Not only is Texas a leading provider of crude oil and natural gas, but the state’s abundant sunlight and persistent winds offer businesses yet another opportunity to lead the nation by tapping renewable energy sources to power manufacturing plants, distribution centers and office buildings.

But despite the fact that Texas companies can leverage more than 80 federal, state and local incentive programs to defray the cost of purchasing and installing renewable energy systems and energy conservation equipment, executives in the Lone Star state are still leaving money on the table.

“Renewable energy and conservation incentives and credits allow companies to demonstrate environmental stewardship, increase operating efficiencies, and lower income taxes by defraying the cost of purchasing renewable energy and energy conservation equipment and systems,” says Laura Roman, CPA, CMAP, a partner in tax and strategic business services at Weaver. “Unfortunately, the funds often go unused, and the programs won’t last forever.”

Smart Business spoke with Roman about the opportunities to lower taxes and operating expenses and positively impact the environment by taking advantage of underutilized conservation and renewable energy credits and incentives.

Why should companies consider switching to renewable energy or energy efficient building materials?

The benefits include the opportunity to lower energy consumption and utility bills by installing modern, energy-efficient manufacturing equipment, windows or HVAC systems, and the chance to promote a positive public image by launching green initiatives and supporting environmental stewardship. Plus, both tenants and building owners can utilize the incentive programs and reap the financial rewards. For example, the improvements help owners by boosting property values, while tenants benefit from increased energy efficiency, which ultimately reduces operating costs.

What types of incentives are available?

There are more than 54 federal and 28 state and local programs that can be used for equipment purchases or upgrades that reduce energy consumption or utilize solar, wind, ethanol and biodiesel energy. The programs include tax deductions, credits and exemptions, loans and grants, rebates and performance-based incentives. For example, Texas businesses can qualify for commercial energy efficiency rebates, energy-efficient incentive programs, green building corporate tax credits and sales tax exemptions for purchasing energy and water efficient products. While the U.S. Treasury Department offers renewable energy grants for projects involving solar photovoltaics, landfill gas, wind, biomass, hydroelectric, geothermal, municipal solid waste, CHP/cogeneration, solar hybrid lighting, hydrokinetic, tidal/wave energy, and ocean and fuel cells using renewable fuels or micro turbines.

Best of all, executives don’t have to commandeer large amounts of cash to complete the projects because companies can tap different programs to train employees, purchase equipment or pay for installation contractors. So, companies can still invest in that much-needed marketing program or software upgrade if they utilize renewable energy incentives and credits to hire renewable energy specialists, replace inefficient manufacturing equipment or install a new HVAC system.

How do the incentives provide financial benefits?

Essentially there are five areas where companies benefit from renewable energy incentives and tax credits.

  • Gross income exclusions. Companies can deduct the full amount of incentive payments or grant funds they receive for qualified renewable energy or energy conservation projects from gross income.

  • Dollar-for-dollar deductions. There are no sliding scales or phased-out deductions. Companies can use every dollar they invest in qualified renewable energy and energy conservation projects to reduce their tax liability.

  • Accelerated depreciation. Under IRS Section 179D, companies can depreciate the cost of purchasing new plant and energy equipment at a faster rate than typically allowed. So, instead of taking 39 years to recover the cost of a new lighting, HVAC system or building envelope, the owner of a 100,000-square-foot building can deduct up to $1.80 per square foot, or up to $180,000 in the first year.

  • Ancillary funding and allowances. Funding is available to hire specialized workers or train current employees on the use of renewable energy equipment and processes.

  • Multiple opportunities. Companies can tap multiple incentives for each project including loans, performance-based incentives, deductions, tax exemptions and grants, as well as property and sales tax rebates.

Should executives be aware of any special qualifications or rules?

The incentive plans and tax codes are fairly straightforward, but there’s no need to spend hours interpreting the criteria or deciphering nebulous clauses when a tax professional is intimately familiar with the nuances of each program. At the same time, he or she may help identify additional opportunities to complete the project without tapping cash reserves, and can often share tips and ideas from experience helping other companies navigate the process.

How can executives evaluate the ROI and choose the most advantageous projects?

Companies should discuss ideas and energy needs with architects, contractors and energy professionals so they can create a list of feasible projects and determine the material and labor cost for the various improvements. Review the list with an accountant, since he or she is familiar with the tax code and incentives and can provide an estimate of the cash outlay and ROI. Finally, act now. Remember, it costs virtually nothing to investigate these opportunities, and there’s no sense in waiting when the money to complete renewable energy or energy conservation projects is there for the taking.

Laura Roman, CPA, CMAP, is a partner in tax and strategic business services at Weaver. Reach her at (432) 570-3030 or Laura.Roman@weaverllp.com.

Insights Accounting is brought to you by Weaver

Published in Dallas
Saturday, 01 September 2012 13:40

Five things to know about executive compensation

Well-drafted executive compensation programs aren’t just used to recruit and retain top-level leadership to your company. Public and private companies can tailor executive pay packages to encourage executives to achieve certain goals.

“We can put strings on short-term and long-term benefits to drive executive behavior, and that’s one of the things that’s really coming to the forefront now,” says Ted R. Ginsburg, CPA, JD, a principal with Skoda Minotti.

Smart Business spoke with Ginsburg about leveraging executive compensation.

What are the key components of an executive compensation program?

In general, an executive compensation program consists of four key parts. These are base pay, annual bonus, long-term incentives and perquisites, which could include car allowances, country club memberships, executive physical programs, security services and use of the company airplane. Because of recent economic events and more scrutiny by shareholders, perks are not such a big part of the package anymore; employers are providing higher base pay and instructing executives to acquire the perks on their own.

An optional component is a sign-on and/or retention bonus. A sign-on bonus is appropriate when trying to hire an executive from another company who would lose a bonus if he or she left. The retention bonus — a promise to stay through a certain date or event in order to receive a bonus — is used when you have incurred hard times and worry the executive is going to leave.

How does executive compensation differ in a public and private company?

There are some significant differences, and oftentimes, private companies are at an inherent disadvantage. A public company normally provides a long-term incentive using either a stock option or restricted stock. A stock option allows executives to purchase shares at a stated price while he or she remains employed; a restricted stock program gives executives a share of stock outright after meeting certain targets. Stock doesn’t drain cash flow, often doesn’t immediately reduce earnings and can have favorable tax treatment for the company and the recipient. In a publicly traded company setting, the recipient can usually turn around and resell the shares on the open market immediately. The total pay package of chief executives of major public Cleveland corporations may comprise 60 to 70 percent in company shares.

Many executives in private companies don’t want to receive stock unless they already own a substantial company stake. Executives would need to pay income tax on the stock and can’t sell part of the shares to cover the amount. Also, executives usually must sell the stock back when they leave in exchange for a cash payment made over time. Furthermore, private company owners might not share financial information with executives so the value of the ownership interest is unclear.

What can a private company offer someone from a public company instead of stock options?

Some private companies award only base pay and an annual bonus, but attracting a senior-level executive from a public company is difficult without a long-term incentive program. There are programs that provide a cash payment based on company performance and the current company value over a number of years, making executives feel as if money has been put aside for their future. Two types of long-term incentive programs are:

  • Phantom stock — an owner gives executives a check representing the full value of a number of shares of stock when they leave.

  • Stock appreciation rights — an owner gives executives a check when they leave, which equals the number of rights given to them multiplied by the difference between the value of the stock when it was awarded and when they leave. Mimicking a stock option, it rewards executives for increasing the value of the company.

These programs often have a vesting schedule stating an executive leaving before a certain time does not receive the entire benefit.

Another methodology is a change of control payment, where an owner planning to sell or transfer the business gives the executive a check based on the sale price or value of the company at the time ownership is transferred.

Some larger private companies with the necessary liquidity also use long-term cash incentive programs. Over a period of time, if revenue is up or costs are down, cash is put aside for when the executive leaves.

Why do long-term incentive programs help an employer?

These programs act as retention devices. They focus employees on long-term performance rather than maximizing annual bonuses and they don’t drain cash immediately as they are deferred payment obligations.

Long-term incentive programs are familiar to public company executives. If a private business owner offers to pay to replace the value of stock options lost because the executive left for a private company, the recruited public executive might ask what he or she is going to get for subsequent years.

Finally, they allow for a trial period, giving  the option of cutting him or her loose early.

Why are employers moving away from discretionary annual bonuses?

With discretionary bonuses, private company executives walk away without knowing what they did to earn it and how to repeat it. Many businesses now give bonuses based on company performance.

Well-drafted programs have easily measured goals that drive behavior and set annual priorities. Long-term, multiyear program goals relate to financial performance and other forward-thinking items, such as establishing a new geographic market or bringing a certain number of products to market. If the goals aren’t met but executives put in the effort, ownership can always give discretionary bonuses. This type of program helps employers manage the executive’s expectations and creates transparent working conditions.

 

Ted R. Ginsburg, CPA, JD, is a principal with Skoda Minotti. Reach him at (440) 449-6800 or tginsburg@skodaminotti.com.

Insights Accounting & Consulting is brought to you by Skoda Minotti

Published in Cleveland

Not only is Texas a leading provider of crude oil and natural gas, but the state’s abundant sunlight and persistent winds offer businesses yet another opportunity to lead the nation, by tapping renewable energy sources to power manufacturing plants, distribution centers and office buildings.

But despite the fact that Texas companies can leverage more than 80 federal, state and local incentive programs to defray the cost of purchasing and installing renewable energy systems and energy conservation equipment, executives in the Lone Star state are still leaving money on the table.

“Renewable energy and conservation incentives and credits allow companies to demonstrate environmental stewardship, increase operating efficiencies and lower income taxes by defraying the cost of purchasing renewable energy and energy conservation equipment and systems,” says Laura Roman, CPA, CMAP, partner in tax and strategic business services at Weaver. “Unfortunately, the funds often go unused, and the programs won’t last forever.”

Smart Business spoke with Roman about the opportunities to lower taxes and operating expenses and positively impact the environment by taking advantage of underutilized conservation and renewable energy credits and incentives.

Why should companies consider switching to renewable energy or energy efficient building materials?

The benefits include the opportunity to lower energy consumption and utility bills by installing modern, energy-efficient manufacturing equipment, windows or HVAC systems, and the chance to promote a positive public image by launching green initiatives and supporting environmental stewardship. Plus, both tenants and building owners can utilize the incentive programs and reap the financial rewards. For example, the improvements help owners by boosting property values, while tenants benefit from increased energy efficiency, which ultimately reduces operating costs.

What types of incentives are available?

There are more than 54 federal and 28 state and local programs that can be used for equipment purchases or upgrades that reduce energy consumption or utilize solar, wind, ethanol and biodiesel energy. The programs include: tax deductions, credits and exemptions, loans and grants, rebates and performance-based incentives. For example, Texas businesses can qualify for commercial energy efficiency rebates, energy efficient incentive programs, green building corporate tax credits and sales tax exemptions for purchasing energy and water efficient products. While the U.S. Treasury Department offers renewable energy grants for projects involving: solar photovoltaics, landfill gas, wind, biomass, hydroelectric, geothermal, municipal solid waste, CHP/cogeneration, solar hybrid lighting, hydrokinetic, tidal/wave energy, and ocean and fuel cells using renewable fuels or micro turbines.

Best of all, executives don’t have to commandeer large amounts of cash to complete the projects because companies can tap different programs to train employees, purchase equipment or pay for installation contractors. So, companies can still invest in that much-needed marketing program or software upgrade if they utilize renewable energy incentives and credits to hire renewable energy specialists, replace inefficient manufacturing equipment or install a new HVAC system.

How do the incentives provide financial benefits?

Essentially there are five areas where companies benefit from renewable energy incentives and tax credits.

  • Gross income exclusions. Companies can deduct the full amount of incentive payments or grant funds they receive for qualified renewable energy or energy conservation projects from gross income.
  • Dollar-for-dollar deductions. There are no sliding scales or phased-out deductions. Companies can use every dollar they invest in qualified renewable energy and energy conservation projects to reduce their tax liability.
  • Accelerated depreciation. Under IRS 179D, companies can depreciate the cost of purchasing new plant and energy equipment at a faster rate than typically allowed. So, instead of taking 39 years to recover the cost of a new lighting, HVAC system or building envelope, the owner of a 100,000-square-foot building can deduct up to $1.80 per square foot, or up to $180,000 in the first year.
  • Ancillary funding and allowances. Funding is available to hire specialized workers or train current employees on the use of renewable energy equipment and processes.
  • Multiple opportunities. Companies can tap multiple incentives for each project including loans, performance-based incentives, deductions, tax exemptions and grants, as well as property and sales tax rebates.

Should executives be aware of any special qualifications or rules?

The incentive plans and tax codes are fairly straightforward, but there’s no need to spend hours interpreting the criteria or deciphering nebulous clauses when a tax professional is intimately familiar with the nuances of each program. At the same time, he or she may help identify additional opportunities to complete the project without tapping cash reserves, and can often share tips and ideas from experience helping other companies navigate the process.

How can executives evaluate the ROI and choose the most advantageous projects?

Companies should discuss ideas and energy needs with architects, contractors and energy professionals so they can create a list of feasible projects and determine the material and labor cost for the various improvements. Review the list with an accountant, since he or she is familiar with the tax code and incentives and can provide an estimate of the cash outlay and ROI. Finally, act now. Remember, it costs virtually nothing to investigate these opportunities, and there’s no sense in waiting when the money to complete renewable energy or energy conservation projects is there for the taking.

Laura Roman, CPA, CMAP, is a partner in tax and strategic business services at Weaver. Reach her at Laura.Roman@weaverllp.com or (432) 570-3030.

Published in Dallas

When Victor Toledo and his partner, Chad Lacerte, were looking for a location for their new wake board park, they approached nearly a dozen cities looking for the right spot.

But once they met with members of the Allen Economic Development Corp. and spoke with representatives of the city of Allen, Texas, they knew they had found the perfect location, says Toledo.

“We talked to several north Texas cities at the same time, and they were all very receptive to the concept,” says Toledo. “But what Allen did differently is that they really stepped up and said, ‘Not only do we like it and want it, we’ve even got a place for it, and we can help you through the approval process.’”

The pair presented the concept rendering for Hydrous Wake Park to the city in January 2011, began construction in April and opened in September. Although there are 230 cable parks around the work, Hydrous is one of only 13 in the U.S., and the only one in America with three cable systems. And after just four months of operation, it was named 2011 Cable Park of the Year by Unleashed magazine, an international wake boarding publication based in France.

“Looking at the success of these parks around world, we thought bringing the concept to a healthy, vibrant market like Allen, especially because it’s in the Sunbelt, would be a good match, as the city is very youth oriented and very sports oriented,” says Toledo. “We really drew on the European parks in our design and strategy to create a ski resort type atmosphere in the middle of the city.”

Smart Business spoke with Toledo about the new business, and how the Allen Economic Development Corp. has been key to its early success.

What part did the Allen Economic Development Corp. and its members play in your decision to locate in Allen?

They have been very accommodating. They have really been a true partner throughout the whole process. Hydrous is located in a city park, nestled between a skate board park and the high school, which has 5,200 students, just opened a $30 million performing arts center and is completing a $60 million high school football stadium. Allen is a city that really cares about culture, sports, recreation and education, and it has done a tremendous job.

We approached several cities at the same time, and Allen was one of them. They saw an opportunity, they saw the presentation, and they immediately set up a meeting for us with the Parks Department and the city manager’s office, and they really helped us expedite the process.

Once things were set in motion, how did the city and the economic development corporation continue to assist you?

We have an ongoing relationship with the city because they are our landlord; we rent space from them. The Allen Economic Development Corp. was our liaison with the city, and they helped us secure a long-term lease on the property at a nominal cost. The fact that we didn’t have to invest any capital up front for the land made Allen a very attractive option for us, allowing us to focus our investment on the building, digging the lakes, digging the well and building a pro shop. We didn’t have to invest anything for the land, and without that incentive, we probably wouldn’t be here.

The city and the economic development corporation are also our marketing partners. One thing that’s attractive about this venue is that it’s a regional draw, and we get a number of visitors from foreign countries. We estimate that less than 10 percent of the people who wakeboard here actually live in Allen.

How has the city assisted you with water concerns?

There was a drought last summer, so as we were digging the two lakes, the city also allowed us to dig a 1,200-foot well so that we would have our own dedicated water source that was not subject to drought restrictions. That’s a big up-front cost, but we now don’t have a water bill.

The city didn’t want us to compete with its existing water resources and was able to accommodate us. And quite frankly, we couldn’t have competed with the existing water resources because of the drought restrictions.

How did your fall opening help you get up and running?

We really would have much rather opened in March at the start of the busy season, but the way it worked out, we signed the lease in January, got engineering approval in March, broke ground and finished by September, which was a pretty ambitious timetable.

So rather than wait until March to open, we decided we wouldn’t open the restaurant until then but we would at least get our feet wet and get some experience under our belts. That way, in March, we are ready to really show our best because we already have five months’ experience running the park.

We had time to make sure we had made good personnel decisions and marketing decisions, rather than just opening in a whirlwind with a brand new staff. And we’re feeling pretty good about our decisions right now.

Would you recommend that other businesses consider locating in Allen?

Absolutely. The economic development council and the city have been tremendous partners. They have a very pro-business attitude and they care about their city. They are very aggressive about attracting the right type of businesses and diversifying their tax base. And in our case, they also provided an amenity that Allen’s residents previously didn’t have — a lake. There was no boating culture here at all, and now Allen has become the wake boarding go-to spot in the country with wakeboarding videos regularly shown around the world.

Victor Toledo is co-owner of Hydrous Wake Park in Allen, Texas. Reach him at (214) 755-9905 or victor@hydrouswakeparks.com. Reach the Allen Economic Development Corp. at (972) 727-0250 or www.allentx.com.

Insights Economic Development is brought to you by the Allen Economic Development Corporation, strategically positioned in the Dallas/Fort Worth metro.

Published in Los Angeles

Bill McCarthy thinks the construction industry still has some difficult days ahead.

The recent recession really belted the segment on the chin, and in some locations, half of the area’s construction workers were unemployed. Depending on the region, there have been some sparks of activity, but a return to previous levels is still in the distance.

“When people ask, we really don’t see the construction economy returning to some sort of normal until 2014 or 2015,” says McCarthy, president of Pepper Construction Co. of Indiana. “There are still tough times for the industry.”

During a downturn, it’s a chance to learn some things about your company, develop some new strategies, build better relationships with your customers ? and even reinvent yourself.

“What we’ve tried to do is use this opportunity to go back and reinvest in the company so that we are a better company coming out of this economy than we were going into it and positioning ourselves for long-term growth,” he says. “That’s really been our kind of mantra and what we’ve done.”

To start looking at matters from a strategic planning standpoint, McCarthy had a SWOT analysis done at the senior level of the company that involved a significant portion of the employee population, questioning what were the company’s strengths, weaknesses, opportunities and threats and posing what should be done about those findings.

“We developed from that a kind of a reinforcement to continue working on some ongoing strategic initiatives and develop some new ones, some of which I’d say are more tactical and short-term things that really look at the challenges that we have right now with the economy and being able to address those in the more immediate term,” he says. “Most of what we do, however, is really focused on the long term.”

Here are some of the major initiatives McCarthy is using to engage employees, weather the tough times and give Pepper Indiana a larger share of the market.

Reinvest in employees

With 150 employees and 2010 revenue of $227 million, McCarthy was feeling the need to groom future leaders from the existing work force. But at the same time, he needed to build up the existing management team if the company was going to grow its market share.

“I was trying to come up with a plan to strengthen and invest in developing emerging leaders,” McCarthy says. “One of our good clients and friends ? Bob and Doug Bowen of Bowen Engineering ? recommended a program.”

McCarthy instituted a leadership development series with their advice. At Bowen, the program had been done three times already and had resulted in phenomenal success.

The heart of the 18-month effort at Pepper was the book and program, “The Leadership Challenge,” created by Jim Kouzes and Barry Posner. The program takes the approach that when leaders are at their best, they follow five practices: model the way, inspire a shared vision, challenge the process, enable others to act and encourage the heart.

One of the most effective methods to optimize the benefits of “The Leadership Challenge” was to involve senior management in the teaching efforts.

“We asked pairs of our senior leaders to teach a session, and it was really engaging, very successful,” McCarthy says. “That old idea that you really don’t learn something until you have to teach somebody about it is very powerful.”

In addition, exercises which expand the comfort zone of the participants were beneficial.

“We paired up one of the senior leaders in a better protégé relationship with one of our emerging leaders, so you couldn’t have a direct reporting relationship with that person,” he says. “It was only people who didn’t work directly with each other. The protégés chose the mentors and again ? a highly successful and kind of career development and coaching resulted ? and I think it was really good for our senior managers as well because it indirectly created some accountability for them.”

You might consider driving the program to levels lower that those at the leadership level.

“Also, develop a program as sort of a companion to this for your project assistants, the old word would be secretaries, who are vital communication elements for your projects between your client and all the other superintendants ? they are like the critical hub in all of that and could really benefit from this,” McCarthy says.

Another effort to get employees involved included obtaining a volunteer leadership position. McCarthy adapted this idea from one the Bowens developed. You need a certain size of management if you really want to let everyone do their job and also teach, but with some tinkering, you can find a way that works for your size of company.

“Ask each of the participants to find something they are passionate about in the community and take a volunteer leadership position,” McCarthy says. “It gave people the extra nudge to take that extra step to lead the baseball league.

“You can imagine it’s enriching for the person, it’s great for our company to get our people out in the community, and it was really a nice add-on to that program. You get to put into practice some things that maybe you don’t get an opportunity to do every day in your work life or your personal life.”

Do 360-degree feedback reviews of each participant and map those on the leadership challenge traits to measure those against the key leadership traits that authors Kouzes and Posner developed through their research.

“As we got to the end of the program, we redid the 360 and saw in a composite as we looked at each participant really significant improvements in all the measured areas,” McCarthy says. “For some of the individuals, some outstanding improvements occurred.

“In a competitive work environment, as we come out of this recession, I also think we’ve got people more engaged here than they have been. I’ve got lots of little stories that I’ve seen happen, but for me, it has really helped me in my leadership to go through the program. I think it has really been transformational to our company and will continue to be.”

Use peer teaching

While McCarthy was pleased with the leadership development progress, he needed to find a way to engage more employees to help grow market share. Using the peer-to-peer teaching method again, he put into effect a type of mentoring that would teach junior employees some of the knowledge senior employees have learned.

When some employees suggested a quarterly education session at job sites, McCarthy liked the sound of the idea and furthered reasoned that if a good suggestion such as this was put into play, that very act would help with engagement and buy-in.

This involves the junior employee who is at a job site who would give a mini-seminar to fellow junior employees about a special aspect of the job, or there might be a subcontractor come in and describe a procedure. The education session ? an opportunity to network with fellow younger employees ? is followed by a mixer or other event at the end where some of the more senior employees are invited to join in.

“I love it that these guys had the moxie to come and propose this thing and then go run it,” he says. “We’ve now handed it off because the two guys who thought of it are moving up a little bit, so they recruited two new young guys to do it. It is something that I think has been pretty neat for our company.”

This mentoring type program uses two effective tools to increase knowledge and build better teamwork: the peer method of teaching and the advantages of networking.

The peer method uses employee who are on the same skills levels to help create bridges to span gaps in learning. Since the peer teacher is on the same level, he or she can relate to other peers on a different level than would a manager, using examples that have a relationship with the job at hand.

For the peer teacher, he or she has to have the correct information to teach, and thus benefits are seen from the extra preparation. Formal lines are not likely to exist between peers as they do between a teacher and a student, and with less inhibition, information is more likely to be shared.

The benefits of networking are well-known: making yourself known and learning what others have to offer through a relationship you build and deepen over time.

One example of a mentoring opportunity involves using a tablet computer, such as an iPad, on the job site to check off quality completion points. Instead of sheaves of paper blueprints, builders work with computer files ? and up-and-coming employees as well as any employees can learn the latest methods from a peer tutor.

“Some of our young guys are using a lot of new technology; they have iPads, they have Internet-based programs that they are using to track what’s going on, and it’s just a great opportunity to explain to the other guys what are we doing on this project that could have application to our other jobs,” McCarthy said.

Reward the ideas

In an industry such as construction, there are many opportunities where an operation can be improved or a process can be altered to save time and money. McCarthy wanted to encourage innovations and reward the best ones while also making use of others that were proposed. If the ideas were coming from the frontlines, market share would increase as innovations cut costs and improved efficiency.

A quality group led by two journeyman project managers holds an annual quality concept of the year competition that recognizes the best innovative ideas. Winners are chosen by secret ballot among the employees.

“It says: that’s what happens when you innovate,” McCarthy says.

The competition is open to all employees. This year’s winner was a 25-year-old engineer who designed a device that could be put in windows being replaced from the time the current window is taken out to the time the new window went in to keep the area weather-tight.

While not only recognizing the idea, the process of innovation may open doors to other possibilities.

“Another interesting thing that happened over the course of this, the engineer came to my partner and said, ‘Hey, I would really like to switch career tracks into more of a field supervision career track,’ and I think part of it came from his experience on that project,” McCarthy says. “So we’ve switched him over to working with one of our senior guys on a large project where he’s developing his skills there.”

The winner for the previous year also moved up the ladder. He re-engineered the entire concrete process used at a hospital construction site.

“I remember when he won this thing, he stood up and said, ‘Boy, I think I’m winning an award for messing with something,’” McCarthy says. “So, it was great to see how that went. That guy is now one of our quality leaders. It’s impressive how that develops.”

As for the ideas that don’t win, their value is recognized, and they are distributed throughout the company as alternative valuable concepts. About 50 entries were received this year.

“Even though they didn’t win, they’re good ideas,” he says. “It’s amazing. Many of them were inspired after we had a challenge, after something didn’t work right or what did we do in the face of some adversity or difficult challenges. People are stepping back and saying, ‘OK, what can we learn from this so that we do get better?’”

How to reach: Pepper Construction of Indiana, (317) 681-1000 or www.pepperconstruction.com

The McCarthy File

Bill McCarthy

President

Pepper Construction Co. of Indiana.

Born: Chicago, Ill. I worked for 15 years for Pepper Construction there. We had started a large hospital project and wanted to really to expand our presence in Indiana, so the CEO of the company at the time, Stan Pepper, asked if I would move here with my family to have a more full-service presence. So I moved here in 1995, and I absolutely love it. We had three boys at the time; we now have four. This is home to us. We absolutely love it. I visit Chicago probably once a month because that’s where our corporate headquarters is, my wife’s family lives there and so forth. But we just love Indiana, and it’s been a wonderful move for us.

Education: University of Illinois, degree in architecture. I also have a master’s in business from Northwestern University, from the Kellogg School of Management.

First job: I was a paperboy at age 11, and I loved it. My first professional job was with Pepper. I started with the company right out of college.

Who do you admire in business?

David Pepper. He is the CEO of our company. He’s a very different kind of leader than I am. I really admire that. To use a ‘Good to Great’ term, he is probably a Level 5 leader. He’s very authentic. He is a humble man, a very humble guy; down to earth. He doesn’t look like he’s a CEO out of central casting, but he’s a terrific leader. I think he does that by empowering others to lead. He always has an opinion on things, but he lets other people say their piece and gets some consensus out there before he puts his foot down on things. I think he does that extremely well. I think he has been a great leader.

What is the best business advice that you ever received?

Probably one of my more admired leaders is Richard Pepper. He has been involved in the company for probably the last 60 years, so he started with the company right out of college. He always says if you focus on the customer and serving the customer, that will lead to repeat business, and repeat business will make sure that you are profitable. It’s such a simple concept, but it’s one that really just says it all. So I would say in tough times that what I think is even more meaningful is to continue that level of commitment to client service.

What is your definition of business success?

Doing the right thing and meeting and exceeding the expectation of our clients. A job well done, win or lose, is what counts. We try to make sure that regardless of our challenges in meeting their expectations or meeting our own financial requirements that we first deliver the best job we can for them, because I think that’s what we owe everybody. Sometimes, even on a job that is a very successful job for us, there are other jobs I can think of that financially weren’t very successful but the client viewed them as successful.

Published in Indianapolis

Even employers who maintain a workplace that encourages employees to eat better, exercise, stop smoking and follow doctor’s orders regarding chronic illnesses will continue to have employees who smoke, who aren’t taking their medications and who are out of shape. These unhealthy habits hurt the company through lost productivity and increased health care costs.

“Employers have tried to play nice, meaning that if employees did specific things, such as stop smoking or complete a health risk assessment to understand their numbers, the employer gave them a gift certificate,” says Steve Freeman, president of USI. “The problem is, employees that don’t want to change and continue their poor behavior will continue to do so if the incentive isn’t meaningful. A gift certificate isn’t going to cut it if you want to change behavior.”

Employers are seeing that this behavior is affecting their bottom line costs, and are using more drastic measures to take control.

Smart Business spoke with Freeman about how to use financial incentives to promote wellness and how doing so can improve productivity and your bottom line.

Why should employers care about the health of their employees?

Health risk factors pose a substantial economic burden to businesses. Health care spending is projected to reach $4.2 trillion per year by 2012, or 20 percent of GDP. Of that, $450 billion will be spent on direct costs, and American companies are bearing the costs of poor employee health. But it’s not just direct costs. Obesity, heart disease, depression, diabetes and other chronic illnesses lead to sick days, absenteeism, decreased productivity, low morale and staff turnover, which are estimated to cost U.S. corporations an additional $225.8 billion per year.

If people are healthy and feel good about themselves, they are more productive, miss less work and claim less on medical plans. Employers are realizing they can provide an environment that promotes a culture of good health, resulting in direct and indirect benefits.

How can employers begin to build a wellness program that works?

Start with getting the overall health status of your employee population by having everyone complete a health risk assessment (HRA). This will give you a profile of your employees regarding their overall health. For example, It will share how many people have high blood pressure, diabetes, or a BMI over a certain level so that you can establish a starting point. That way, if people participate in wellness programs, you’ll have a benchmark to compare against the following year.

From there, determine the incentives based on actual results. It is important to keep score, monitoring and measuring results or changes in activities. Sharing aggregate results and success stories will help promote these programs.

What financial incentives can employers use to encourage people to participate?

Instead of a gift card or a minimal cash incentive to fill out a health risk assessment, consider discounts on contributions to the health plan or offer those who participate a better plan with a lower deductible, coinsurance and copay. Also, some employers can make cash contributions into health reimbursement accounts for employees.

Under HIPAA’s 20 percent rule, the reward offered cannot exceed more than 20 percent of the cost of the insurance. For example, if a single employee’s insurance costs are $550 a month, and the employee pays 30 percent, that’s $165. If that employee made improvements in his or her wellness measurements and scored well, the person could only pay 10 percent, or $55, which is a considerable savings. As an employee, why wouldn’t you participate and try to make some improvements?

Under HIPAA, a program that offers incentives must be reassessed yearly, be designed to promote health and wellness, and be made available to all similarly situated individuals to provide a reasonable alternative method of receiving the reward.

How can a program be structured to reward healthy behavior?

If employees are overweight, you’re not telling them they have to be a certain weight. It’s about making incremental changes and seeing results. Or if employees have diabetes and are not taking their medication, but the programs get them to adhere to their medication plan, then they’ve satisfied that criterion. There are a lot of ways to set it up and measure results.

How are insurance companies encouraging employers to incentivize employees?

If companies provide a smoke-free environment, an onsite exercise facility or gym memberships, many insurance companies will reduce their premiums. In addition, if you mandate HRAs and get a certain percentage of employees to participate, there may be premium reductions because it gives the insurance company a snapshot into the overall health status of the group. That allows them and the employer group to set up a targeted wellness program that is tailored to their own population. For example, if you have a high prevalence of individuals with diabetes, you can focus your wellness communication on how to manage diabetes. If you have a high prevalence of smokers, you can zero in on smoking cessation programs. It allows you to tailor your communication to your population versus just pulling something off the shelf and saying you have a wellness program.

What is the role of management?

It is critically important that senior management endorse and participates in the program. If they don’t, it won’t be successful. If the CEO knows it’s important and is participating, employees will follow. Companies that want to increase their bottom lines may want to influence their employees with more aggressive incentives, which will increase productivity and moral and decrease absenteeism, turnover and medical premiums.

Steve Freeman is president of USI San Francisco. Reach him at (925) 472-6772 or steve.freeman@usi.biz.

Published in Northern California

When considering a move to a new community, a company’s leaders may be influenced by the desirability of  residing in a certain locale, or choose a city based on having heard good things about it. But there are a number of factors to consider to ensure the move is the right one for the company, and that it is pursuing all possible incentives, says Linda Burns, a site location consultant at Burns Development Group in the Dallas metropolitan area.

“Key factors to consider include labor availability and the cost of that labor, real estate availability and the associated costs, a geographic area that coincides with a company’s customers, vendors and suppliers, and the tax environment and incentives that may be available,” says Burns.

Smart Business spoke with Burns about how to ensure a successful transition into a new community that is right for your business.

If a company is considering relocating, what is the first thing it should do?

If you don’t have the expertise in house to conduct an assessment, seek the outside assistance of a site location consultant. That will help you, in a very objective fashion, to evaluate potential real estate and work force and look at how your operational needs are going to impact your real estate needs.

A consultant will look at where your company does business and where its vendors and suppliers are located. The consultant will also consider your unique real estate requirements; for example, as a data center or a manufacturer, you may have very stringent infrastructure requirements that you need to factor in.

CEOs need to take into consideration the strategic, financial and operational implications of rationalizing a company’s facility location across multiple markets. A site consultant can help you collect that data and make recommendations on the best-suited sites to consider. Calling in the consultant early in the process is critical. Getting that advice and guidance up front is a huge help as you are looking at your total portfolio and deciding what to do.

What other factors does a company need to consider?

Labor is another important element, in terms of availability and wage rates. It’s very expensive for companies to relocate labor, and they can’t afford to deal with unsold homes like they used to. It is key when making decisions on location that companies assess labor availability and average wages in the area being considered and factor that into their operational plan. In many cases, suitability of the work force in terms of availability of workers with desired skill sets and wage rates supercedes the real estate.

Also look at where your vendors, suppliers and customers are located, where your markets are, and where it makes sense for you to be. And look not just at your needs but also at what the cost of those needs are, such as whether you’re considering a move into a state with very high electricity costs. Look at what your demand is going to be on those systems, and what the associated costs are.

Consultants approach the site search as a process of elimination. Your site consultant will assess other areas, such as quality of life and business climate; educational and training resources; health care offerings; recreational, cultural and retail amenities. All of these items potentially affect the bottom line — including the company’s ability to recruit and retain workers.

How can tax incentives play a role in deciding where to locate?

Companies don’t always think in terms of being desirable or being in a position to approach a community, county or state about tax relief. They may think that they will only get the attention of a community if they are moving hundreds of people, building a building or have millions of dollars in investments. What they don’t take into consideration, especially in a large metropolitan area, is that there are many surrounding communities that would be very happy and very supportive to receive a smaller project.

There are some very aggressive programs out there right now and they are getting more aggressive at all levels. There are deal-closing funds to provide gap financing that is needed to secure projects. There are communities that have cash grants that provide discretionary funds to pay for anything from relocation to putting in a rail spur to training employees.

A company would be remiss not to conduct due diligence and look at all possible location or expansion scenarios. It’s a numbers game. Jobs are really needed right now, and communities are very receptive and willing to work with projects that offer job creation.

Is now a good time to consider relocation opportunities?

With all the downsizing, or ‘right-sizing,’ of the past few years, companies are reassessing where their current locations are and whether it makes sense to continue there in the future. They are looking at whether they should consolidate multiple facilities into one they currently own or lease, or whether a different territory makes more sense in terms of logistics and costs.

There is still a conservative approach in terms of evaluating what the next step should be, but there’s a definite increase in companies evaluating their current situations and trying to forecast their future needs. And the real estate market is still very competitive in terms of what property owners are willing to do for companies, offering some very good tenant improvement allowances, free rent and helping to take people out of leases early in some cases by the savings that they’re able to offer.

Communities are looking for new tax revenue and need new job opportunities because many still have high unemployment rates. And that makes it a very good time for companies to be looking to relocate to a location that could improve their bottom line.

Linda Burns is a site location consultant with Burns Development Group in the Dallas metropolitan area, specializing in incentive negotiations and economic development recruiting. Reach her at (214) 402-1882 or linda@burnsdevelopmentgroup.com.

Insights Economic Development is brought to you by the Allen Economic Development Corporation, strategically positioned in the Dallas/Fort Worth metro.

Published in Los Angeles

 

Smart Business spoke to Robert Winningham, Executive Director/CEO of the Allen Economic Development Corporation (AEDC), about the current economic climate in Texas.

With most of the motivation for corporate real estate decisions is still focused on cost reduction and consolidation, the justification for incentives to support business relocations and expansions is stronger than ever. This is at odds with the traditional motivations for granting incentives.

The changing incentive environment is truly the result of today’s “business not as usual” climate. With increased leasing and reliance on landlord tenant improvement budgets versus significant real property investment, many projects fall short of the qualifying thresholds outlined in outdated policies. In response to continuing economic uncertainty, incentive policies are currently in transition in seven states, with others surveying ways to increase their competitiveness.

According to the Texas Comptroller’s Economic Outlook, the “Texas economy has emerged from the recent recession” with job growth and sales tax collections up from business and consumer purchases. Private sector employment benefitted, as expected, from the strong performance of mining and energy industries. The state economy also benefitted from aggressive, flexible incentive programs geared toward recruitment, expansion and retention. In a down economy, retention can be the equivalent of growth and has become increasingly important to municipalities experiencing revenue shortfalls and shrinking budgets. Although most communities’ policies for incentives do not apply to retention projects, the reality today is that many communities are using incentives to retain or expand businesses.  Texas is one of the few states where there are local and state incentives that can be adapted for this purpose. These same flexible programs came under fire this year by some state legislators, however, the argument by proponents is that incentives, whether for retention or new business, are needed to help our struggling economy prevailed.

Texas’ state and local incentive programs survived this year’s 82nd Texas Legislative session despite a massive $27 billion state budget deficit.* Texas added 537,500 nonfarm jobs between June 2006 and June 2011, based on the latest seasonally adjusted figures from the U.S. Bureau of Labor Statistics. That’s nearly 10 times larger than the second-biggest increase by any state over the same five-year span, which is Louisiana’s gain of 55,900 nonfarm jobs. Texas also became the second-largest economy, passing New York and coming in second to California, per data released by the U.S. Department of Commerce Bureau of Economic Analysis.

Texas communities tend to work with performance-based incentives where a project is evaluated based on job creation, capital investment, and/or sales tax generation.  Performance-based incentives are becoming increasingly popular nationally where the long term trend has been to offer tax credits rather than grants. Most of these newer performance-based incentive programs are limited and usually tied to recruitment, screening and job training costs. Texas’ Economic Development Sales Tax, which allows local communities to use up to a half-cent of their sales tax for economic development efforts, serves as the backbone of local economic development efforts in more than 500 communities. These sales tax economic development corporations have become a model program by which communities can provide businesses with cash grants for relocation, tenant improvement costs, job training and assistance with infrastructure costs.

The credit crunch, coupled with the continued pursuit for bottom line revenue and cost reductions, has made locales with discretionary grant and financing-driven incentive programs increasingly attractive. There are new opportunities on the incentive front with nearby states, such as Oklahoma, Louisiana and Arkansas, following the lead of Texas with its discretionary cash grants, tax rebates and deal-closing fund either in place or in discussion.

Incentive programs may also face more scrutiny during the 2013 State Legislative session as a result of the review by the Legislature’s newly created Select Committee on Economic Development, whose role it will be to study and make recommendations on incentives. Add in the potential competition from the surrounding states’ incentive programs and it will mean added pressure for Texas. Continued global economic instability and intense competition abroad and at home for jobs and capital investment will have us watching to see if Texas can stay at the forefront of economic recovery.

*The Texas Legislature meets in odd-numbered years.

Robert Winningham is Executive Director/CEO of the Allen Economic Development Corporation (AEDC), in the Dallas-Ft. Worth MSA. In January 1992, the citizens of Allen passed a citywide half-cent Economic Development Sales Tax in support of economic recruitment, expansion and retention. A board of directors, appointed by the City Council, oversees the corporation’s operations.

Published in Los Angeles

Change happens. Are you making the most of it? Are you considering relocating your business or hiring employees? What about diving into research and development, or purchasing new, more efficient equipment to improve manufacturing processes?

If you are thinking about these or any other business-related initiatives, tax credits and incentive opportunities could have a significant impact. You may also be eligible for grants, low-interest financing or reduced utility costs, says Shawndel Rose, manager of State and Local Tax, Brown Smith Wallace LLC, St. Louis, Mo.

“Credits and incentives have been around for years, but as the economy changes, so does the nature of these opportunities. The financial position of the state you live in is impacted right along with your business, so why not make use of these tax opportunities while continuing to grow and develop your business,” says Rose.

Smart Business spoke with Rose about how tax credits and incentives work and what businesses can expect this year in light of the economy.

How do tax credits and incentives work for businesses?

Credits and incentives work in a number of ways for businesses. One way is to encourage economic development in the state. For example, many states encourage businesses to invest in new property or machinery and equipment. Relocating operations, expanding current operations and job creation are other focus areas.

Some of the most beneficial credits and incentives are based on maintaining or increasing a business’s work force.

A second way they work is to induce businesses to engage in certain activities, such as research and development and ‘going green.’ Oftentimes, they encourage businesses to relocate operations to a distressed or revitalization area.

Job training to increase employee skills and help develop the state’s work force is another encouraged activity. There are also rewards for hiring employees who may belong to a protected class, such as veterans or those considered difficult to employ.

As you can see, there are a host of opportunities to encourage business growth and to expand and enrich business operations while reducing your tax burden and, ultimately, saving money.

What is the difference between a credit and an incentive?

Credits are statutory and are designed to encourage specific activities. They can be based upon payment of other taxes. For example, if a business pays sales tax or property tax, it could generate a credit to be used to offset an income tax liability.

It’s important to know that some credits require preapproval from the government agency awarding the credit. Credits are typically claimed on a taxpayer’s state or local income, franchise, or net worth tax return and may be carried forward if unused in the current year. Some are even refundable.

Incentives are benefits that are negotiated with state or local economic development, taxation or other government officials as an inducement to locate or expand operations in a specific jurisdiction. Unlike credits, incentives must be negotiated well in advance of a firm commitment.

The financial benefit of the incentive may be reflected in a variety of ways, not necessarily on your state income tax return. Because they are contractual in nature and require each party to perform certain activities, the contract typically contains a recapture provision that requires repayment of the incentive and/or imposes a penalty if the contract requirements are not satisfied.

Incentives offer businesses negotiating power. For example, if a company is planning to build a new facility, it could approach the states of Illinois and Missouri and ask what benefits each can provide. The company can then compare the proposed benefits to determine which state’s package would result in a better financial outcome.

How can credits and incentives benefit businesses?

Cash flow is always a priority for businesses. Tax credits and incentives can help a business reduce or even eliminate certain costs to increase cash flow. Such costs may include human resource activity (i.e., training/screening costs), acquisition, site-preparation and public infrastructure (i.e., rail, sewer, etc.), just to name a few.

Companies may also have an opportunity to reduce telecommunication and utility costs.  These decreased costs, as well as cash grants and refundable tax credits, all result in increased cash flow.

In addition, successful negotiation can produce a reduced effective tax rate or preferential tax treatment, such as special apportionment.

What is the credit and incentive environment like today, and what does this mean for businesses?

That depends on the state. Generally, states are struggling financially and many are taking a step back to review credits and incentives to ensure that these tools are producing the intended results. In Missouri, for example, the governor created the Missouri Tax Credit Review Commission to assess the 61 current credit programs operating in Missouri and to make recommendations.

A report distributed in February noted that the commission recommended eliminating or not reauthorizing 28 credits and improving efficiency in another 30 credits. Connecticut and New Jersey are taking similar action.

For businesses, there are still great opportunities to use these tax-advantaged resources, but they should spend time with a tax professional who can provide direction so the company can realize the full benefit of potential credits and incentives that match its strategy.

Shawndel Rose is manager, State and Local Tax for Brown Smith Wallace, St. Louis, Mo. Reach her at srose@bswllc.com or  (314) 983-1356.

Published in St. Louis