By Julie Zawacki-Lucci
Despite being well out of crisis mode, corporate treasuries are still facing constrained resources, and their budgets reflect it.
NeuGroup Peer Research highlights what we learn from our unique access to survey data, trends and insight of world-leading treasury and finance professionals interacting across The NeuGroup Network. In this piece, we follow the money as treasurers reveal their budget and fiscal plans for the coming year.
In preparation for the 2016 fiscal year, The NeuGroup surveyed its treasurer groups on key budget and planning drivers. The overall trend across The NeuGroup Network, according to our surveys, called for flat budgets and tightly managed resources. Results from surveys show that key budget and planning items focus on technology improvements and efficiencies, while allowable spend on back-office functions and bank fee expenses is being reduced.
Key Findings
- The “do more with less” mantra is alive and well. Although the economic landscape has moved out of the financial crisis weeds, the recovery has been subpar at best and uncertainty consistently clouds the markets. It is not surprising corporate treasurers are still being held back when it comes to their budgets. During the second half of 2015 (and in the heat of budgeting season), we asked treasurers how, why and by how much would their budgets be changing: 61% of members said they would be entering 2016 with flat budgets allowing little or no growth. Even more challenging, 17% of survey respondents expected to reduce spending, making efficient operations a must to meet competing demands with limited resources. Complicating treasury’s challenge of expanding roles without expanding wallets, recent NeuGroup Peer Research found that M&A deals and integration efforts are among the top five projects and priorities facing treasurers for 2016.
Where is the Money Going—or Not Going?
To shed light on where treasury’s money is going, we asked NeuGroup treasurers what areas they were adding or shifting resources to and what areas they were reducing or shifting resources away from. Areas of focus to add or shift resources to included treasury automation and technology improvements (34%) and personnel (16%). Areas where they sought reductions or were shifting resources away from included back-office functions (19%), bank fees (19%), and personnel (11%).
Key Findings
- Systems and technology are the largest drivers of budget increases. Whether looking at new systems, rolling out a TMS or complementary systems, managing an upgrade/migration or evaluating their current IT support model, 34% of members are involved in an IT-related project that will affect the way they operate to streamline resources and increase efficiencies globally. This speaks to the fact that efficiency and straight-through processing are still long-term priorities on the operational side, so that additional time may be devoted to more strategic or pressing matters like evaluating capital structure, determining hedging strategies, or looking for creative alternatives to invest cash.
- Personnel is a sweet—or sour spot. Interestingly, changes to salary and staffing budgets rank among both the top five increases and decreases to 2016 budgets. This is due to the expansion of treasury’s global footprint and slight bump in salary rewards for top performers (16% increase in personnel budgets) offset by acquisition integrations and cost cutting measures (11% decrease) seen in industries and companies hit hard by the USD strength and emerging market volatility.
- The estimated savings on technological improvements put toward a reduction of overhead expenses. Our survey showed a correlation between increased technology and decreased back-office functions with treasurers planning to increase spend on technology and treasury system improvements (34%), while also pursuing budgetary cuts correspondingly aimed at back-office functions (19%) and personnel (11%). Thus, we conclude that putting resources behind better technology, allowing members the ability to streamline processes and enhance operational efficiencies, are being offset by cost savings from reducing back-office headcount and manual processes.
- Banks want more, but if it comes at a cost, treasurers cannot necessarily give it to them. Banks are becoming increasingly vocal about not making enough money on their corporate relationships and they are working aggressively to gain additional ancillary business. As banks face an unfriendly rate environment and mounting regulatory costs from Basel III and Dodd-Frank, they have turned to corporates to recoup lost revenue or cover increased expenses on their side. However, 19% of survey respondents are actively looking for ways to cut bank fees next year. Something will have to give, since there is only so much business to allocate to offset added bank regulatory/compliance costs and members continue to struggle with balancing the banks’ wants and needs while working to decrease fees.
Department size and salaries
For those lucky enough to have increased wallets, some are able to grow their staffs modestly by an average of two full-time employees (a 13% headcount increase). Conversely, those with forced reductions have the unpleasant task of reducing headcounts by an average of seven full-time employees (a 16% decrease), which is due in part to M&A integrations and centralization efforts for some members.
Key Findings
- Rewarding (and hopefully retaining) top talent is becoming slightly easier. In the survey we see 59% of respondents planning to increase total compensation for top performers this year. This is good news, but it may not be enough. Across The NeuGroup Network, a recurring challenge is to find, retain and reward top talent. Although half of survey respondents will be keeping total compensation for their groups flat, where there is elasticity to compensation budgets, bumping up high-performing employees is being prioritized.
What’s more, in certain sectors or geographies such as tech in California’s Bay Area, retention efforts can be easily overwhelmed by hot growth start-ups’ unmatchable comp offerings or even shorter commute times.
- Company size is a factor for group expansion versus contraction. Toggling down by company size shows the largest percentage of companies planning headcount decreases in 2016 are those with total annual revenue ranging between $25-50 billion (40%). This compares unfavorably to those with revenue over $100 billion, where 100% are planning to increase headcount. In the middle, 67% of companies in the $50-$100 billion range are planning to keep full-time equivalent counts flat.
A similar trend is seen with absolute treasury headcount based on treasury FTEs for FY 2015 and those expected for FY 2016. Generally, increases were anticipated ranging between 1% and 11% for both small and large companies; however, a decline in absolute headcount of 7% is forecasted for companies with annual revenue between $25-$50 billion.