May 2006

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Incentives: The Devil's in the Details

   Incentives: You can't live with them, and you can't live without them. A gross simplification to be sure, but incentives' complexity – their role in containing labor and other costs as well as their devil-in-the-details nature – requires careful attention and expertise from a third party, in many cases, to make sure your organization is realizing all the benefit from incentives it deserves. A workshop on Tuesday afternoon during the IAMC Spring Professional Forum in March gave attendees a taste of how complicated they can be.
   "The Art & Science of Incentives – Adding Value, Avoiding Pitfalls" was moderated by Betty McIntosh, principal, bMac-Peake Consulting. The speakers were Charles Manula, vice president, global R&D facilities, at Wyeth, and Jay Biggins, co-founder and president of Stadtmauer Bailkin Biggins. Both McIntosh and Biggins are consultants specializing in working with corporations on complex incentives matters, including negotiations with states and local communities.
   First, said Manula, "You must make location decisions based on the business drivers, not on incentives. Doing your homework on the location is important, and that is getting easier to do." When it does come time to talk incentives, having the right incentives team in place is critical, he noted. That team should have a representative from corporate real estate, finance, the legal and tax departments, human resources, public affairs and government relations, and a consultant if necessary.
   Once the incentives are in place, it's important to have someone overseeing the agreements to make sure the benefits are actually being delivered. "You must understand the real value of the incentives," stressed Manula, "because they can look like they are worth millions of dollars, but in reality they may not be worth much at all."
   By the same token, studies have shown that the vast majority of companies – as many as 80 percent in some surveys – do not take full advantage of incentives they have agreed to. "We don't take full advantage of them," Manula remarked. "It's important to stay current on regulatory changes," because they can affect an organization's ability to take advantage of incentive benefits. Arriving at incentives arrangements everyone is comfortable with might be easier in the future if a method emerges for modeling, or quantifying, the value the company brings to the community in which it sites a facility, he added.
   Jay Biggins' added his perspective to these issues, stressing the importance of keeping incentives in perspective – neither overplaying their importance nor underplaying it. As a consultant, Biggins can help companies address objections that come up from incentives detractors and help companies articulate their actual benefit.
   Some attendees were interested in Biggins' take on the Cuno decision now before the Supreme Court. The high court "will likely uphold the lower court's decision to let states compete," he noted, adding that the case might well get dismissed on a technicality. "If that happens, another case will come along – this won't go away," he said. "Litigation is not the best way to resolve the Cuno matter." A federal act that makes it legal for states to compete using incentives is the best course of action, and such an effort is under way.

Mark Arend

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