Leann: Welcome to our next episode of Mobility Via Podcast where we’ll be looking at what companies are considering with respect to compensation, benefits, and rewards with new work arrangements, along with the acceleration of environmental, social, and governance, ESG impact on how companies are looking to pay executives and potentially their entire workforce.  I’m Leann Balbona.  I’m a Tax Managing Director in our Global Rewards practice where I help our clients either automate their rewards program through our Global Equity Tracker application or help them with rewards, administration, strategy, and approaches.  I’m currently working with the KPMG ESG workgroup called Impact, and we’ll be covering some of those topics today.

In our most recent podcast, we covered the topic of work anywhere.  We’ve been at this for almost a year now and employers are looking more closely at compensation, benefits, and rewards with an eye to drill down on roles, responsibilities, and exactly where employees are physically working.  There’s also been a focus on ESG initiatives.  On today’s podcast, I’m joined by my colleague Dinesh Sinniah, who is also a Tax Managing Director in our Global Rewards Practice.

Dinesh: Thank you, Leann, it’s good to be here.  So last year around the same time, we polled companies regarding the impact of COVID-19 and an overwhelming 99 percent reported that their organizations are currently supporting employees working from home or remotely through adjustments in either their leave(?) policies and then the benefits surrounding their support model.  While we continue into 2021, how much of this experience matches your observations, Leanne, from a comp and benefits perspective?

Leann: It’s not too surprising, Dinesh, health and safety has certainly been the main concern of many employers, making sure that they support their employees and enable them to work where they feel safe, and taking the necessary precautions to remain healthy.  I think what’s interesting about this trend is that we’re now seeing this deeper dive into where exactly employees are working and capturing that data for a variety of reasons: possibly compliance risk, looking at payroll reporting and withholding requirements, looking at the ways in which employees are compensated, how benefits are derived and delivered, and certainly health and safety.

Dinesh: So when you say, “potentially changing the way employees are compensated,” what are your observations here?

Leann:  Dinesh, I think some of this is industry driven.  If companies were thriving during the pandemic, they certainly didn’t want to be changing employees’ compensation structure or performance award structure as part of their compensation strategy.  We did see adjustment to compensation to better support the employees, a reimbursement of, say, home office expenses, additional elder or childcare assistance or even sick leave.  If companies were not doing quite as well during the past year, we did some freezes in certain things like salary increases, variable compensation, and possibly reduction in 401K matches for certain companies. 

We did see companies steer away from adjusting performance metrics because that would require more of a complex administration, possibly going to their board and to their investors for making those changes.  So, certainly looking to preserve as much compensation as possible, and the shift to equity, I would say, as well.  If the company was under the auspice of trying to retain cash for operations, they were looking to increase equity as a retention vehicle.

Dinesh:  I would agree that as we’ve entered 2021, we see an increasing number of companies gathering data around the exact work locations of the employees and running analytics to determine what are their risks or exposure from a tax compliance perspective.  Then really looking at the exposure analysis to make data driven decisions around policy and any potential adjustments to compensation and benefits.  Now, we’re still at the early stage of this.  Some organizations have developed more robust policies that they’ve rolled out, but I would say the majority of the companies that we’re talking to are still at the stage of either running these analytics or reviewing them to then develop out their policies. 

One of the pieces that really comes into play is companies where you have employees moving from high taxing states to low taxing states and whether or not to adjust the compensation for the employees.  For organizations where working remotely is going to be part of their long-term strategy, this is something where they’re giving thought into.  And this isn’t something new.  I mean, pre-pandemic, organizations have looked into this, specifically around moving the employees from different states.  But this kind of concept is re-circulating now as organizations are looking into it and saying how can this play as part of the compensation model for a remote workforce? 

So, as I said, some observations for 2020 have been quite unusual, to say the least.  Especially given the fact that some organizations did perform really well during the year that was 2020 and some struggled because the pandemic had really huge detrimental impact into their business.  So Leann, from your perspective, I’m curious about some observations that you’ve seen in Q1 2021?

Leann: So Dinesh, I think for Q1, we certainly saw companies stick with mainly what they had granted and the existing performance metrics to pay out on their performance awards.  As I said earlier, not many adjusted their performance metrics.  Others looked to even expand their grants deeper within the organization and have a more broader use of equity within their organization to help with retention and also deliver incentives to their employees without remitting cash.  So, certainly an increase in equity grants, I would say, with what I’ve seen with a lot of companies that I deal with. 

Also, when we look at the concept of employers either moving from high to low or no-tax states or employees doing the same because of the work anywhere concept, the compliance factor has certainly gone up for employers in that they now have a trailing tax liability where maybe they didn’t have one previously.  So all of a sudden, this notion of mobile employees certainly expanded to a broader group of employees who are participants in the equity plan with awards that were granted in the previous locations.  So, certainly an expansion of mobile grants we saw this year and companies are looking at that a lot more closely as they dive into where employees are actually working. 

Dinesh:  I totally agree, Leann.  We certainly saw an increase in equity related (Inaudible) transactions for our clients.  One of the benefits for our clients that have added more formalized tax positions or technology platforms that they use to handle the tax compliance as it relates to their mobile employees’ equity awards, was redeploying those positions and technology to be able to do some form of analytics around the impact of the remote working situation.  And ultimately, going back to the data driven decisions our clients are making with respect to assessing risk and developing policies as it relates to not just equity awards, but then to kind of like a broader compensation and benefits.

Leann: Dinesh, you know, one other thing I thought about was that we’ve seen questions cross our desks that I haven’t seen in decades or ever before.  And I think with the states also introducing new telecommuting rules, it’s like the US states have become almost as complex as the rules between countries that we’ve dealt with for so many years.  And I think as we see the states look to increase revenue streams, they will look more closely at possibly implementing telecommuting rules.  And having that information to understand where your employees are working and whether these rules come into play, certainly the data and analytics that you described helps companies decide and make those business decisions in real time by having that information.

Dinesh: Leann, I couldn’t agree more.  On the US state front, companies need to remember that moving employees across the US states usually translates into additional payroll compliance requirements.  As organizations need to look at the entire term of the award with respect to where the employees worked, versus just looking purely at the state of residency of the employee when the awards are delivered. So for example, for employees that are moving across states, it’s important for organizations to look at what is the residence state of the employee in either vest or exercise.  And then looking at the grant to vest period in determining did the employee work in one or a number of states during that period because the different states may be looking to tax their share of the awards.

Now, from a general rule’s perspective, most states will give a credit or non-resident state tax withholdings or state taxes paid, but there can be exceptions to the rules here.  Therefore, it’s really critical for organizations when they’re looking at this kind of interstate payroll compliance fees to understand what is the local laws of the state with potentially localities of municipalities?  Also, what becomes really important is the corporate nexus and does the employer have nexus in all of these locations?  And is the employee working in the states for the convenience of the employer or the employee, as that could really impact the company’s responsibility with respect to reporting and withholding. 

 As you mentioned, Leann, we are seeing an increase in the telecommuting rules introduced by the states for remote workers.  And so, if you’re a company who’s moved your headquarter from a low taxing jurisdiction to a high taxing jurisdiction or vice versa, it’s really important to consider these telecommuting rules, especially in terms of developing your policies and then you’re kind of more compliance framework. 

Some organizations have look to classify the majority of the employees as mobile employees because of this kind of remote worker interstate dynamic.  And it’s really a viewpoint on how do they best handle and address their compliance risk from a US multi-state perspective.

Leann: So Dinesh, you’re certainly right about the US states and we can’t ignore those rules and they’re becoming certainly more complex.  Let’s switch gears for a moment and talk about ES&G as it relates to compensation benefits and rewards. A mobility practice recently took a survey of companies in the vein of mobility and ES&G and did touch upon long term and short-term incentives as part of that survey.  We’re certainly seeing a heightened awareness and an acceleration around ES&G where companies are looking to have more transparency around these issues.  It started with the human capital reporting requirement that started in T4 of last year, and providing that sort of data to investors and the general public.  And with your recent survey, I think what’s interesting about it, Dinesh, is that it highlighted the fact that companies are starting to link ES&G related performance metrics to long term incentive plans or the annual bonus for the 20 percent that we surveyed, or they were looking to tie it to incentives in the next 18 months. 

So, I do think that this is an early journey that companies are starting to look at.  What is their strategy around ES&G and then do we need to look to tie that to short-term and long-term incentives, as well as from the executive level all the way down broader based within the company?

Dinesh:  Leann, I think you bring up a really good point.  Also, on the people front, I think the piece that our survey does indicate is around the key priority and I think you’ve laid this out a number of times on this podcast, is the number one concern is around health and safety.  A close second being diversity and inclusion.  Next on equal setting in terms of importance is skills and training, and this has become really important in the pandemic as employers are looking at the best way to train your employees and people during this kind of virtual environment.  And then there’s the kind of gender pay gap and equality.

Leann: The other points in this survey also talked about planet priorities coming into play from a CO2 emissions perspective and certainly top of the list was CO2 emissions with climate change coming in next, fresh water availability, solid waste, and loss of open protected space.  And what I thought was interesting about our survey was the fact that it looked at types of benefits being offered to encourage sustainability and covered things like cleaner commuting initiatives, health and wellness programs, locally sourced products, and energy efficient home and appliance initiatives. 

The other area we looked at from a mobility perspective was business travel.  And when you think about the fact that many of us have not been traveling in the last year, if we think about this from an ES&G perspective, the survey participants did indicate that 16 percent of them were looking at business travel as a possible sustainability factor that they would look at as an organization, and also look at the impact on carbon footprint as a part of their travel program. 

Yes, so when we talk about the 16 percent.  When we look at the carbon footprint is there the ability to offset employees to choose an investment by the organization in an environmental program in lieu of travel?  So I think that’s sort of an interesting concept that we may see companies take a look at more closely.  When we think about ES&G and rewards it’s certainly a longer and continued conversation that’s still evolving as we see companies start to define their strategy and roll that out across the organization, and how it will eventually tie either part or some function of ES&G into compensation and reward.

Dinesh: So Leann, you mentioned that global mobility, there was a focus on it within the survey.  In our recent survey it did indicate that global mobility will continue to be a business-driven decision with at least a focus on permanent transfer type candidates or potentially this notion of a virtual assignment.  Just curious, what are your thoughts on compensation benefits on these employee or assignment types?

Leann: Dinesh, prior to the pandemic we did see companies start some conversion, either a longer term ex-pat traditional programs into looking more at permanent transfers for saving costs.  But I think there’s also this notion of a virtual assignment that may come into play as companies try to look at other ways to have their employees have an international work experience, but do so virtually since we’ve proven that we can work this way, and look at the organization to see if it is even feasible to do a virtual assignment.  And whether or not there are certain incentives that are provided as taking this virtual assignment, what are the goals for that virtual assignment and what are the functional needs for someone going on a virtual assignment?  Because if they’re in the US and they’re on a virtual assignment to India they’re going to be working different hours then when their family is awake. 

So, do you give them a shorter week?  Do you provide different office equipment set-up or a different office space?  That sort of thing.  Is that something you will consider.  And while a virtual assignment may cost less, will that really be longer term where the company wants to go with that person’s career, as well as their work experience?  So I think those are all sorts of questions that will come into play in looking at this type of assignment.

Leann, we’ve certainly given our audience a lot to think about.  As organizations think about how to respond to the significant and rapidly changing business environment, workforce, ESG.  We talked about work from anywhere.  And of course, the impact on compensation and rewards.  As confirmed by our survey results, many organizations are beginning to address this kind of new future of reality and the global impact to talent and mobility. 

With that, we’d like to thank our audience for joining us today to discuss our views and thoughts on compensation, benefits, and rewards.  In future episodes, we’ll continue to address the top-of-mind issues of interest to our listeners.  In the meantime, we’d love to hear from you.  If you have any thoughts on today’s episode or ideas for future episodes, please send us an email to: US-taxwatch@kpmg.com.  And the survey that Leann and I referenced throughout the podcast, that will be made available within the links as part of this presentation.  With that, thank you for our audience for listening to us to our Mobility Via Podcast series. 

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