Goal setting and performance measures - by tax professionals in Fortune 500 companies

Tax Executive, The, Nov, 1998 by Barry P. Arlinghaus

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