Ethics and Economics

Catherine Fox-Simpson, tax partner, Retail and Consumer Products Practice, BDO Seidman

The amount of employee compensation and benefits has provided fodder for controversial debates on both ends of the pay scale. On the lower end, retail corporations repeatedly have come under fire for poorly compensating hourly employees.

A bill that would raise the minimum hourly wage to $7.25 was initially rejected by the U.S. Senate because it did not include tax incentives for small businesses. Debate over the proposed minimum-wage increase continues, although 30 U.S. state governments already enforce minimum-wage laws that are significantly above the federal requirement of $5.15 per hour and the minimum hourly wage is above $7.00 in 12 states.

According to Catherine Fox-Simpson, tax partner with BDO Seidman’s Retail and Consumer Products Practice based in Dallas, raising the minimum wage without tax incentives would have been very detrimental for small retailers. “The Senate’s decision sent the message that any wage increase should be partnered with tax incentives, and I expect these incentives will likely be leasehold-improvement based,” she said.

Although tax incentives are important, Fox-Simpson suggested they are a secondary concern for most retailers. The real issue is offering affordable yet competitive benefits that will enable retailers to attract and retain employees. “Retailers are increasingly creative with employee benefits,” stated Fox-Simpson. “One of the most popular trends is a modified work day, which caters to mothers who want to work flexible hours when their children are in school.”

Another popular employee benefit is gift-card incentives. Employees who do an exceptional job or who are recognized by customers for having provided outstanding service receive bonuses in the form of gift cards.

Pump It Up, based in Pleasanton, Calif., has indoor inflatable play arenas around the country that specialize in parties for young children and typically employ teenage hosts. At the Wake Forest, N.C., location, employees typically earn $8 to $10 an hour in wages and tips. Additionally, employees are motivated through a points system that awards incentives, such as popular Nano iPods, based on customer-evaluation scorecards.

When an employee incentive directly impacts the success of the business, it is not uncommon to see benefits extend to hourly and teenage workers. However, Fox-Simpson said, “Benefits are typically reserved for older, more experienced employees—not the 16- or 17-year-old clerk working in a store.”

Executive compensation: Recently the media spotlight has focused on the salaries and benefits paid to retail executives, with Robert Nardelli, former CEO of The Home Depot, Atlanta, among the most scrutinized.

“What draws public attention is when a company’s stock continues to decline but an executive’s compensation continues to go up,” stated Fox-Simpson. “Executive compensation is scrutinized in every industry, but because retail companies are universally known to the public, they [retail executives] are perhaps held to an even higher standard.”

Despite growing public awareness, there are no industry standards on executive earnings, and ethics are seldom factored into the economics of compensation. “Business ethics should enter into every financial discussion,” said Fox-Simpson. “There is increasing education on the topic. Many states require public accountants to complete classes in ethics before they can be certified.”

Two of the hottest trends involve questionable practices with stock options. Backdating stock options, which could enable the holder of stock to reap higher returns, is not illegal. However, if the practice is not accurately and fully disclosed, it breaches accounting laws. Spring-loading stock options, which positions the holder to exercise options at a favorable date when the stock price is low, poses similar concerns.

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