Volume 10 : Issue 12
TM
www.HRProfessionalsMagazine.com
Compensation and Performance
Management
SHRM Foundation
Guide to Compensation Expertise Compensation Trends for 2021 and COVID-19 Impacts
Update
Gloria
Changes Affecting
Deferred Compensation
Sinclair Miller SHRM Field Services Representative
Highlights of 2020 TN SHRM
State Conference
Guide to Compensation Expertise FORMULATING YOUR 2021 PTO STRATEGY By J. AUSTIN BAKER
After a year like 2020, it seems like everyone is looking forward to flipping that last page on the calendar and making a fresh start. A new year, a new opportunity for things to get back to some semblance of normal. Of course, the challenge is that no one is quite sure what "normal" will look like. Recent events have fundamentally redefined the employee/employer experience, and you need to ensure that your PTO strategy has evolved to keep pace with the changes. To help, we've put together a "top five" list that empowers you to meet the needs and exceed the expectations of your employees… no matter how the year ahead pans out. 1. GET CREATIVE In addition to the obvious COVID-related challenges employers have endured during 2020, there have also been seismic shifts in social and cultural issues shaping how workers view their relationship with their employer. Employees are more focused on how their employers view and respond to social issues over-and-above the formal DE&I programs that may already be in place. There's an increasing pool of evidence that reveals consumer sentiment is moving in this direction as well. According to a recent study by RedThread Research: "73% of people believe companies can increase profits and improve communities in the process." Developing a PTO strategy that encourages employees to volunteer with a nonprofit of their choice, for example, is a great way to show support. This approach empowers employees to back the causes about which they feel most passionate, drives more profound engagement, and ultimately helps to improve your employer brand as a result. 2. KEEP AN EYE ON COMPLIANCE Just as we saw with FMLA and the constellation of state- and region-specific absence and leave laws that emerged during the past several years, we'll likely see an increasingly prescriptive approach to helping workers regain lost ground – financial and otherwise – as we emerge from the pandemic. This means you'll need to remain vigilant on all the typical wage and hour compliance fronts, as well as stay aware of all new laws, policies, and regulations that could arise. For employers who operate in multiple locations, this can become particularly challenging. Just as there was no single, uniform Federal approach to mitigating the pandemic risks, there will likely be regulations passed at the state and local level that will provide even more generous protections. Mishandling these policies can, of course, lead to fines and penalties. More damaging, however, is the negative effect it could have on employee morale and your brand. Many employees are wrestling with significant personal challenges due to the pandemic: supporting children through remote learning, contending with the financial implications of reduced household income due to a spouse's job loss, supporting senior family members, and the list goes on. As employers, we must be extra vigilant in ensuring compliance. Consider leveraging third-party support, either via your own legal counsel or an online service, that can alert you when new policies and regulations emerge. 3. ENSURE CONSISTENCY Enforcing PTO policies consistently across your entire workforce has always been important, but it will be critical to success in 2021. Updating employee handbooks, notifying employees of new practices or procedures surrounding requesting and granting leave, and most importantly, training managers how to apply these policies, must be included in your plan. Look for ways to standardize your approach in both enforcement and communication, such as leveraging an online HR support center for templates that can be easily modified to meet your unique business needs. www.HRProfessionalsMagazine.com
4. GO DIGITAL The events of 2020 forced companies large and small to embrace digital platforms. Whether you're 100% comfortable with a virtual workplace or just figuring it out, leveraging an online HR support center provides access to a diverse array of tools and resources you can use to make your internal teams operate more efficiently. Document templates, "how-to" articles, and chat access to other HR professionals make these knowledge bases an easy and cost-effective way to support your existing in-house HR talent and ensure your PTO practices are keeping pace with a rapidly-evolving market. 5. STAY AGILE The best way to get ready for what could be a tumultuous year ahead is to encourage an agile mindset – within your company, its people managers, and especially within the HR team. As the world started to recover from the 2008 economic recession, the gig economy exploded. There was a tremendous amount of talent available to employers, but not in a conventional way. Companies that adjusted to this model reaped the rewards, while those who did not faced increasingly competitive talent pools. Keeping an open mind about how you define "employment" also serves as a great way to create scale within your organization, particularly if you need to cover for employees who may be taking extended or more frequent PTO. Leveraging an HRO provider's services, for example, is a great way to extend the reach of your in-house team during times of increased activity (such as during open enrollment) and cost-effectively add new skills and expertise. Despite the numerous curveballs we experienced in 2020, we have every reason to approach 2021 with a sense of optimism and enthusiasm. The lessons learned in 2020 will help us become more agile, more resilient, and ultimately, more successful than ever.
J. Austin Baker is the Founder/CEO, HRO Partners, a human resources consulting and benefit administration and enrollment firm as well as a National Enrollment Partner Member representing the largest boutique, full-service insurance and enrollment firms in the country. A veteran of more than 17 years in the human resources and insurance & benefits industry, Baker is responsible for managing a multifaceted human resources consulting company with public workforce programs and services focused on companies in the southeastern United States. Austin is a frequent speaker on a variety of leadership and benefit topics representing thought leadership and innovative practices in the HR industry. For more information, call Baker at 1-866-822-0123, visit www.hro-partners.com or connect with the company at www.facebook.com/ hropartners, www.linkedin.com/in/ jaustinbaker or twitter.com/jaustinbaker
Guide to Compensation Expertise
Compensation Trends for 2021 and COVID-19 Impacts By BLAIR and BRUCE JOHANSON
PAY EQUITY WorldatWork and Korn Ferry released results of a 2020 Workplace Equity Study earlier this year. This study includes responses from 964 organizations and based on the study results, WorldatWork and Korn Ferry confirmed that progress was being made toward pay equity and a truly diverse and inclusive U.S. workplace. Specific results include 60% of the organizations saying that they are addressing pay equity in their workplaces, 70% are taking actions to promote diversity, equity and inclusion (DEI) and 73% of the organizations are conducting compensation analyses once per year or more frequently. Pay equity analyses based on several variables are gaining traction for proactive organizations and as a defensive measure for reactive organizations. COVID-19 Impact on Gender Pay Equity SHRM published an article on August 10, 2020 titled, “Pandemic Could Worsen the Gender Pay Gap.” This article supports the notion that the pandemic could widen gender pay disparities because women are at a higher risk for pay stagnation or reductions due to being the primary family care giver and taking time off work to care for their children who are being schooled remotely from home. According to a survey by Perceptyx, a business analytics software company, working mothers are nearly twice as likely to carry 100 percent of the child care responsibilities during the workday compared to working fathers. The SHRM article encourages employers to be proactive and look for ways to mitigate the COVID-19 impact on gender pay outcomes and find ways to offer greater workplace flexibility and individualized work plans. To mark the first International Equal Pay Day, the Equal Pay International Coalition (EPIC) shared a press release about the need for organizations to prioritize pay equity during the COVID-19 recovery period. EPIC stated in their press release, “Women comprise 70 percent of the global health workforce and have been on the frontlines as essential workers, community leaders, care-givers and social workers. Women in the workforce have been disproportionately impacted in the short-term economic fallout of COVID-19.” During the first International Equal Pay Day event held at the United Nations headquarters in New York, global leaders made commitments to implement affirmative measures that will narrow the gender pay gap. The press release stated that EPIC called on governments, employers, workers and their organizations, the private sector, civil society and academia to ensure that integrated policy responses are aimed at mitigating job and income losses, and to ensure that women do not end up disproportionately shouldering job losses and reductions in incomes resulting from the pandemic.
LIVING WAGE AND PAY COMPRESSION From our experience working with clients and based on recent SHRM and WorldatWork articles, we believe that the “Living Wage” and related pay compression issues will be active compensation www.HRProfessionalsMagazine.com
decisions during 2021 and subsequent years. We worked with an organization this year that has about 1,300 employees and the President committed to pay a minimum “Living Wage” of $30,000 or $14.42 per hour for all employees below this level of pay. This commitment by the organization’s President impacted approximately 41% of the total employee workforce and it produced a 17% base pay budget increase. A plan to address resulting pay compression due to the Living Wage decision encompassed about 44% of the organization’s employees. The pay compression adjustment expanded the base pay annual budget by an additional 2.6%. The combined living wage and pay compression adjustment represents an 8.3% increase in the organization’s base pay budget and had an impact on 85% of the total workforce. This is a significant investment for this organization, but the ability to attract and retain competent employees will improve with this important and timely compensation decision. On September 18, 2020, Dacona Smith, Chief Operating Officer of Walmart U.S. made public a company decision to raise pay for 165,000 associates. The press release mentioned that hourly pay for numerous jobs would increase from $11 to $15. An internet search on October 21, 2020 for a Walmart OrderPicker shows a national hourly pay average of $20.20. Several of the larger online retailers and retail big box stores inclusive of Amazon, Costco, Sam’s, Target and Whole Foods are paying between $12 and $20 per hour for store and warehouse positions. COVID-19 Impact on Living Wage and Pay Compression There is no doubt that COVID-19 safety precautions have changed our daily lives and they will continue to influence the way consumers shop, receive and pick up groceries and other goods from local, regional and national retailers. Consumers are warming up to or accepting self-service check-out stations, online ordering and pick-up parking lot spaces, home delivery, fast food order and drive-through lanes, call-in and take-out options with national fast food chains and local restaurants and numerous indoor and outdoor retail ordering and receiving options based on COVID-19 pandemic safety considerations. New and more responsible employee positions are increasing as a result of the pandemic. We believe that the rebounding economy along with natural demand and supply economic factors will drive current low-end hourly wages toward a living wage or as Ben and Jerry’s calls it, a “Liveable” wage which, by the way, averages $18.13 for their national company.
COMPENSATION FOR REMOTE WORKERS During the past few months we have responded to client inquiries about pay differentiation for remote home workers now that the COVID-19 pandemic is showing signs of not letting-up in the United States. Several articles by SHRM, WorldatWork and national and international human capital consulting firms have affirmed the great migration from company/organization office-based work to home office or remote site work via an internet connection. Some organizations have 100% of their employees working remotely with national averages above 50% based on recent surveys and related published articles. The consideration for pay differentiation associated with remote worker seems to be focused mainly in high cost of living or high wage metropolitan areas like San Francisco, New York, Los Angeles, and Chicago. It makes sense that
remote work wage discussions would surface in these very expensive work and cost of living metro areas where the cost of housing can decrease considerably by living 15 to 35 miles outside of the city center district. COVID-19 Impact on Compensation for Remote Workers The COVID-19 pandemic-forced remote work decision has proven to be productive for most organizations but it has not been accepted as a long-term strategy or acceptable practice by employers and employees. The employers are worried about employee engagement and lost productivity associated with remote work distractions and employees are missing in-person team relations and onsite meetings. Questions about remote worker compensation have fostered responses that include discussions on 1) each employee’s value to the company whether working onsite or from a remote location, 2) the cost of living and/or labor expense between the metro area located office or the employee’s remote location, 3) the employer’s savings or additional expense for an onsite or remote workforce and 4) other tangible and intangible factors associated with in-office or remote workforce. Bruce and I agree with the general consensus of the professionals who have stated that reducing compensation for remote workers increases the risk for employee turnover and disengagement. Most of the professional consultants have said that the reduction in remote work pay is not worth the increased risk of turnover. Increasing bonus pay for greater productivity by thriving remote workers should generate a better return on investment as opposed to a decrease in pay for remote workers.
NEW POSITIONS RELATED TO VIRTUAL INTERNET MEETINGS AND EVENTS The COVID-19 pandemic has definitely had an unfathomably negative social and economic impact on in-person meetings, events, conferences, concerts, plays, and other indoor and outdoor group activities. Implementation of federal and state severe public health emergency measures in order to reduce the spreading of this deadly virus through social distancing, donning of facial masks in public, self-imposed or government influenced remote work and schooling and other forms of anti-virus spreading efforts have placed an unimaginable demand on national and international internet usage and band width. This represents a significant economic shift from associated travel, lodging and meeting venue expenses for onsite meetings versus the transition to virtual intranet and internet meetings, conferences and events. A new category of positions related to virtual intranet and internet meetings and events are increasing at a rapid pace based on workplace and non-workplace needs. New internet-related positions inclusive of Internet Meeting Master Facilitator, Virtual Event Producer, Virtual Meeting/Event Moderator/Emcee and Intranet Moderator and Enablement Specialist are some of the position openings advertised on Indeed, Monster, and ZipRecruiter websites. We believe that these positions will be around for the foreseeable future, but the jury is still out on how soon and to what level we will return to our past habits associated with local, regional, national and international in-person meetings, conferences and events and the related travel, lodging and food complimentary services. The COVID-19 Pandemic is a reminder of how quickly our world and lives can be changed by a deadly virus outbreak. The world and its global marketplace have been disrupted during most of 2020. As we close 2020 and look forward to 2021, we will remember 2020 as the pivotal year that changed us individually and corporately forever.
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We've helped organizations face the management challenges that come with a rapidly expanding staff and customer base. We also assist new business ventures map out their company's future, both strategically and operationally. Our signature approach is to listen and fully understand your company so that we can then partner with you to realize your own unique vision.
www.johansongroup.net info@johansongroup.net www.HRProfessionalsMagazine.com
Guide to Compensation Expertise
Are We Allowed to Talk About That? By JENNIFER BLAKE
W
hen I was an HR newbie, I was standing in line at the credit union waiting to deposit my paycheck. (Yep, it was a long time ago!) I became incensed when I overheard two fellow employees discussing their recent raises. They shouldn’t be sharing that information with each other, and certainly not in a public place!
In those days, the two words “pay” and “transparency” had not yet been linked together, at least not in the private sector. Today the concept of pay transparency is well known and a subject of debate. Why has pay transparency become common in business parlance? Do a bit of reading on the topic, and you quickly discover certain words popping up often enough to become themes. Words like trust, pay gap, and diversity seem to point to underlying issues, which have pushed the concept of pay transparency to the surface.
Pay Gap PayScale’s Gender Pay Gap Report for 2020 shows women in 2020 earn 81 cents for every dollar earned by men when measuring median salary for all men and all women. When measuring the “controlled” gender pay gap, which measures median salary for men and women with the same job and qualifications, women are paid 98 cents for every male dollar. Close, but not quite there. Then there is the racial pay gap. On average, black men in the U.S. earn 87 cents for every dollar earned by white men according to a separate report by PayScale, Racial Wage Gap for Men, May 2019. Black women who work full time year-round earn 63 cents for every dollar paid to white non-Hispanic men, according to the nonprofit National Women’s Law Center. The gender gap has created enough of a ruckus that some states have passed legislation giving candidates and employees the right to access pay information for the jobs they are applying for or being promoted into. Other states have passed “ban the box” legislation making it illegal to ask candidates about their earnings history so as not to perpetuate patterns of pay inequality.
Trust If you have any experience administering or managing pay, you’ve likely discovered employee skepticism about most things pay related. In my experience, this skepticism is often the result of employees not understanding how they are paid. In the place of facts, conjecture and assumptions take root, fostering a lack of trust. Although employee mistrust is not a new phenomenon, it must be recognized when discussing pay transparency. www.HRProfessionalsMagazine.com
Diversity & Inclusion Society’s awareness of the need for diverse and inclusive workplaces, where everyone is welcome and encouraged to contribute, has risen to a new level in 2020. Given what we know about wage inequities affecting people in marginalized groups, the push for real change makes it essential that companies take a serious look at their compensation practices.
The Data is Out There! During the time I’ve worked in compensation management, one of the most profound changes impacting pay discussions between employees and employers, is the amount of real time pay data available online. Often this data is not as reliable as traditional employer-provided survey data but try convincing an employee of this fact. If it’s on the Internet, it must be true, right? Despite the inaccuracy of some of the information, employees really are more informed about competitive pay practices than ever before. Some are more knowledgeable than the senior leaders in their organizations responsible for recruitment and retention. A lot of anecdotal data exists linking pay equity to pay transparency, although not enough research has been done to definitively link the two. The literature available on the subject does a good job presenting the pros and cons of a more transparent pay culture. Often, when presented with a new way of looking at things, we seem to take an all-or-nothing approach. But what about thinking about pay transparency on a continuum? Mercer, on their website, shares a model of “The Pay Transparency Journey”. What this model demonstrates so well is the level of transparency must be considered in light of the company’s existing culture and its aspirational culture, that is, where the organization wants to be. I would encourage anyone to go to their site and review the whole model. (https://www.mercer. us/our-thinking/career/the-new-reality-of-pay-transparency.html)
The Mercer model includes six potential points along the transparency journey, beginning with “We don’t have pay ranges for all of our jobs, but we’re working on it.” I like that: We’re working on it! Something as basic as designing a few salary ranges shows the company has a plan and is doing something to be more intentional in its pay practices. Pay transparency doesn’t have to mean posting your employees’ salaries on the company website. Some companies do that, and it seems to have worked well for them. That doesn’t mean it will work for everyone. Find the level of transparency that fits your organization and start there. Belle Beth Cooper, in a Culture Amp blog, summed up her experience with full pay transparency at her former employer, Buffer.
“I found that knowing how and why my salary was determined, was even more powerful than knowing what my colleagues made. There was never any question about whether my pay was fair.” From my perspective as a compensation professional, when employees understand how and why their salaries are determined, that’s a win for transparency!
Jennifer Blake, CCP
jblake@performancepointllc.com PerformancePoint, LLC. www.performancepointllc.com
Engaged Employees. Resilient Relationships. Collaborative Cultures. • Customer and Employee Experience • Compensation Strategies • Strategic HR (Analytics) • Leadership & Talent • Diversity & Inclusion • Change & Transformation
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Guide to Compensation Expertise
How We Serve Clients with Base Pay and Market Benchmarking Services By CASSANDRA FAUROTE
At
Total Reward Solutions, we find ways to help clients rise to employee compensation challenges in good times and bad. That’s one reason so many clients consider us their trusted partner for compensation solutions, year after year. Another reason is that we offer a broad range of services, including employee Base Pay projects, Market Benchmarking, Executive Benchmarking, and Incentive Compensation program design. How do we tailor these services for our clients? Read on to learn more about our Base Pay and Market Benchmarking services, and how we deliver tailored solutions to help clients overcome their employee compensation challenges:
Base Pay Projects A base pay program provides structure and organizes your jobs so you can attract and retain talent. It can also help provide career pathing, help ensure internal and external equity, and help eliminate discrimination in compensation. Well-crafted base pay programs have many benefits. They can:
• Ensure costs are maintained and managed appropriately • Help reduce turnover through improved employee morale and engagement when pay is not a dissatisfier Naturally, because your market and your organization are one-of-akind, we offer many options and variables. Ultimately, we tailor our Base Pay Project services to match your unique needs. Recent TRS Base Pay projects, for example, have included the following: • Helping an organization that has combined several separate entities into one to develop a single overall pay structure • Helping an 8-year client in the pharma industry completely update their benchmarking and base pay structure • Helping a client in the medical industry update three job families and their associated pay structures for over 150 jobs
Market Benchmarking
• Provide a basis for determining the external value of jobs to market
Regardless of your type of pay program, market benchmarking is crucial. Just what is market benchmarking? It’s the process of identifying competitive pay levels for jobs in the external market (external equity). It helps companies establish their job worth hierarchy. Also, market benchmarking typically supplements the job evaluation process, although some organizations use pay systems based solely on market benchmarking.
• Provide baselines for reviewing employee performance and rewarding desired behaviors
To be done well, market benchmarking requires good survey data. Therefore, it’s important to verify the reputation and integrity of the
• Provide appropriate pay ranges for recruitment • Promote accurate job descriptions
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data source as well as the data screening methodology. The best kind of market data is third-party published data that is employer-reported and “scrubbed”. Recent TRS Market Benchmarking projects have included the following: • Helping an entity that is small in terms of the number of staff members (but larger in the sense that it serves four separate company entities) by determining the compensation value of their complex roles. • Helping a technology company by benchmarking new values for all positions during a major restructuring and developing a new pay structure to support the new organizational structure. • Helping a non-profit update their current market values. We also looked at what the market values would be if we blended in all industry data vs. just non-profit data to determine their competitiveness to the overall market.
The Bottom Line: Whether your organization is in “operations as usual” mode, undergoing a major restructuring, combining entities, or you just want to be certain your company is market competitive with employee compensation, we can help. Over the past 15+ years, we have worked with clients in over 30 different industries whose staff levels ranged from
6 to 4,000 employees. Simply put, our track record is as strong as our commitment to client service. We have the depth of experience as both internal and external consultants you want in your trusted compensation partner. Let us help you strengthen your position as an employer of choice who can attract, retain, and motivate staff with market competitive compensation programs.
Ready to learn more and discuss your organization’s specific needs, contact us today at 317.589.8529.
Cassandra Faurote, CCP, SPHR, SHRM-SCP Founder & CEO Total Reward Solutions cassandra@totalrsolutions.com www.totalrsolutions.com
About Total Reward Solutions: Total Reward Solutions is your trusted partner for compensation services. Led by Cassandra Faurote, professionally certified Compensation and Human Resources expert and author of the book Compensation Sense 101, Total Reward Solutions offers a broad range of compensation and total rewards consulting services to help your organization attract top talent, motivate employees and retain top performers. We can partner with you on a project basis, on retainer, or as your total outsourced solutions provider for compensation services.
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Guide to Compensation Expertise
Focus on Volatility By COLIN WHEELER
When it comes to money, many Americans have some sort of stake in the markets. Whether it is directly through investments, or indirectly through a retirement account like a 401(k) or IRA, Wall Street can have a big impact on an individual’s financial future. If you’ve paid attention to the stock markets, you know that recently, investors have experienced anything but smooth sailing. The weeks leading up to a nail-biting election made the markets extremely unpredictable, but what factors should truly concern investors? The answer may be simpler than you think.
POLITICS Every four years, the highest seat in the land comes up for grabs. Often, our personal political beliefs may be formulated by our economic worldview. For that reason, presidential elections are frequently seen as potential turning points for the economy. During election years, many Americans wonder if a new administration will make huge policy changes, or if a returning administration will keep the status quo. Both are valid concerns, but according to history, a transition of political power may not have a big impact in the long run. According to historical data from Bloomberg, since 1948, the S&P 500 has grown regardless of political party. In fact, if you made a $1000 investment under President Truman, your S&P stock would have grown to almost $2.7 million as of January of this year, but that’s only if you left it untouched. The reality is many investors are quick to react with their emotions, and if this election year has proven anything it’s that politics can bring out the best or worst in us. Say you were extremely dedicated to your party, and only put money in the market when your party held the presidency. If you kept that investment mindset, you would have missed out on nearly half of the years between 1948 and 2020, regardless if you held a Democratic or Republican view! But how does this all apply to 2020? The day after the election, the S&P 500 rose 2.2%, and the Nasdaq rose 3.9%. According to the preliminary election results, it appeared that America would have a divided government with a Democratic President and House, and a Republican Senate. It may seem that having a singular party control the White House and both houses of Congress is the best situation for investors, but in practice, that may not be the case. Since 1937, the S&P index has shown a 14.6% return after elections resulting in a divided government, compared to a 13% return in election years where one party took the presidency, House, and Senate. In other words, the markets seem to approve a diverse control of political power. www.HRProfessionalsMagazine.com
INDUSTRIES AND NEWS Ask any financial advisor what they think is a key factor in portfolio development and you may get a trending answer: diversification. Just as the markets have historically approved of diverse political views, many financial advisors view diverse investments as a smart strategy. The old phrase, “don’t put all your eggs in one basket” translates seamlessly to many investment management theories. Asset diversification refers to the spreading assets across various investment categories to potentially reduce exposure in one certain area. A recent example of this is the impact COVID had on different industries in the market. On Monday November 9, Pfizer announced their COVID vaccine is more than 90% effective in preventing infections. That same day, Wall Street responded by betting that our “normal lives” may return sooner rather than later as stocks of travel companies, sit-down restaurants, and various entertainment industries shot up. On the flipside, this news sent quarantine thriving companies like Peloton, Zoom, and Netflix into a sharp sell off. In either of these cases, if you had all of your investments dedicated to one company, you would have felt it in your wallet. While it may have been nice to be one of those travel companies on November 9, those same companies experienced huge hits earlier in the year. Even more so, if you were invested solely in travel, you may have sold off your investments when the pandemic stuck and were unable to reap the surge that occurred in early November.
PUTTING THIS INTO PRACTICE There are several key takeaways that you may want to consider for your own portfolio. 1. Make decisions with data, not emotions. Humans are innately emotional beings, so this advice is easier said than done. One common theory amongst seasoned investors is that many are driven by one of two emotions: fear or greed. In good times, investors tend to make bolder moves–which exposes those investments to more risk. And in bad times, investors tend to pull back and then miss out on great buying opportunities. Most often, if your instincts are telling you to act in times of panic or euphoria, your best bet may be to take a step back and look at the facts. That breather could save you from a decision you might regret. 2. Understand how long-term and short-term investing can impact you. Long-term and short-term investment strategies are all based on defining your personal goals and timelines. While the day trader sells or buys in reaction to immediate economic or market news, the buy-and-hold investor has a long-term perspective and understands that the market can have periods of volatility. Either way one thing is for certain, the stock market is an ever changing entity. What impacts the markets today may be irrelevant tomorrow, a year or 5 years down the road. Knowing what your investing goals are ahead of time can help you better determine your personal investment strategy. 3. Partner with a professional. It goes without saying that everyone’s financial situation is different. Getting the opinion of an unbiased fiduciary financial advisor can reveal some insights into how your investments
could impact your overall financial outlook. A fiduciary such as a Certified Financial Planner Professional™ must always put their client’s best interests ahead of their own. Your financial advisor should equip you with the facts you need to make the best investment decisions available to you. They will also help you create a plan to stay on track towards your personal financial goals. While you consider your investment strategy, it’s important to remember that past performance does not guarantee future results. These times of market volatility can be unnerving, but rest assured it is a normal occurrence. Additionally, being prepared with an investment strategy can help calm heightened emotions and ensure you are on track with your personal financial plan.
Colin Wheeler, CFP®
Financial Advisor ColinWheeler@argi.net www.agri.net
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Guide to Compensation Expertise
Changes to
Section 162(m) Affecting Deferred Compensation Arrangements
By S USIE BILBRO, NOAH BLACK, DOUG DAHL, CURTIS FISHER, BRETT GOOD, BRYAN METCALF, FRITZ RICHTER, CATHERINE SIMPSON & DAVID THORNTON
Public companies maintaining deferred compensation arrangements for their executive officers should consider how recent changes to the regulations under Section 162(m) of the Internal Revenue Code (the Code) may impact the timing of payments to be made to participants and their beneficiaries under such plans – if action is required, the affected plans must be amended before December 31, 2020 to avoid complications or penalties. Section 162(m) of the Code disallows a tax deduction for any compensation paid to a “covered employee” of a public company over one million dollars (Million Dollar Limit). On December 16, 2019, the IRS issued proposed regulations (Proposed Regulations) implementing certain changes that were made to Section 162(m) of the Code by the Tax Cuts and Jobs Act of 2017 (2017 Tax Act). The 2017 Tax Act made several significant revisions to Section 162(m), including changing the definition of “covered employee” such that a covered employee in any year remains a covered employee for all subsequent taxable years (and thus subject to the Million Dollar Limit), including after termination of employment. In other words, once an individual is determined to be a Section 162(m) “covered employee,” that individual is always a “covered employee.” Under Section 409A of the Code, a non-qualified deferred compensation plan may delay a payment past the designated payment date to the extent that the service recipient reasonably anticipates that the payment would not be deductible because of the Million Dollar Limit. Many deferred compensation plans (including employment agreements This article was originally published by Bass, Berry & Sims on October 22, 2020 at www.bassberryhrlawtalk.com
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that contain rights to deferred compensation) take advantage of this 409A provision by providing that compensation subject to the Million Dollar Limit will be deferred and paid out only as and when the deduction would not be limited by the Million Dollar Limit. In most cases before the 2017 Tax Act, this provision resulted in only a short deferral until the
service provider was no longer an employee of the service recipient, at which point the Million Dollar Limit would no longer apply, and fully deductible, regularly scheduled payments could be made. However, as a result of the new “once a covered employee, always a covered employee” rule under Section 162(m), if an employer’s deferred compensation arrangements provide for delay of payments until the Million Dollar Limit no longer applies, deferred compensation balances may require a significant passage of time before they become paid in full (generally limited to $1 million per year). So, for example, a covered employee with a deferred compensation plan balance of $25 million might not receive full payment for 25 years.
Practical Takeaways for Employers Recognizing this disconnect, the IRS is allowing companies to amend deferred compensation arrangements to remove any provision that requires a delay in payment due to the Million Dollar Limit, as long as the amendment is made by December 31, 2020. Of course, if these deferral provisions are removed, the company’s deduction for any payments that are not ”grandfathered” (e.g., payments made according to a written binding contract that was effective on November 2, 2017, and not materially modified on or after that date, all as described further in the Proposed Regulations) will be disallowed under Section 162(m) to the extent such amounts, when combined with other compensation paid to the covered employee in the same year, exceed $1 million. These amendments may be drafted to apply only to deferred compensation not otherwise exempt from the 2017 Tax Act changes to Section 162(m) under various grandfathering provisions. We strongly encourage public companies to review applicable non-qualified deferred compensation arrangements to determine if amendments are necessary before December 31, as well as to consider the impact that the disallowance of a portion of the compensation deduction attributable to deferred compensation payments may have. If you have questions regarding the information in this alert, please contact the attorneys in our Employee Benefits and Tax practice groups.
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