42 Ways The Patient Protection and Affordable Care Act Will Affect You and Your Business

A longtime friend, Bob DeGarmo, is a Principal of Entrepreneurial Resources, a service provider to closely-held businesses. Bob sent me an excellent and thorough projection of the likely impact of The Patient Protection and Affordable Care Act. Bob's article is worth the read, and a fraction of the bill's 2409 pages.

As Bob says, "Outside of a few congressional staffers, no one really knows what is in this massive piece of legislation and won’t for years. Much needs to be fleshed out with regulations by the Secretary of Health and Human Services. When one wades through this, the scope and reach of this legislation is stunning."

You owe it to yourself to have a look at Bob's article, "Obama Care: Ready, Set, Duck"

To share your company's point of view or strategies for coping with this sweeping legislation, please click "Comment" below.

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Terry Weaver


CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Those Jobs Aren't Coming Back

Unemployment persists at levels above 10%. So, the economy isn't really recovering, right? We may be looking at a "new" recession or a "double-dip", right? Wrong. If your business isn't turning up already, it will be soon.

Look at productivity, particularly in manufacturing -- that's where the story is. Productivity in the fourth quarter of 2009 rose more than 6% over the 3rd quarter, and was also 6% better than the fourth quarter of 2008. Wow, a 6% increase in productivity in only one year! Remember the world of the 70's, when companies were struggling to increase productivity at all, and 1% or 2% gains were celebrated? Across all industries, information technology has continued to help companies do what they do better, faster, cheaper and with fewer people.

Of course, productivity is a measure of the result, not the cause. It turns out that every time manufacturing suffers a recession, jobs are lost. It's also true that when manufacturing recovers, many of those jobs don't come back -- ever. That's where we are right now. Manufacturing output is up, labor hours are flat, and the quotient, productivity (output/labor hours), tells the tale.

Most of those presently unemployed from manufacturing have been so for 6 months or more. Experts estimate that 40% of the unemployed, particularly in manufacturing, are permanently unemployable. Those people are in a world of hurt, as their skills (or lack of skills) are no longer in demand. Companies have figured out a completely different way to get that work done, either through redesigning products or manufacturing processes or by mechanization.

GDP growth surged over the past 2 quarters, as well. While some expected a slowdown in the first quarter of 2010, GDP is growing twice as fast as the recovery from the last recession. This will likely moderate in future quarters as inventories of all kinds of products, including housing, are replenished and the supply chain gets back to a more normal run rate. It's not likely to go negative (recession) any time soon.

So, what does this mean for your business? Depending on where you are in the food chain, you're either seeing a business upturn or you're just about to see one. Plan for that, particularly in the area of working capital. You'll need more inventory and more cash to support increased Accounts Receivable as your business grows. If your current bank has you capped on working capital, get your package together and go visit 6 or more banks. You'll need the money, and Chief Executive Boards International members have continued to report that if they call on enough banks they'll finally find one who wants some new business.

And what does this mean for our society? It means that those who have missed the knowledge economy boat are more at risk than ever before. People who don't have knowledge economy skills are finding themselves looking at no job prospects, not just fewer job prospects. Worse yet, our educational system is continuing to provide people similarly disqualified. High school dropouts are even less likely to find work at a living wage than before. Even those who graduate from high school at substandard levels of reading, math and science skills (a big number, taken all together) are unlikely to make it through technical or trade schools, let alone college, to acquire the skills they'll need to be employable in a knowledge economy.

So, persistent high unemployment isn't the result of something that's wrong with the economy or the recovery. It's the result of something that's wrong with the large segment of our labor pool that's not ready for the skill demands of a knowledge economy. It's a labor pool tooled for a past era where we paid people to do physical work requiring little or no education.

That's a bleak picture, and one that troubles me greatly. Actually, it's a nearly intractable problem. Our public education system is failing, and despite considerable effort doesn't appear able to fix itself. The single credible (and proven) idea I've seen that might work was proposed by Malcolm Gladwell in his recent book Outliers. The fix? Year-round school. More on that in a future article.

If you have ideas on how to fix this workforce readiness problem, please click "Comment" below and share them with others.

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Terry Weaver


CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Business Owners Report 2010 Salary Plans

Many business owners are very interested in what others are doing about salary actions in 2010. We polled members of Chief Executive Boards International to find out what they're planning for salary increases or adjustments in 2010. Here's what they had to say.

In 2009, 47% of those surveyed froze salaries. 40% reduced salaries, either across the board or selectively. Only 13% increased salaries.

In 2009, 40% of those surveyed reduced hours, of which 68% have returned to standard hours by now.

For 2010, 30% intend to continue their salary freeze, while 23% intend to increase most salaries. Those increases will be in the range of 2%-4% for 41% of companies.

Besides these answers to survey questions, these business owners had the following additional comments on their 2010 compensation plans:

• As a bonus we gave a week off with pay in lieu of cash
• We have a common review and compensation adjustment period with all occurring in the month of September. So we are not planning any salary adjustments come September 2010 lasting thru September 2011. However, we do plan in September (or before) giving bonuses in the 1-4% range in lieu of permanent salary increases. This will give us flexibility to share profitability of 2010, but not commit to permanent increases thru most/all of 2011. We may have the same plan in mid-2011 depending on what the economy does. If/as hiring and employment heats up in IT, we can always make the planned bonuses & salary increases.
• Incentive compensation
• Instead of salary increases on hourly employees, the plan is to institute quarterly incentive bonuses based on a combination of company and individual performance.
• It varies. Sometimes time off or other small incentives.
• Performance bonuses and profit sharing this year to offset employee's wage freezes in 2009
• Productivity incentive based on group performance. The measure is in good pounds shipped per man hour on the clock. There is a threshold that has to be met and then a rapid rise in bonus thereafter.
• The breadth of salary increases will be related to sustained improvement in profitably over one or two quarters.
• Until our market gets consistent, we are trying to reward performance with one time rewards such as tickets to events, some time off, gift cards, etc. so that we don't lock into fixed increased expenses.
• We pay bonuses based on performance goals relating directly with the success of the firm.
• We've always offered a combination of Bonuses and raises.
• We have been fortunate and have not had much of an impact on our revenues and profits with the economy. Therefore we were able to increase salaries in 2009 and anticipate increasing them again in 2010.
• It has been a "Seller's Market" for many years and now it is a "Buyer's Market". Most people I know today are just happy to have a job.
• Salary was reduced 10% for 2009. 5% was given back 12/15, and the remaining 5% will be given by June/ 2010. So, the entire salary staff will be back to their 2009 salary, for the balance of 2010. Then we'll review for 2011.
• Our employees' compensation has been frozen and some lowered, including the owners. Exception is two employees whose level of responsibility has changed dramatically due to staffing cut backs. We have adjusted their comp upwards.
• As of March 1, we have simply reinstated some salaries to the previous levels. No increases have been offered above that existing level. In 2009 we also went to a 4 day work week and have since gone back to 5 days as we have seen volumes and orders significantly increase. Executive compensation remains at a reduced level until further notice.
• Decreased employer contribution to HSA but also reduced deductible.
• We are also making selective staff reductions (based on productivity measures) to free up more money in the salary pool
• In terms of hours, we are a contract manufacturing operation so we reduce and expand hours depending on demand

If you would like to share your 2010 compensation plans, please click "Comment" below.

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Terry Weaver


CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Nobody Ever 'Splained it That Way Before

A critical dimension of management is accountability. I recently heard a business owner clearly explain accountability, reminding me of a phrase that we in the South use, "Nobody ever 'splained it that way before."

This owner was having trouble getting a senior manager to understand that he (the senior manager) was fully accountable for the actions, successes and failures of his subordinate managers. He was getting responses like, "I told Frank to do that", as if telling Frank something somehow absolved him of accountability. Sound familiar?

This isn't unusual. We've evolved to an ever-less accountable society -- a nearly epidemic decline of accountability, including (among others) elected officials, celebrities, educational systems, companies and families. Is it any wonder that otherwise capable people come into your workforce, not understanding the basics of accountability?

Then take that up one level. When you promote people who don't have a really good grasp on accountability, they don't natively grasp that they're now accountable for not only themselves but also everyone who works for them -- all the way to the bottom of the organizational ladder.

So, how did this somewhat exasperated owner 'splain it a different way? He said, "Don't let those people lose your job for you." Despite its negative spin, what a concept! The performance of the people who report to you is not only the key to your success, but also has the potential to do you in.

Now, this only really works if you adhere to the same rules of accountability. The number 1 hardest rule is to not undermine either the accountability or authority of your managers by "managing around them." If you're looking for accountability from a manager, then when one of his or her reports (someone within their organizational responsibility) needs correction or re-direction, do it through the accountable manager. Tell him or her the problem, and expect it to be taken care of. Praise is different -- if you catch someone doing something good, mention it on the spot, and then tell or email their manager to compliment them, as well.

Do you have some ways you've stepped up accountability in your company? Please click "Comments" below and share them with others.

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Terry Weaver


CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Roth IRA Conversions -- Potentially Great Opportunity in 2010

You may not have a Roth IRA, since middle- and upper-income taxpayers have been ineligible for Roths due to low Adjusted Gross Income (AGI) caps ($150,000 for joint filers). You may have thought this extraordinary offer from the tax code (a tax-free investment for not only your lifetime, but the lifetimes of your heirs, as well) was unavailable to you.

Think again. In 2010, you have the opportunity to convert existing pre-tax IRAs (and, in some cases, your 401(k)) to a Roth IRA, simply by paying the income taxes now, and never paying further income taxes on the future value of the investments.

I asked a Chief Executive Boards International member, Tim Meyer of Meyer Capital Management, for a guest article on this interesting, and, depending upon your situation, potentially compelling strategy. Here's what Tim had to say:

"As part of the Tax Increase Prevention and Reconciliation Act enacted in 2006, Congress eliminated the income restrictions on Roth IRA conversions beginning in 2010. What does that mean? It means that while high-income earners still can’t contribute to a Roth IRA, they can convert a traditional IRA(s) to a Roth IRA. This opportunity might remain open indefinitely or Congress could terminate it at the end of 2010. Regardless of how long the new rule remains in effect, the way to maximize the benefit of a Roth IRA conversion is by converting sooner rather than later.

"Recall that Roth IRAs are funded with after-tax dollars (i.e., no upfront tax break). The beauty of a Roth IRA is that withdrawals taken in the future are completely tax-free and there are no required minimum distributions. The absence of required minimum distributions makes Roth IRAs attractive estate planning vehicles for those who don’t expect to need their IRA funds in retirement.

"CEBI members would do well to take a close look at the 2010 Roth IRA conversion opportunity. Here are some of the key issues to consider:

1. Your age, health, & likely life expectancy -- These variables determine the length of your investment time-horizon following Roth conversion. The longer the time-line, the better off you are since more time allows the benefits inherent in the Roth IRA to accrue. For example, if you’re under 60, Roth conversion may make sense. Consider, also, that Roth IRAs remain tax-free and have no Required Minimum Distributions for beneficiaries. Regardless of your own age, passing on a Roth to heirs may be a valuable estate-planning tool, stretching the potential tax-free investment time horizon for decades.
   
   
2. Your expected effective tax bracket in retirement -- This is a function of your income level in retirement and the structure of the tax brackets themselves at that time. Like #1 above, these variables can’t be known with 100% certainty, but they can be estimated. If you expect to be in a comparable or higher tax bracket in retirement than you are now (potentially driven by IRA Required Minimum Distributions), Roth conversion may make sense.
   
   
3. Do you have the funds outside your IRA to pay the conversion taxes? If you convert, you have to pay income taxes on the money coming out of your traditional IRA. Prior to the tax law change, you’d have to pay all the conversion tax in the year you convert. Congress sweetened the 2010 conversion opportunity by allowing you to 1) delay declaring the conversion income, and 2) split the tax payment between the 2011 and 2012 tax years. Be mindful that 2011 and 2012 tax rates will apply to this option. When the taxes come due, pay them out-of-pocket. Using IRA money to pay conversion taxes reduces the net amount converted, which, in turn, reduces the conversion benefits proportionately.

"Given the uncertainty of some of these issues, an additional option to consider is to do a partial Roth IRA conversion. This strategy recognizes that none of us can know how long we will live or what our effective tax rate will be years from now. Therefore, a partial Roth conversion constitutes a hedging strategy -- you convert some IRA assets and leave some alone. If the window remains open, you may want to do further conversions in future years.

"In general, the Roth conversion offers a unique opportunity for otherwise ineligible investors to accumulate tax-advantaged assets for retirement and estate planning purposes. Deciding whether or not to convert, both partially or in full, can be tricky and requires the assistance of a qualified, trusted tax expert.

"Once the decision to convert is made, a good investment advisor can execute the conversion. Be aware, however, that some unqualified financial professionals see the Roth conversion process as an opportunity to make money for themselves rather than their clients. Respected personal finance columnist, Kathy Kristof, blows the whistle on unscrupulous predators masquerading as financial planners or wealth advisors in her recent article Crooks Are After Your Retirement Plan. I urge you to take a few minutes to read it and protect yourself."

Thanks, Tim, for an excellent article. To our readers -- this isn't a simple question, although it could be potentially valuable to you. It's counter-intuitive to pay taxes now that you don't have to. Yet it may be in the best interest of not only yourself but generations of future heirs. Don't dismiss this opportunity out of hand, without doing the math to see if it might be useful to you.

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Terry Weaver


CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com