropriate, or not, for their family. You are helping employees move from an entitlement mindset to a personal decision-maker mindset. Best of all, while they know the dollar is tight, you have thought of the employee and are doing what you can. Even if no employee takes you up on the offers (often 50% or more do), everyone wins.

Will these initiatives solve the problem? No. Salary reviews, health care benchmarking, performance reviews tied to performance pay, or one-time financial rewards or incentives, etc., will always be recommended. In addition, cyclical high demand and wage inflation will still drive turnover but adding risk-free and cost-free benefits will help, especially as the marketplace acceptance grows and they become standard benefit offerings of the future.

If you wish to know more, please give me a call. These are solutions we provide for our own clients. Why? Because they lead to less turnover and happier employees, which leads to higher productivity and higher company profits.

Jim Villwock
Jim.Villwock@IEMcorp.com

Using Flex Time and Telecommuting to Cut Costs

One of the biggest challenges for CFOs is finding new ways to cut costs, especially in today’s tight economy. With many companies unable to offer raises, stock options and other benefits to their employees, they must look for new ways to lower operating and training costs. Today we are going to talk about two such methods: Flex time and telecommuting.

Flex Time
Flex time, or flex scheduling, allows employees to work a non-traditional schedule in order to meet their personal needs. The number of work hours per week is the same, but employees choose which of those hours they will spend working, and which they will spend taking care of personal matters. There are three ways to implement flex time:

1. Compressed work week. An employee squeezes a 40 hour work week into less than 5 working days, such as 4 ten-hour days.

2. Core hours schedule. The employer defines a range of core hours, such as 10:00 am to 3:00 pm, during which employees must be at work. The individual employee can then pick an arrival and departure time, for a total of 8 hours per day, that includes those core hours. For example, an employee may choose to start work at 6:30 am and leave at 3:00 pm.

3. Adjusted lunch period. Employees can choose to take time off in the middle of the day to run errands and adjust their start or leave time accordingly. For instance, if an employee started the day at 8:00 am and went to work out from 11-1, their work day would end at 6:00 pm.

(Womans-work.com)

Where it helps the employer’s bottom line is through better employee retention and therefore lower training costs, and increased productivity.

Telecommuting
Another cost-cutting strategy is telecommuting or teleworking, where employees work at home via email, fax and phone for all or most of the work week, and usually only attend at least one weekly, monthly or quarterly meeting at the job site. The advantages of telecommuting are:

• Increased productivity—currently estimated to be between 10 to 15% according to The American Telecommuting Association.

• Saves money. By having just half your workforce telecommute at least one day a week, you cut down on your need for offices, lighting, desks, and everything that goes with them by 10% (ATA).

• Saves time. Employees who telecommute save an average of one hour per day that can be spent working for their employer instead of driving to and from the business location (ATA).

• Better employee retention. Telecommuting helps the best employees remain longer with the same employer, cutting down on hiring and training costs. Telecommuting also makes it possible for an employer to reach out another 30 miles or more when searching for qualified employees.

You should also keep in mind that teleworking does not necessarily mean telecomputing. Non computer-related tasks such as reviewing documents, going over expenses, or practicing for a presentation can all be done at home without expensive office equipment.

Two things you must do when implementing such programs:

1. Take into account the needs of the entire workforce, including both employees who would benefit and those who would have no need for such programs.

2. Ensure proper communication to your employees so they know that these programs are available to them. This includes training direct managers and supervisors on the importance of these programs for the employee as well as the firm.

Flex time and telecommuting are great cost-cutting strategies that lower costs while also building and maintaining employee loyalty. If you’re looking for some innovative ways to lower your company’s operating expenses, you might want to give one or both of these methods a try.

For more information about our services, please contact us via email at dp@benchmarkresources.net or call David Payne at 404-531-6435.  

FAS 123 PART II

In our last newsletter we discussed the implications of Financial Accounting Standards Board Statement 123 (Revised) (“FAS123(R)”), a statement on share-based payments which addresses expensing stock options and other equity awards to a company’s employees. We mentioned various models you can use to value stock options, and some of the pros and cons of each. In this article we will discuss additional FAS123R considerations, as well as cover the new section 409A to the Internal Revenue Code that applies to deferred compensation.

RECORD KEEPING

• FAS 123(R) requires that entities maintain income tax data by award, option holder, country, and vesting tranche so that the appropriate accounting entries can be recorded.
• Typically, existing stock option accounting systems do not maintain this data. The costs associated with this maintenance could be significant for entities with extensive and complex equity compensation plans.

EMPLOYEE STOCK PURCHASE PLAN (ESPP)

• Companies may wish to reconsider the continued viability of some employee stock purchase plans (ESPP’s).
• Under FAS 123R, if the provisions for ESPPs do not meet the following three conditions, the cost to acquire shares (over the employee’s contributions) will need to be expensed:

1. The purchase price is not discounted more than 5% of the fair market value on the purchase date (Note that the Internal Revenue Code allows a greater (15%) discount. )
2. There is no look-back provision in the plan (meaning that the shares are acquired based on the lowest price looking back over a certain time period, usually 2 years), and
3. The plan is broad based within the organization (meaning that all employees are eligible).
   
   Companies should consider changing provisions to meet these conditions.

VESTING REQUIREMENTS

• If vesting requirements are based on time or performance, a company may adjust the original recognized expense if the actual cost is different than what was originally recorded.

• If vesting requirements are based on external market factors (stock price), the company may not adjust the recognized expense if costs are different.

Additionally, with the advent of new provisions of the Internal Revenue Code enacted by the American Jobs Creation Act of 2004 which impact “nonqualified deferred compensation plans,” (Section 409A) here are some other items for Companies to consider in granting or changing future stock incentive awards:

NO OPTIONS OR SARS WITH EXERCISE PRICE LESS THAN FMV

• Any option or stock appreciation right which is granted that has an exercise price that is less than the fair market value of the underlying stock will most likely be subject to harsh income tax consequences.

• Because of the additional importance of whether an option or stock appreciation right has an exercise price that is at least equal to the fair market value of the underlying stock, Companies will have to reconsider their mechanics for valuing company stock.
• For a non-publicly traded company, proposed regulations issued under the new tax law require that such mechanics include the use of an independent appraiser or a person with significant knowledge and experience or training in performing valuations.

NO OPTIONS AND SARS ON PREFERRED STOCK

• Stock options and stock appreciation rights based on preferred stock will subject the recipient to immediate income taxation plus an additional 20% tax.

MODIFICATION OF OUTSTANDING AWARDS

• Any change to an existing option or stock appreciation right award may result in the award being subject to immediate income taxation plus an additional 20% tax unless the exercise price of the award remains at least equal to the fair market value of the underlying stock subject to the award.
• Also, except for certain specific exceptions, any change which is an extension or renewal of an option or a stock appreciation right may subject the award to immediate income taxation plus an additional 20% tax.
• These changes may result in a new measurement date for existing options and stock appreciation rights as well under new FAS 123(R).

NO DEFERRAL FEATURES WITH AWARDS

• Any award which provides for a deferral feature may subject the award to immediate income taxation plus an additional 20% tax.

For more information or questions about your specific use of FAS 123 (R), contact Jeff Plank at HLB Gross Collins.  Phone: 770-433-1711