Issues Impacting Head of Tax Compensation
We have observed two primary issues impacting tax executive compensation we have studied closely and want to bring these issues to your attention. The focus of our study on the compensation paid to the Head of Tax in multinational corporations and the impact of Pay Transparency Laws and A.I. have on tax executive pay.
Pay Transparency Laws Impacting Compensation
State pay transparency laws require employers to disclose information about employee compensation when posting the jobs online. Pay transparency legislation requires employers to provide applicants with the salary range for the posted position and to post this information publicly so employees can see it. Pay transparency is the practice of openly sharing compensation data on jobs. In many states, this legislation seeks to make it a requirement for employers. There are currently ten states that require (or will require) pay transparency: California, (the very first state to legislate and pass a pay transparency law), Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, New York, Rhode Island, and Washington. In addition, states with proposed or pending pay transparency laws include Alaska, Kentucky, Maine, Massachusetts, Michigan, Missouri, Montana, New Jersey, Oregon, South Dakota, Vermont, Virginia, Washington, D.C., and West Virginia.
Pay transparency isn’t limited to how much employees get paid, either. Certain state laws give current employees insight into what they could earn with their current employer. The general belief is a tax executive might consider options with other employers if they can see that the salary ceiling transparency for their current job does not match up with the compensation offered by other employers in a similar role.
In a Harvard Business Review study on Compensation and Benefits, it states:
“Our research uncovered that in firms adopting pay transparency practices, we found that pay transparency drives managers to make employees’ performance-based incentives similar to each other — in other words, compressing them — thereby reducing the pay dispersion, driving employee concerns and complaints about pay inequity. Our findings are consistent with others research. For example, one study found that, when the government of California made city managers’ pay transparent in 2010, average compensation dropped by about 7% in 2012. The drop occurred mainly at senior levels, which is indicative of pay compression. Another study using compensation data of about 100,000 U.S. academics from 1997 to 2017 showed that pay transparency led to academics being paid more similarly to their peers.
Companies are learning that their Head of Tax pay should never be graded like the accounting and finance pay levels. Those companies who do grade Head of Tax responsibilities at the same grade level as accounting and finance are losing their Head of Tax to competitors willing to pay their tax executives more to attract and retain top talent.
As an expert in the tax executive recruitment, who has completed more than one thousand tax executive searches over three decades, I can tell you for a fact that the salary offered initially during a tax executive search is always stated lower in the beginning of the search, and always higher at the close of a search to get a top tax executive hired and onboard at the majority of my multinational tax executive searches. These higher compensation offers never make it to online tax job ads posted, and as a result would never get picked up by A.I. data collection regarding tax executive compensation. There is definitely a discrepancy in the pay reported online when we start a tax executive search, and the final compensation package that is ultimately negotiated in order to hire a technically sophisticated tax executive who saves a multinational company millions, and sometimes billions in tax revenue over many years. The company initially does not give us the top number they are willing to pay when they begin the search for a tax executive. The company will never publish the highest amount they are willing to pay to get the lead tax executive they want through an online ad! It is usually through the process of interviewing numerous tax executive candidates that the company learns what is offered by competitive companies who understand the importance of paying their Head of Tax at the top of the salary ranges they encounter during a tax executive search. For a lead tax executive in a multinational, I have negotiated many tax executive compensation packages exceeding one million annually which include bonus with an annual traunch of stock options. Our advice to clients is to do everything possible to retain your Head of Tax by gathering market compensation data from multiple sources. If you advertise one number and pay another number, you are shorting your company access to the great tax talent pool being compensated more by your competitors. Our years of experience prove companies never advertise the top dollar they are willing to pay a tax executive.
By accessing a wide range of resources on pay data on tax executive compensation, a company makes more informed decisions. Tax executives carry and retain a wealth of valuable and confidential information about their multinational employers. There is always a significant loss of tax savings to a corporation if they lose their Head of Tax. Pay a tax executive accordingly and you will retain them long-term and save your company millions of tax dollars annually in the process. A company’s Head of Tax is an asset and deserves to be respected and rewarded for the demanding and highly technical skills they bring to your organization.
A.I. Data Collection And State Pay Transparency Laws
The rise of A.I. coupled with State Pay Transparency Laws are a recipe for pay compression! Pay compression is when there is little to no difference in pay between employees with different levels of experience, skills, or seniority. It can occur when new employees are hired at salaries close to or even higher than those of more experienced employees. Pay compression can happen for any number of reasons including inflation, changes in the job market, the need to attract or retain talent, rising market rates and increased demand for highly technical tax skills. Pay compression does have negative consequences, such as decreased morale due to long-time employees feeling that their highly technical tax skills are not valued and thus may look at other opportunities. To address pay compression, companies should regularly conduct pay equity studies, update pay scales, increase starting salary guidelines, and merit increases, and offer thoughtful retention and sign-on bonuses.
The pay transparency data currently gathered by A.I. online is often misleading regarding what is actually paid to corporate tax executives. Companies do not publicly post the top dollar they are willing to pay for a Head of Tax for several reasons ( i.e. employees may ask why they are not paid the compensation listed, employees become dissatisfied, and it may disrupt the company pay culture, etc.) The A.I collection of data creates many issues, including tax jobs being listed at ranges lower than what is actually paid to a tax executive. The result is many top performing tax executives are refusing to come forward to consider a job where they believe the salary offered is low. The A.I. gathered data is giving tax professionals the impression that the company underpays according to the overall market and as such they have no interest.
A.I. gathered data is costing companies the opportunity to attract great tax leaders who create tens of millions in tax savings for companies annually! Many tax executives have spoken to us privately about tax jobs posted which are not paying anywhere near what would motivate the tax executive to consider the opportunity. When companies wonder why they are not seeing the tax talent pool they desire, a low salary expectation posted online is likely driving away the top of the talent pool. Understandably, companies do not want to post their top numbers for the world to see. The best way to avoid the problem of losing access to the hidden talent pool of tax executives is to retain a tax executive search expert to call the best of the tax profession and privately communicate that the multinational is willing to pay more for the right person.
Companies using A.I. pay data from job boards are signaling they pay at the lower end of the market for a Head of Tax. These companies are unknowingly creating roadblocks preventing them from accessing the top of the talent pool by utilizing this data only in the development of the company pay culture. We have worked with and placed many tax executives over the years who told us that the salary the company had posted online left them disinterested in the Head of Tax role.
Is pay data posted by companies online for a Head of Tax job intended to lower expectations of executive compensation? We do not believe it is purposeful but gathering pay data from the web using A.I. drives pay transparency data lower. As a result, this practice will reduce the number of technically qualified tax executives willing to come forward to consider a new opportunity with a multinational company. Many tax executives are whispering they are surprised by what they see posted online for tax executive compensation. Posting tax executive pay information online to comply with state pay transparency laws creates a roadblock in attracting tax executive candidates for consideration. In addition, privacy is a huge issue for tax executives. With LinkedIn selling out professionals’ activity on LinkedIn, a company can actually buy what an employee is looking at(like a tax job) through the LinkedIn service called Glint Services. Go to this link: https://www.linkedin.com/legal/l/service-terms and do not let the secure block they put on this page recently to discourage you from reading the fact they sell you out. Keep going and see for yourself as the link is safe as you follow through! I promise! You are being recorded that you are looking for another job on LinkedIn.
According to SHRM (Society For Human Resource Management) global job board Indeed has reported fifty percent of U.S. based job listings on the site now include some employer provided salary information, the highest share of salary data posted next to jobs online.
The Harvard Business Review study on Compensation and Benefits proved pay transparency leads to pay compression, reduces pay expectations, increases job dissatisfaction, increases attrition, and impacts your ability to attract the very best of tax talent pool.
A.I. is not a living, breathing human being that can self-correct. Therefore, it lacks the sentiments that go into human intelligence making. A.I. systems are only as good as the intelligence they are trained to collect. Collecting pay data from websites using A.I. does not provide the most accurate pay data information available. You must contact and interview corporate tax executives privately about executive compensation to gain a better understanding of what is paid a Head of Tax.
Problem Grouping Executive Pay In Tax With Accounting/Finance
One of the biggest problems facing multinational corporations today is how tax executive compensation is often positioned by human resources in the same category as accounting and finance roles in the company organization. We know Tax and Accounting and Finance responsibilities are profoundly different. As previously mentioned in this report, tax responsibilities require a great deal of analysis and judgement, whereas accounting and finance are predominantly data driven responsibilities. A tax executive job description often involves complex analysis across multiple countries operating under different tax laws, along with ever changing tax rules and regulations. A lead tax executive role requires sophisticated research and analysis along with the ability to make sound business judgements on the tax environment in each jurisdiction they operate. The lead tax executive job requires long-term and short-term strategic tax planning initiatives. Accounting and finance responsibilities do not require predominantly judgement driven tasks, since they are primarily data driven responsibilities.
Companies compensating their lead tax executive in the same range as an accounting and finance executive often learn compensation of tax executives lesson when they lose a tax executive to a competitor willing to pay more to acquire the technically sophisticated expertise a tax executive role requires. Companies compensating their lead tax executive at the upper percentile range of the market will have more opportunities to retain their tax executive talent, while companies paying at the lower percentile of the market may lose their tax executive to a competitor willing to pay them more. Given the high demand for tax leaders today, turnover at the lead tax executive level is happening more than you may think.
It is only when a company loses a Head of Tax that they realize it costs them a lot more money to replace a tax executive than they had anticipated. This is a tough lesson for a company to learn they were compensating their incumbent tax executive below what competitors are offering tax executives. There is considerable growth in the software industry resulting in continued higher demand for tax executives with software industry expertise.
Software industry growth is explosive and continues to grow with a great future well into 2030s. In particular, “The software development industry is experiencing transformative growth, indicated by a market size increase from $203.35 billion in 2022 to an expected $1,450.87 billion by 2031, with a strong emphasis on quality and innovation, such as automation and the use of low-code platforms.” According to Market Research Future report, Software Market Size was valued at USD 576.9 Billion in 2022. The Software market Vertical is projected to grow from USD 645.6 Billion in 2023 to USD 1586.97 Billion by 2032, exhibiting a compound annual growth rate (CAGR) of 11.90% during the forecast period (2023 – 2032). Business process automation, digitization, and increased enterprise data volume are the key market drivers enhancing market growth. As a result, the growth of software companies creates a highly competitive business environment for tax executives leading software companies now and into the future.
Read Part 1 of 3 In Blog Series On Lead Tax Executive Compensation
Read Part 3 of 3 In Blog Series On Lead Tax Executive Compensation
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