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

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

                    Respondents   Percentage

Strongly Agree            8           4.2
Agree                    60          31.6
Uncertain                26          13.7
Disagree                 77          40.5
Strongly Disagree        19          10.0
                        190         100.0

Tables X, XI, and XII raise a number of interesting questions about senior management's philosophy regarding the appropriate level of aggressiveness when taking a position initially and later upon audit. At first glance, one might expect that senior management would want tax management to be highly aggressive. Always adopting the interpretation that is most favorable to the company and then rigorously defending it, however, can have negative consequences for the company. Several respondents suggested that taking an unduly aggressive position could create a credibility gap and damage long-term relations with the Internal Revenue Service and other tax authorities. Others noted that their companies were quite sensitive about public relations and the corporation's appearance as a "good citizen."

Approximately 46 percent of the respondents believed senior management wants tax management to be more involved in influencing tax legislation. Table XIII provides a summary of the responses.

Table XIII Senior Management Wants Tax Management More Involved in Influencing Tax Legislation

                    Respondents   Percentage

Strongly Agree           13           6.8
Agree                    75          39.3
Uncertain                35          18.3
Disagree                 58          30.4
Strongly Disagree        10           5.2
                        191         100.0

The survey did not include a question asking respondents if they believed their tax departments were already sufficiently involved in monitoring and attempting to influence tax legislation. This would have provided more insight about senior management's view of tax management's role in this area.

Tax Department Goals and Performance Measures

Respondents were asked if someone external to the tax function participates in setting formal goals for the tax department. Ninety-six of 185 respondents indicated yes. Fifty-six of the 96 reported that the chief financial officer is directly involved in the process. Eleven respondents indicated that the controller participates in goal setting. Six said that it is the treasurer. Another 11 answered that some combination of the chief executive officer, CFO, and controller participates in the process.

As shown in Table XIV, firms organized along functional lines (compliance, planning, etc.) are less likely to have someone external to the tax function participate in setting goals for the department.

Table XIV
Outside Participation in Goal Setting by Tax Department Organization

                                                       % with
                                                       Outside
Organization of Tax Dep't             Respondents   Participation

Along functional lines
 (compliance, planning, etc.)             20            35.1
By type of tax
 (federal, state, provincial, etc.)       45            51.1
Combination of functional
 and type of tax                          93            53.8
Along similar lines to
 corporate organization (industry,
 division, subsidiaries, etc.)            10            70.0