A Ridiculous Double Standard

While the value of tax credits and incentives (C&I) are becoming increasingly known to businesses across all industries and of all sizes, C&I largely remains under-appreciated in the context of individual careers for those in corporate tax departments. That is to say, very few corporate tax managers and tax directors are receiving promotions, bonuses, and/or raises because of successfully growing the value of their organization’s C&I portfolio.

I find this to be problematic in and of itself, but particularly difficult in the context of sales.

For example, from an organizational perspective, the financial and strategic impact of a tax team member securing a state R&D credit for a new manufacturing plant resulting in a $2 million impact to net income (via tax offset or even a cash refund) is very similar to the impact of an account executive who is able to secure a $2 million purchase order or sale. We can debate the additive value of securing a new account vs the strategic and net income values of C&I, but from a core logical perspective, $2 million is $2 million. I’m sure you can guess where this example goes next:

After closing the $2 million sale, the account executive gains a number of direct and/or indirect compensations aligned with their job description and function. These may include a commission, job security in the form of a satisfied sales quota, progress towards a companywide incentive program such as an annual President’s Club vacation, and generally positive feedback from leadership potentially contributing to promotion or future base salary raises. Alternatively, after securing the $2 million credit, the tax manager may receive some isolated praise from a supervisor but is extremely unlikely to enjoy any direct or indirect compensation.

Of course, the invisibility of C&I for the individual career runs both positively and negatively. To continue with the above example, if the salesman were to bungle the $2 million deal at the last moment, failing to meet some rudimentary contracting issues, they would be met with major penalties which could certainly include termination. Alternatively, if the tax manager’s R&D credit failed to monetize due to missing some equally rudimentary filing requirements, no one would be the wiser. In this case, the internal stature and invisibility of C&I actually provides protection to the tax team member.

Individual compensation is, at its most primary level, intended to be a function of an individual’s value to the organization. Nowhere is this more neatly reflected than in business development roles which directly tether individual’s financial outcomes with their sales. While I am not suggesting that the tax department should become commission-based employees, I do find there to be a double standard in light of the revenue and strategic impact inherent to C&I. While this double standard is potentially problematic for individual employees (I say “potentially” as I know of various tax professionals who much prefer the protection afforded by the occlusion of C&I outcomes than they do desire the prospective bonus of a C&I victory) the real loser is the organization. If no member of the team stands to directly benefit from the successes, and become accountable for the failures, with an asset of C&I’s magnitude, then it becomes unlikely the asset will be optimized.

These C&I assets include those created to encourage investment in ESG goals. Certainly, the tax manager pursuing such goals deserves recognition.

Clearly, there are complexities and nuances around compensation structures. Rather than focus on the specificity of C&I’s financial impact to each individual, I think I would sum this argument up with a broader recommendation:

Someone should be responsible for C&I at every organization where the portfolio’s impact should bridge a minimum threshold value. What should that minimum threshold value be? Simple:

An amount that would matter in the sales department.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Laurence Sotsky is the CEO of Incentify, an enterprise technology firm dedicated to realizing the financial and societal goals of Tax Credits & Incentives (C&I).

Bloomberg Tax Insights articles are written by experienced practitioners, academics, and policy experts discussing developments and current issues in taxation. To contribute, please contact us at TaxInsights@bloombergindustry.com.