Key stakeholders drive better economic incentive results
by Kelley Rendziperis, on Sep 24, 2015 10:54:55 AM
Any knowledgeable economic incentive consultant will encourage corporations to gather key stakeholders and bring them to the table when considering various business changes that may trigger economic incentives. Typical stakeholders include representatives from real estate, tax, finance, human resources, operations and governmental affairs. As economic incentives have grown in popularity and in scrutiny, Site Selection Group has seen companies increasingly understand the rationale for ensuring strategic company officials are involved early in the process.
Aligning the goals of each business unit is critical in economic incentive negotiations
Each business unit may have differing goals. For example, an individual in the real estate group is heavily focused on economic incentives that will offset real estate costs, while someone in human resources is focused on finding benefits to aid in training. Furthermore, the tax department would be interested in any direct and indirect tax benefits that would improve the company’s bottom line. All of these interests are not necessarily competing against each other, but need to be considered in conjunction with one another so as to procure the most advantageous economic incentive package possible.
Who are the stakeholders in the economic incentive process?
Every company has a different corporate hierarchy, and this often makes it difficult to determine who needs to be involved. The following diagram identifies many of the stakeholders often involved in the economic incentive procurement and compliance process:
Communication among stakeholders can minimize the risk of falling out of compliance
If all the key stakeholders are not aware of a potential project and its benefits, then it may not be properly accounted for by the different business units during the incentive process. Imagine someone in the real estate department proactively obtaining a property tax abatement without informing the tax department. This could lead to an overestimation in projected tax liability, a default in future mandatory compliance or even a conflict with other efforts by the tax department to appeal the value of the subject property.
In another instance, an operations or human resources representative may be motivated by potential training benefits that could reduce overall labor costs. However, oftentimes, if these representatives are not accustomed to the economic incentives process, they may be completely unaware of other incentives that may apply to significant job growth such as state and federal income tax credits, payroll tax rebates or job performance grants. Furthermore, if capital investment is also being incurred, then a company may overlook economic incentives tied to investment, such as investment tax credits; property and sales tax abatements; tax rebates and exemptions; infrastructure assistance; and favorable financing, among others.
Early involvement maximizes the return on investment
Companies should identify their key stakeholders and ensure they represent the company’s overall operations. Once identified, Site Selection Group recommends that this group be involved early in the process of evaluating capital budgets to capture potential above the line and below the line economic benefits. Such early, proactive involvement could aid in improving the return on investment of a certain project making it viable where it otherwise would not be.