This week’s International Treasurer editorial meeting brought forth several topics we’ll be following over the next few weeks. These include a look at the vexing challenge of retaining top talent and new challenges to bank-owned life insurance programs. Also another growing challenge, activist investors as well as taking the glide path route when managing pensions.
Talent management
A weak labor market associated with the economic downturn may have held turnover rates down in many organizations over the past several years. Things may be changing and as the labor market begins to unthaw, corporations are at greater risk of losing their high-potential employees to other organizations. A robust talent management program thus is critical to proactively identifying and retaining these high performers.
BOLI
BOLI (along with its cousin, corporate-owned life insurance or COLI) plans are increasingly being used by financial institutions to offset either a specific executive benefit plan or to fund all employee benefit plans in aggregate. However, Basel III has thrown a wrench into the managing of these plans. As result of the rules change, BOLI management will require significant analysis and departures from current practices for policyholders. These new rulings are likely to require further clarification from banking regulators as the industry confronts the challenges of implementation. It is important that banks going into such discussions be fully aware of the implications of the rules as proposed.
Activist investors
Over the past several years, large, publicly traded corporations have faced a growing number of shareholder proposals that challenge various aspects of decision making within the organization. Some of the more common hot-spots for shareholders include; poor share performance, low returns, tepid recovery, growing cash balances, and perceived lazy balance sheets.
Growing stockpiles of cash, low investment returns, and general economic sluggishness are now compelling investors to push back on how many large organizations are being run with specific angst around corporate spending, asset sales, and the demand for sharp cost reductions and lower executive compensation. Shareholders are now taking a stronger stand on their demand for higher dividends and share buybacks.
Glide path for pensions
Most corporate defined benefit sponsors are facing the daunting challenge of managing an underfunded plan in a volatile, low rate market environment, with management yelling, “We need more predictability and less risk!” Meanwhile decisions are consuming a larger component of the day and this is true for active and frozen plans.
In search of a smoother route to their funding goals, many plan sponsors are exploring glide path approaches to managing pension investments. Glide path can come in many forms. The basic framework is define the goal and set up a series of events triggered by funding status. As the funding gap narrows the investments shift to “less risky” assets. The framework guides the plan from the current state to a targeted fund status.