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Readers write to say that many executives are paid more than their talent for business judgment warrants; that borrowing from a 401(k) can help build its value; that mobile banking will catch on, but not at the expense of contactless payments; and more.
CFO Staff, CFO Magazine
December 1, 2008
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As the economy continues to struggle, in part because of the hopefully past poor lending practices of banking institutions, it strikes me as odd that salaries for higher-level executives continue to grow ("Things Are Looking Up," November).
I understand that top executives deserve high salaries, especially when their respective companies are doing well because of decisions they made. But when the very same companies are losing millions, or even billions, of dollars, I guess I just don't get it.
Aren't salaries and wages a type of payment for sound business judgment? If so, corresponding wages should be on the downturn since most businesses' balance sheets are not looking very healthy, because of decisions the very folks that are being compensated have made. That is one of the reasons why the economy continues to be in a downward spiral, even after the ill-planned Wall Street bailout was enacted.
What do politicians know about the fragile nature of our economy anyway? That, however, is a discussion for another day.
Dr. Gary Lysik
Earlier, Not Bigger
According to the chairperson of the Private Company Financial Reporting Committee, if an alternative method of inventory valuations becomes mandatory under international financial reporting standards (IFRS) there will be "much bigger tax liabilities" ("Small Companies Will Lag, but by How Much?" Topline, November). I disagree. Financial reviewers who defend the LIFO (last in, first-out) method often forget that the tax is the same, only the timing is different. The reason why IFRS threw out LIFO is that it gives garbage on the balance sheet. You have to calculate FIFO (first in, first out) anyway, in order to disclose the real tax liability (hidden away in the notes and misnamed "LIFO reserve").
Back to Bottom-Up
"Local Knowledge" (November) is a well-written article on a common issue faced by most executives tasked with growing the Asia-Pacific region. The comment by Korn/Ferry International's David Hui regarding "expectations management" is bittersweet. There needs to be a move back to a "bottom-up" approach. Sometimes, deciding the key performance parameters helps, as that focuses the organization on fundamentally sound and sustainable growth.
Save, Borrow, Repay, Repeat
I am most concerned about some of the recent discussions and suggestions to curtail access to monies using 401(k) loans, while encouraging withdrawals by waiving the 10 percent early-distribution tax penalty ("Swiping Nest Eggs?" Topline, November).
Modest access and careful, deliberate use of loans can help people save for retirement. Data from the Boston College Center for Retirement Research shows that participation declines where access to funds is limited.
Don't forget, the participant must first save to qualify for a loan. Most people I know who are disciplined enough to save, to defer consumption, are also circumspect about [borrowing].
We would be better served if we encouraged people to save more than they otherwise feel they can afford to earmark for retirement. Enable access to monies for short-term needs via a modest loan program. Save, borrow, continue your contributions, repay the loan, rebuild your account to an even greater balance. Save, borrow, contribute, repay, rebuild. Repeat, over and over — ultimately building your retirement savings.
Walking, Er, Running the Talk
Congratulations to Michael C. Fina CFO Mark Ellis ("Happy Feat," Grapevine, November)! I love to see people actually putting the walk (or in his case, run) to their talk. What a tribute and what a commitment to obviously a great business and personal relationship.
In Praise of the Contactless Card
In "Cash, Credit, or Cell Phone?" (InTech, October) the author writes: "While contactless cards have faltered in the United States, mobile-phone banking has taken off...." I read nothing in the article that would support such a claim.
The facts are that more than 35 million contactless cards have been issued and an estimated 20 million have been used in only three years, and consumer usage is still growing (only 25 percent are aware of this technology today). It took PIN debit seven years to reach this penetration, and mobile phones using this technology will accelerate adoption even faster.
Mobile banking is a great technology that will catch on — and not at the expense of contactless payments, but because of it.
Smart Card Alliance
Europe, You (May) Have a Problem
CFO has offered some interesting articles on the switch to international financial reporting standards (IFRS), among them your interview with Sir David Tweedie, chairman of the International Accounting Standards Board (On the Record, September).
Recent articles in the media (by William Isaac in The Wall Street Journal and Jeff Miller on Street.com, for example) blame fair-value accounting for much of the problem in the market meltdown. If these guys are right and the fair-value issue lies at the center of the problem, Europe has a huge problem. IFRS relies even more on fair-value accounting, and therefore Europe is looking at an explosion of write-downs for housing.
Idaho State Tax Commission
EDITOR'S NOTE: We are continuously chronicling the fair-value debate. See www.cfo.com for all the latest, including reactions from CFOs.
The Psychology of the Deal
Your article "Worlds Apart" (July/August) offers unusual insight into an often underappreciated aspect of dealmaking. Many M&A pros are well versed in the numbers, but the extraordinary practitioners understand personalities, business-owner psychology, and intercultural communication, and focus on developing the relationships between the parties.
In my opinion, most buyers' due diligence hyper-focuses on the legal and financial aspects of a business, neglecting the personal side. In looking back at the small- and microcap deals I have done, I see a reasonably strong correlation between how well the business performed and how long the seller remained post-acquisition.