Thinking broadly: From tax code updates to HR's trending issues


Jim Otto

Associate Client partner

Korn Ferry

June 28, 2018

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With the recently-enacted changes to the tax code, tax-exempt healthcare organizations have been working to figure out the effect on their compensation programs, the potential for employer-paid taxes that have never existed before, and the ramifications to their unrelated business income and resulting taxes.
Beyond these immediate issues, healthcare organizations should pause to examine whether their entire approach to how they reward and pay employees for their work, and how they “set the table” for career development for employees, are adequate in today’s environment. More importantly, will it work in the future.
Healthcare providers have been noticeably behind other industries in creating a disciplined, organized approach and process to how individuals can advance their careers without having to leave their current employer to do so. With the increasing number of retirements – baby boomers and others, from the work force in general and from healthcare in particular – healthcare organizations should be motivated to keep their talent “in house” to reduce the time spent and expense incurred on recruiting replacements from the outside. There are a few basic questions that should be asked and answered on this:
  • Do we as an organization care if employees “move on” from us to another?
  • If we do, what is our “pitch” to employees to develop their career in our organization? 
  • How do we help employees develop their careers?
  • What is missing that we need to put in place?
This usually leads to questions about whether the organization is structured to be consistent with the mission and business strategy of the organization, whether the right jobs exist to achieve the strategy, whether the right people are in place in those jobs, and whether there is clarity in how an individual can move from one job to another within the organization to advance their career. If there is no alignment on all of these, then organizations will flounder about with the disconnects, talent will exit, new talent will be hard to woo into the organization, and the strategy will stall or fail.
How do rewards fit into all of this? The reward strategy – the intangibles, cash, benefits, career development – all need to be coordinated and support what the organization is trying to achieve and how it is trying to achieve it.
Start with the philosophy that underpins the reward strategy:
  • When was the philosophy last comprehensively reviewed and updated?
  • Does it truly reflect what the value proposition is for working at the organization, and how much the organization wants to pay in relation to the market?
  • Does it address all the components of pay? For example, does it address the intangibles that are part of the reward package?
So, take the time – now – to understand the effect of the changes to the tax code. Notably,
  • Who are the organization’s “top 5” paid employees whose compensation may be subject to an excise tax? And is there more than 1 group of “top 5” paid employees based on corporate structure?
  • What is the potential excise tax exposure for “regular” compensation for 2018?
  • Are there amounts to be paid in future years that will increase this potential exposure?
  • How do the current severance arrangements, if paid out, impact the potential excise tax exposure?
  • What changes can be made to the current executive compensation program that minimizes future excise tax exposure? Can the timing of payments be changed that would help? Are there different ways in which cash compensation or benefits can be delivered that can help?
While the tax law generates some immediate concerns, keep in mind the broader issues that every organization should think about.