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Taxation optimization of remunerations


A tax-exempt compensation package was set up for the managers of an international trading company dealing in industrial products. Though for tax purposes the executives are paying income tax in France, they frequently travel abroad to develop the company's business expansion and promote its products.

This solution also applied to certain members of the Board who traveled intercontinentally for periods that were on average a bit longer.

The Financial Director entrusted us with this assignment which included:

▪ An inventory of the number and duration of the trips

▪ Create two tax exemption schedules. The first for the frequent travelers within Europe and   the second for those traveling to Asia Pacific and the Americas (intercontinental).

▪ Feasibility of supplementary compensation, non substitutive

▪ Evaluation of costs and advantages for the Executives and Managers involved

▪ Validation by the Board of Directors

▪ Staggered implementation over two fiscal years.

▪ Satisfaction survey of the beneficiaries.

▪ Implementation of a management tool to handle this tax-exempt compensation

▪ Drafting of instructions for the “return to fixed assignment for the beneficiaries.”

In a full year, this innovative measure made it possible to have the average net compensation for the Executives and Managers who qualified increase by 14.5%, measured as costs for the company.

It should be noted that the schedules were defined to achieve a substantial advantage for the beneficiaries and was part of a measured taxation policy limiting risks of litigation.

This measure was voluntarily implemented over the course of two years in order to preserve consistency and the continuity of the compensation policy. Jointly, a significant and long-lasting stabilization of permanent staff was achieved and the variable compensation policy benefited from the allocation of funds that became available.

Intelfi coordinated the training for the department handling the compensation packages and the international administration of staff and allowed for optimal functioning of the system during its first year.

For a business to business service group present in 35 countries whose objective was to promote the overall success of employees and an integrated group dimension for its communication and human resource policies, an employee's shareholding plan was set up.

This solution was potentially offered to 23,500 employees working in 29 different countries. After defining the criteria and conducting an evaluation, 18,700 employees were eligible to join the plan.

From the time of the first offering, the plan provides the possibility to join at a future date at a frequency yet to be defined.

The executive committee entrusted Intelfi with this assignment, with the assistance of the Financial Directors, the Human Resources Department, Legal Department, and Corporate Communication and various countries representatives.

The main steps taken were :

▪ Define the overall structure of the instrument, and principles to withdraw from it.

▪ Estimate the legal and tax constraints for each country.

▪ Validate the legal and tax aspects by an international network of advisors

▪ Create a central financial structure

▪ Develop a follow-up system to set up the project and provide training for it between the   countries

▪ Evaluate the costs for launching and running the program, division of costs between   corporate offices and the country offices.

▪ Have the executive committee and managing committees of the various countries validate the   plan

▪ Make financial calculations with the international network of banks

▪ Launch the pre-subscription phase

▪ Organize the coordination and follow-up group

▪ First results

▪ Integrate the acquired skills to the corporate KDB (Knowledge Data Base)

Among the 18,700 eligible employees working in 22 countries, 12,155 subscribed, that is, 65% for an average amount of 8% of their average annual wages. It should be noted that the subscription was especially high in the countries where the earnings level and savings rates were weakest.

Subsequently, Intelfi's task consisted of handling the detailed results of this subscription campaign to determine the features for the following campaign.

On behalf of a European insurance company, Intelfi was asked to develop a solution to overcome the compensation discrepancies resulting from the marked differences in tax and social obligations of the different national regulations, following the sequences of attribution and accounting practices.

This request aimed at optimizing the allocations of stock option to come and to avoid, particularly for the international employees, tax configurations that were les favorable though their allotment was identical.

The General Operations Directors, the Financial Director, and the Director of Corporate Human Resources made this request. It included :

▪ Evaluation of specific systems for each country for each allocation configuration, purchasing   period and selling conditions within a specific fiscal year.

▪ Define typical profiles of employees assigned abroad to determine the most and least   favorable configurations

▪ Estimate the potential variations in the number of stock options attributed to smooth out the net   profit achieved at 50%, 75% and 100% for the employees working in different countries.

▪ Evaluate the feasibility of the compensation measures and define the exact role of the   company between policy and incentive rewards and the possible role of neutralizing the   taxation system differences.

▪ Define a rule establishing the company's role with regard to the differences in tax   systems   for each country according to the phases. The company's vocation is not to   neutralize or   compensate for tax variations affecting the profits earned by the beneficiary   employees, but   rather the expectations of the existing beneficiaries.

On a case by case basis, the company can overcome the situations that are notably unfavorable by applying other remuneration policy measures, in particular by assigning free shares.

▪ Design a variation scale for the net yield of the stock option per country

▪ Train the Finance Directors in the countries

This measure did not open a new chapter in the company's compensation policy. The assignment of stock options remains discretionary and the executive committee re-asserted its interest in making differentiated allocations. Intelfi's work made it possible for the decision-makers to have a usable marginal weighted study. The study also demonstrated that this issue, raised by the international employees, had become a part of the corporation's topics for reflection.
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