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

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

The responses are what one might expect. Staying within the budget for the department is a principal goal for most departments for which formal goals are set. Other frequently cited principal but probably more important goals, are cash savings on specified projects, quality of tax savings ideas, and measurable tax project objectives.

Targeted worldwide effective tax rate, targeted effective federal income tax rate, and targeted state (or provincial) income tax rate were cited as goals by a number of respondents. Respondents were asked for the standards of comparison in those situations in which a targeted effective rate is used as a measure of performance. Table XVII provides a summary of the responses. Sixty-three of 115 respondents reported that an audit risk contingency reserve is factored into the measure.

Table XVII
Standards for Benchmarking Effective Tax Rates

Standard of Comparison                                Number

Company's rate in prior years, peer group,
 and competitors' rates                                 37
Company's rate in prior years                           26
Company's rate in prior years and peer group rates      17
Company's rate in prior year and competitors' rates     13
Competitors' rates                                       8
Peer group and competitors' rates                        5
Peer group rates                                         5
Other                                                    4

Respondents were asked which goals are effective measures of tax department performance. Cash savings on specified projects, measurable tax project objectives, minimize audit adjustments, quality of tax saving ideas, and targeted worldwide effective tax rate were the most frequently cited. Table XVIII shows these results.

Table XVIII
Effective Measures of Tax Department Performance

Goal                                                     Number

Cash savings on specified projects                         65
Measurable tax project objectives                          51
Minimize audit adjustments                                 47
Quality of tax savings ideas                               46
Targeted worldwide effective tax rate                      44
Lack of surprises                                          36
Contribution to before-tax earnings
 (non-income tax savings)                                  35
Staying within department budget                           33
Effectively manage use of consultants                      21
Targeted effective state or provincial income tax rate     15
Targeted effective federal income tax rate                 15
Targeted effective foreign income tax rate                  8
Targeted state and local tax as a percent of
 before-income-tax profit                                   8
Minimize time spent by consultants                          6
Minimize turnover of tax personnel                          6

Senior tax persons were asked which of the measures, if any, directly affect their compensation. Twenty-four said that none has a direct effect while 77 responded that one or more directly affect their compensation. A summary of the responses is provided in Table XIX.