The Devil is in the Details:

Suggestions for a Successful and Affordable International Branding Campaign

Scott Slavick

Brinks Hofer Gilson & Lione

In today’s difficult economic environment, if your company is fortunate enough to be embarking on a large international trademark filing campaign, you should consider each of the following suggestions in order to make that filing as successful and affordable as possible. If you follow these suggestions, you will lower your prosecution costs while at the same time effectively broadening the scope of your trademark protection worldwide.

Typically, before a company begins filing a trademark on a worldwide basis, a great deal of time, money and effort goes into selecting the proposed trademark. While it may be exciting to conduct an in-house contest to select the new brand or intellectually stimulating to work with a hired brand consultant to meet with your corporate higher-ups to discuss the feelings and thoughts to be evoked by the soon-to-be created brand, you could save a great deal of time and therefore a great deal of money by first, examining your company’s existing brands.

Does your company have any brands that it is already using on a limited basis that you think you might want to expand the use of? For example, is your company using a brand on one type of limited product, but it perhaps it could select that brand to serve as the new international trademark? It may be far more cost-effective to expand the use of an existing brand than to pay someone to devise a new mark for you from scratch. Brand consultants, if they even cost a dollar (and trust me they cost more than a dollar), will cost your company one dollar more than simply using and expanding upon a mark your company already owns.

An added bonus is that through your company’s previous use of this brand, you typically already know that the existing brand is clear of infringements because you have been using it for a while and if it were infringing someone you probably would have already learned of it. So make sure to review what your company already owns before spending a great deal of time and money creating a brand from whole cloth. Perhaps there is a mark that your company has not registered yet but that your company has been using for a few years. Those count as well.

Or, perhaps your company wants to resurrect one of its historic brands. You know the one that was popular in the 1970’s but that has taken on a slightly lower profile over the last thirty years as marketing tastes have changed. It is the brand that you are always worried about going abandoned because its use has markedly dropped off. It is also that mark that you know the CEO would be really upset if one of your competitors started using it even if your company does not use it anymore. That could be the mark to resurrect as your new international trademark. The message – check internally before you

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Suggestions for a Successful and Affordable International Branding Campaign

by  Scott Slavick, Brinks Hofer Gilson & Lione

go outside to try to think of a new brand.

After you have selected the mark, you also need to decide on the goods and services to apply for in connection with that new mark. Oftentimes, when a U.S. company applies for a trademark internationally, it is thrilled to learn that many foreign countries allow for a much broader identification of goods than the United States Patent and Trademark Office allows. For example, in the U.S. a trademark applicant may have to specify the exact type of computer software that it is selling, by explaining what the software does or who would use it or what industries it would appeal to. This can feel quite limiting to a U.S. company, but it is the accepted practice before the USPTO.

In many foreign countries, in contrast, an applicant can apply for an entire International Class heading of goods regardless of its intent to use that mark in connection with many of the listed goods. This means, that for the same computer software, an trademark applicant could apply for all of the following in International Class 9: “Scientific, nautical, surveying, electric, photographic, cinematographic, optical, weighing, measuring, signaling, checking (supervision), life-saving and teaching apparatus and instruments; apparatus for recording, transmission or reproduction of sound or images; magnetic data carriers, recording discs; automatic vending machines and mechanisms for coin-operated apparatus; cash registers, calculating machines, data processing equipment and computers; fire-extinguishing apparatus.”

Many companies like this idea because they think, and they are correct, that it broadens their protection in those foreign countries because they are not limited to computer software for use in corporate accounting but instead can register their mark for all of the above-referenced goods, even fire-extinguishing apparatus, for example. However, what those same happy companies often fail to realize at the time of filing is that by applying for such a broad identification of goods, they may be unintentionally encouraging third parties to oppose their applications.

For example, if Company A in reality produces computer software for use in corporate accounting but applies to register its mark for all of the Class 9 goods listed above, Company A may get opposed by another computer software company, Company B, which sells computer software for use in connection with educational grade keeping. In reality, these two companies may be able to easily co-exist, but because Company A applied so broadly, Company B may feel compelled to contact Company A, and negotiate a restriction to Company A’s identification of goods, or worse, refuse to negotiate and instead, file an opposition, proceed to litigation, etc. Company A would then be forced to pay additional attorneys’ fees, litigation fees, try to negotiate a settlement to a dispute that really never should have happened in the first place because the two companies are so different in what they actually do but whose identifications of goods overlap because Company A applied to register its mark for more goods than Company A really cared about protecting. This happens all the time.

To avoid it, especially, if your company plans to apply to register its mark in a number of countries at once, and the application fees are costing a great deal of money, your company may want to specify the exact goods of interest to it, as if it was applying to register the mark in the U.S., even if the particular foreign country or countries allows for a much broader identification of goods. We have advised numerous clients to proceed accordingly and there is no telling how many oppositions/negotiations those clients were able to avoid by being more specific than they had to be about the goods of interest to those companies.

Next, I would suggest not

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Suggestions for a Successful and Affordable International Branding Campaign

by  Scott Slavick, Brinks Hofer Gilson & Lione

continued from part 3

your company’s proposed mark is registrable in the U.S. Plus, a full U.S. trademark search covers domain names and the internet. If a full U.S. trademark search is clear, then I suggest conducting a worldwide identical screening search, another type of search offered by Thomson Compumark. The worldwide identical screening search will locate identical marks around the world. Reviewing a worldwide identical screening search will alert you to any obvious potential problems on a worldwide basis.

If your company conducts individual searches in individual countries, and it plans to apply in a number of countries, it has been my experience that the multiple search results become overwhelming. In addition, it is going to be very difficult, if not impossible, to select a mark that is going to be clear in every country anyway. It is imperative, therefore, to understand from the outset that anytime a company launches a worldwide branding initiative, there is going to be a degree of business risk that the mark is not protectable in every country of interest. You are going to get back some searches that have negative opinions but if those opinions are not going to really affect your overall plan, then why pay for them and have them conducted in the first place? That is why I do not find that type of individual multiple country searching to be particularly useful. If there is one country in particular that really matters to your company, however, then by all means do a country specific search in that country. Otherwise, if your company is launching a worldwide brand, it may make more sense to conduct the initial searching I recommend and then proceeding with your filing.

In addition, if your company is launching a worldwide branding project, your company should consider synchronizing its filings, i.e., your company does not want to apply to register its mark first in the U.S., and then waiting a few days to file in foreign jurisdictions. Companies may be monitoring your company’s filings. If a competitors sees that your company filed in the U.S. it may go ahead and file in a foreign country that does not care about bona fide intent to use and instead, lets anyone file. These third parties could be competitors of your company’s or they may be squatters that want to simply hold your company’s new mark hostage for a nice payoff in a foreign jurisdiction. Instead, your company is going to want to apply to register its new mark at the same time around the world. In order to successfully accomplish this goal, give your foreign counsel as much lead time as possible. Send them the filing particulars, i.e., the mark, the goods/services, the applicant’s information, but give them three days notice before filing. This will make up for most national holidays, time differences, etc. It also gives your foreign counsel an opportunity to ask you questions or make country-specific recommendations. Also, it gives your foreign counsel an opportunity to send you Powers of Attorney that are often required in connection with a foreign trademark application, for execution prior to filing. By getting the Powers of Attorney to the foreign counsel prior to filing, you can save time, and most importantly, often save money in not having to file the Powers of Attorney late. The more lead time you can give your foreign counsel, the more coordinated your filing effort is going to be.

Lead time is one of the best ways to save your company money in general. The further your company can plan ahead, the better. By doing so, your company will more than likely save money on attorney fees. It also

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Suggestions for a Successful and Affordable International Branding Campaign

by  Scott Slavick, Brinks Hofer Gilson & Lione

Continued from Part 2

blindly filing under the Madrid Protocol. The U.S. acceded to the Madrid Protocol several years ago and without going into all the specifics about it, the Protocol allows an applicant to file one centralized electronic filing to cover a number of countries, often at a discount on the governmental filing fees. However, because each member country of the Protocol can set its own governmental filing fees, the Protocol only tends to provide discounts in more out of the way countries. It does not really provide cost savings in many of the most popular countries because those countries do not give a discount to Protocol filers. For example, it doesn’t save you money in the US or any of the European Union countries.

One other limitation to the Protocol is that an applicant has to base its foreign applications on a home application/registration. If that home application/registration is successfully challenged, then the applicant has to nationalize all of its Protocol-extended applications, often at a cost that exceeds the Protocol’s initial application savings.

Based on these limitations, we have advised clients on several occasions to forego the Protocol and instead apply to register new marks in each country of interest on a country-by-country basis. This way, if the U.S., for example, the base application for a U.S. company, is successfully challenged, the applicant does not have to nationalize its Protocol extensions. This way, each application is independent of one another and no nationalization is required. This comes up most often in the situation where a company is launching a new branding initiative in the U.S. at the same time as it is filing similar applications around the world. In that case, the applicant would not have any lead time to make sure its base application will survive as a strong Protocol base application.

With that said, there is one multi-country filing to always consider – the European Union’s application. If your company is interested in applying to register its mark in Europe, it should strongly consider filing a European Union application. It is one of the last remaining bargains. Currently, if your company files a European Union application, it costs approximately $5,300 to cover all of the member countries. If your company were to apply to register the same mark in each of the European Union’s member countries individually, it would cost approximately $50,000. As you can clearly see, using the European Union’s application is really the way to go most of the time when your company cares about protecting its mark in Europe.

Companies are often very concerned about trademark searching and they should be. However, I have found searching in multiple foreign jurisdictions to be less than ideal from a cost-effectiveness perspective and from a usefulness of results perspective. There are many negatives to conducting multiple individual country searches. They are very expensive. In addition, depending on the country, the attorneys’ practice there may not be to provide particularly specific opinions as to the availability of the desired mark.

Instead, if your company is US based and the U.S. market matters to your new mark’s business, I would suggest conducting a number of in-house internet searches. See what you find on the internet. Type your company’s proposed mark into Google, Yahoo! and a couple of other search engines. Type your company’s proposed mark as a .com and .net domain name and see what, if anything appears on those web sites.

If your searching does not locate anything on point, then I recommend conducting a full U.S. trademark search, like the type offered by Thomson Compumark or Corsearch. A full U.S. trademark search can give you a good idea if

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Suggestions for a Successful and Affordable International Branding Campaign

by  Scott Slavick, Brinks Hofer Gilson & Lione

Continued from Part 4

saves money on searching fees. It helps provide time for strategy meetings on how to file and where to file and for what goods/services to file. Lead time is typically something that cannot be added, but if it can, or if your company is in a budget/cost savings situation, which many companies find themselves in today’s market, then give as much lead time as possible. If your company does, your company is going to save money.

If your company already has people on the ground in your company’s foreign countries of interest, for example, your company should consider using them to help it investigate its potential new mark. These people know the on the ground competitors. They know if marks are potential problems. They can be very helpful. Make sure, if confidentiality is important, however, that you only notify people that can be trusted to maintain that confidentiality. Oftentimes, for example, when it comes to counterfeiting, it is a company’s own manufacturers that are in cahoots with the counterfeiters. You have heard the stories of a company’s own manufacturers sending stuff out the back door, and those are not the people that you want to trust with information on your soon-to-be-launched new name. If you do, you could mysteriously find some third party applying to register your new name before you do.

Also, make sure you have the correct applicant. Changing names or assigning applications can become very costly. If your company is setting up an IP holding company in conjunction with its new international filing, do it before you apply to register your company’s new mark, if possible. Sometimes this is unavoidable. If your company wants to file everywhere at the same time and wants it to be secret and wants the new name to be the new name of the entity applying to register it, that could be an issue because your company may not want to incorporate the new entity until after the applications are filed. But this could be a very costly delay of a day because your company is probably going to have to assign the applications from the applying-for entity to the newly incorporated entity. If this is the case, it would be one reason to use the Protocol because recording name changes/assignments is much less expensive under the Protocol than if your company files each application individually per country.

If you follow these strategies, your company’s next international trademark filing will go much more smoothly and will be much more cost effective and those are two things that any corporate president or general counsel will be very happy about in these trying economic times.

Suggestions for a Successful and Affordable International Branding Campaign

by  Scott Slavick, Brinks Hofer Gilson & Lione

By Sharan Jagpal

When times get tough, companies have a knee-jerk tendency to start slashing & burning. They lay off employees. They search for cheaper healthcare benefits and eliminate holiday bonuses. They seek ways toreduce overhead and extraneous costs. Sometimes this crude surgery improves the health of the overall organization; sometimes it doesn’t. But in the thick of all the “bad economy” clear-cutting, there’s one business function that should never get the ax—and yet, it’s all too often the first victim.
Marketing.
That’s right. To cut back on your efforts to market your products and services when people are already reluctant to buy is akin to corporate suicide.
In a recession, it’s harder to gain new customers, to convince existing customers to buy more, and to win back customers who have left. So companies often need to be spending more money, not less. They just need to be smart about it.
It’s this simple: During any period of economic hardship, there are winners and losers. Choke your marketing efforts down to a trickle—or just as bad, direct your dollars into the wrong channels—and you’ll surely find yourself among the latter group. Overhaul your approach to marketing and you’ll be positioned to swoop down and grab some of the customer dollars that previously went to a competitor or even capture an untapped market.
Consider, for example, that in a good economy the vacation and videogame industries do not compete with each other. In a bad economy, consumers may have no option but to forgo vacations. But to compensate for this loss, they may reward themselves with a small, affordable purchase such as a videogame. And that’s why it’s important to pay attention to shifts in consumer spending—if you’re a videogame maker, you may well benefit from a dramatic increase in your marketing right now.
Before you, the hypothetical videogame maker, can achieve such a feat, you must first get your marketing and finance departments working together rather than clashing against each other. It’s no secret that finance people typically wield the cost-cutting blade—while marketing people are perceived as free-spenders who have a tough time quantifying their ideas. Fortunately, common ground does exist.
When these two groups stop talking at each other, when they get out of their functional silos and start working together, they can create marketing strategies that help an organization thrive even in the grimmest economy. But that means Finance must squelch its knee-jerk reaction to cut the marketing budget, and Marketing must learn to create metrics that demonstrate the bottom-line impact of their ideas.
How can this be done? I’d like to offer the following insights to help you get started:

• “Old school” resource allocation methods are woefully inadequate. In many companies, resource allocation decisions are based on cash flow inputs dictated by the finance department. However, cash flows are critically dependent on the company’s marketing decisions: the price charged for a product or service, the advertising budget for the product or service, the channels of distribution used for selling it, and so forth.

And here’s the real problem: It’s difficult to know how these marketing decisions affect cash flow. In particular, it’s hard to measure the degree of uncertainty involved when a company chooses a particular marketing policy. Decision makers agonize over questions like:
ü “How can I measure the effects of my company’s marketing policies on cash flow?”
ü “How can I quantify the uncertainty in cash flows when my company chooses a particular marketing strategy?”
ü “What are the short- and long-term effects of different marketing policies on my company’s performance?”

Clearly, such a transformation is easier said than done! There must be fundamental changes in the mindsets of managers at all levels in the organization and across functional areas.

• Marketing people must shine some light into the murky waters of the profit and loss statements and balance sheets. Finance people often perceive marketing as a bottomless pit into which money disappears. Marketing professionals, perhaps rightly, see this perception as unfair. Still, their indignation doesn’t change the fact that they must convince others to get behind their ideas financially. While behavioral measures such as share of voice and product awareness are fine as subgoals, they are simply inadequate tools upon which to base resource allocation.

The marketing department must explicitly recognize that a whole new set of metrics is urgently needed. That means marketing people can’t stay inside their silo anymore, but must reach across the aisle and coordinate decisions with the finance department.

• To avoid strategic blunders, Marketing and Finance must work together to measure risk and balance it against return. Let’s say you’re comparing two marketing strategies, each of which requires the same dollar expenditure. You can either 1) focus on acquiring new customers, or 2) focus on retaining the customers you already have. Now, let’s say the market-growth strategy will, on average, produce higher average profits than the customer retention strategy. You might assume the decision is a no-brainer, but it’s more complex than it first appears.

The market-growth strategy is not necessarily superior. Even though, on average, this strategy will produce more profits than the customer retention one, it is much riskier. Indeed, depending on the magnitude of the uncertainties involved, after comparing risk and return, it may be better to focus on the strategy with lower average profits.

So, regarding the “market growth” vs. “customer retention” question, how should a company decide which is best? Two steps are necessary:

1) The marketing department must provide quantitative estimates of the risk and return of the cash flows from these two strategies, and
2) The finance department (or senior management or CEO) should determine which strategy provides a higher return after adjusting for risk. In this analysis, the ownership structure of the firm is critical. A publicly owned firm should focus on market risk—i.e., the risk to stockholders after they have diversified their holdings across firms. A privately held firm should choose the optimal strategy based on the owner’s tolerance for risk and return.

Starbucks is a prime example of a company that made the mistake of focusing on market growth at the expense of risk. In October 2006, the company dramatically raised its long-term store opening goal to 40,000 from its prior goal of 30,000. The stock market responded positively to this announcement and the company’s shares closed higher by 7.6 percent that day. But subsequently, Starbucks’s share prices plunged and the company paid the price for choosing the wrong strategy. It paid a high price for ignoring risk!

• Involve both Marketing and Finance when designing salesforce compensation plans. How a company pays its salespeople can have a dramatic impact on profits. Consider a PC manufacturer like Dell that sells to two segments: the transaction segment where customers buy once and the relationship segment where customers make multiple purchases over time. What types of compensation plans should the PC manufacturer use for people who sell to these segments?

To address this question, the PC manufacturer should view the effort of a salesperson who sells to the relationship segment as an investment. Decision makers must keep in mind that the profits generated by that salesperson are uncertain. Consequently, it is best for the manufacturer to share both current and future profits with her. In other words, it should pay the salesperson targeting the relationship segment a lower base salary and a higher commission rate than a salesperson targeting the transaction segment. Interestingly, the salesperson targeting the relationship segment will, on average, make more money than the “transaction” salesperson. However, her income will fluctuate more.

Odd as it may seem, the PC manufacturer must employ different sales force compensation plans for its salespeople who target different market segments, even though they are selling the same products. And in order to choose the optimal pay plan, the company must coordinate the decision across its marketing and finance departments. Why? Because each plan has a different effect on the firm’s net risk and return after paying the salesperson.

Of course, these tips barely scratch the surface of the valuable information in my book, Fusion for Profit. But they do illuminate the overarching truth that inspired the book: The best marketing strategies, those that yield long-term value, are based not on trends, anecdotal evidence, or past “success stories” but on rigorous new scientific methods explicitly developed for analyzing data that are often imprecise.
Indeed, the methods laid out in my book can save many failing business models worldwide—regardless of whether the business in question is publicly owned by shareholders, privately held by lofty hedge funds, or privately held by mom-and-pop stores.
What worked yesterday won’t necessarily work tomorrow. And what works for a large publicly held corporation won’t necessarily work for a privately owned small business. Every company is different. If you want solid, long-term performance, you need a marketing strategy that’s organic, that’s understood and agreed-upon by marketing and finance leaders, and that’s backed by state-of-the-art empirical methods.
Fusing marketing and finance may sound daunting, but the hardest part is making the psychological leap. Once you’ve bought into the idea, you’ll get excited about the possibilities. There’s great opportunity out there—yes, even in an economic downturn—and when key players work together, your company can seize it.
# # #

About the Author:
Dr. Sharan Jagpal is an internationally recognized expert in marketing and in other fields. He was educated at Columbia Business School and at the London School of Economics, and regularly publishes articles in top journals in marketing (e.g., Marketing Science) and in other disciplines including economics and statistics (e.g., International Economic Review and Journal of Classification). His first book, Marketing Strategy and Uncertainty (Oxford University Press), laid the foundation for the fusion of marketing and finance—an area he has pioneered.

About the Book:
Fusion for Profit: How Marketing & Finance Can Work Together to Create Value (Oxford University Press, 2008, ISBN: 978-0-19-537105-5, $59.95).
Available from major retailers, online booksellers, and www.oup.com/us.

For further information, please visit www.fusionforprofit.com.

I love convoluted measurement programs – they allow me to justify how brilliant and marvelous I, as a PR professional am. They enable me to obfuscate, huxter and otherwise create smoke and mirrors instead of producing real results. Hopefully, this is not you and not your agency, yet agencies and corporations spend millions of dollars in time and money to justify their existence with fancy tracking software, advertising equivalencies and a host of other add ons to find out just how positive or negative a story was, how many inches you received, ratings points and viewership, and just about whatever else you’d like to measure.

Rubbish.

These should not be used as measurement tools, but rather as guides to justify where time and effort will be invested and prioritized. The only measurement tool that matters is the KPI – Key Performance Indicator. A creation of our agency, this measurement enables both the agency and the client to keep their eye on the prize of what is truly important and, why someone should be pursuing a marketing program in the first place – growth. You’re trying to generate “more” of something through a good marketing and public relations endeavor, and usually that “more” is more sales and more market share. That “more” can be measured.

Traditional measurement tactics only take into account the tactical culmination of a specific and isolated event, which, when aggregated, still fails to provide a complete picture, but rather spews out such useless information as 15 articles, viewership/readership of 2 million and/or advertising equivalencies of $5 million. Again, the reach and the equivalences are important only in prioritizing activity, similar to choosing which media to buy in paid, and should never be used as a sole measurement – in fact, doing so only further solidifies the reason the keep PR people out of the corner offices.

Don’t misunderstand, it is good to still track these items, but a strategic marketing program is based on the premise of the KPI – tying your activities in to the core objectives of the business. To illustrate: We received six articles this month in trade magazines is NOT a KPI. The new program we implemented drove 12 leads to sales and increased website traffic 20 percent IS a KPI. The KPI is a set of indicators tied to the growth or understanding of the business. Only through the tactical work, i.e.: securing numerous trade articles, holding a successful event or seminar, or creating a lead generating advertisement, will you create a groundswell that positively affects the KPIs. And, creating them are relatively simple, but must be done with top management involvement.

Step One: Set up the KPI Meeting

Set up a KPI meeting, typically at the beginning of the fiscal year. Lay out in detail exactly what the organization is trying to achieve: i.e.: more employees using the intranet or reading the employee newsletter, more widget sales, higher recruitment numbers or an increase in fundraising dollars. Understand exactly what the core objective of a given entity is and determine your level of desired growth and its subsequent impact to the organization i.e.: a 20 percent increase in widget sales will do a, b and c to the organization.

Step Two: Benchmark and Set Growth Objectives

Next, benchmark exactly where you are now. We sold 2000 widgets in 2006, we want to sell 2400 in 2007 – a 20 percent increase. This increase will result in bottom line profits of $5 million over 2006. Now, you can plan accordingly to achieve this goal in conjunction with sales training, operational brand alignment and marketing – all of which go hand in hand in achieving the core objectives and clearly put marketing in the lead of driving the activities that lead to this growth – after all, it’s your butt on the line.

As it should be.

Sadly, I see so many marketing and public relations professionals in both corporate and agency present tactical minutia as proof of performance and too often, the corporations demand this type and force the hands of well intentioned professionals. Hey, corporations managing agency pros – if your agency is spending time on putting all this tactical information together, your dollars are being spent on administrative tasks instead of focusing on the growth of your organization; that’s just bad management and an unstrategic use of your dollars. A good agency will proactively present creative and proven ideas that will grow your company and should be evaluated as such against set KPIs slated and agreed upon in the beginning of a program.

Don’t say “you want three articles a month.” Instead, say: “We need to grow sales of widgets by 22 percent in the third quarter.” Then, let your agency or marketing team devise the work that will achieve this. If they are not capable of doing so and fear being measured against specific growth objectives: it’s time to find a new team. Also, very important point: don’t put KPI measurement on an agency, then dictate what they can and can’t do or curtail their involvement throughout the whole of the entity. KPIs work because they work all the way and embrace sales, operations AND marketing.

Tactics are exactly that – tactical means to an end. KPIs enable public relations professionals to more cogently present ideas and programs that mesh with the core objectives of an organization and spell them out clearly at the beginning of any endeavor. The work to accomplish the goals and measurement against the KPIs enable senior management and the public relations professional to draw correlations between the work and the results. Stop showing clips. Start showing meaningful growth as a result of your efforts.

If you need help getting started – call me.

Oh, that’s part of my KPIs. It’s not about getting this article published – it’s about you calling me to hire my firm. The article is one of many means to a desired end. Understand the difference, because mastering the concept of the KPI is the difference between the invitation to the C Suite and the request of “hey, can you write a press release.”

About the Author

Rodger Roeser, APR, is the president of Eisen Management Group, a public relations, buzz marketing and viral advertising agency headquartered in Cleveland with branch offices in Cincinnati, Ohio. Roeser served as the 2005 president of the Cincinnati Chapter of the Public Relations Society of America and founded the chapter’s Blacksmith Awards Program. Roeser is the former vice president of Justice & Young Advertising and Public Relations, senior public relations consultant of HSR Business to Business and public relations director of SealMaster and the #88 NASCAR Craftsman Truck Series Team. He is an award winning television, radio and print journalist and a contributing and published writer and author for dozens of public relations, marketing and advertising publications. He can be reached at rroeser@eisenmanagementgroup.com.

Participation in qualified retirement plans, such as 401(k)s or some other form of a defined-contribution plan, has always been a mixed bag. Often, despite considerable efforts from companies, participation rates among rank-and-file workers fall well below expectations. When this happens, it obviously jeopardizes future retirement-living standards for those workers. A less obvious consequence is the constraints this situation puts on future retirement incomes for senior executives.
How can low retirement-plan participation among rank-and-file workers impact future retirement for senior managers? Qualified retirement plans, which are tax-deferred, operate under federally mandated nondiscrimination rules, which govern the amount highly compensated employees can contribute to their qualified plan based on overall participation levels. An additional restriction is the annual compensation limit imposed on these plans. For 2008, the compensation limit is $230,000. For an employee under 50, this means the maximum total contribution—regardless of participation levels or actual income level—is 20 percent of $230,000, or $46,000. Of that, the employee’s maximum portion of the contribution is $15,500. For those over age 50, the maximum is increased by $5,000.
Advance planning provides remedies

Given these restrictions, particularly for companies where retirement-plan participation is low, finding additional ways to provide higher retirement income for senior executives can be important for recruiting and retention purposes. It takes good planning, but there are several options available. Generally, they include:

· boosting overall retirement plan enrollment
· creating specific types of qualified retirement plans
· offering exclusive supplemental retirement and compensation plans (SERPS)

Boosting overall retirement plan enrollment helps increase the amounts senior executives are allowed to contribute, but it can be difficult to convince rank-and-file employees to begin contributing to these plans. Some workers do not believe they can afford to defer a percentage of their current income to contribute to their future retirement. Others procrastinate or simply do not understand enough about the program, so they resist enrolling.

To build participation, some companies have increased communication, created promotions and even made significant changes to their plans, such as faster, simpler applications and automatic enrollment. For plans with automatic enrollment, employees must opt out, which means natural procrastination tendencies work in favor of increased plan participation. Increasing enrollment, however, is often not enough to fully compensate senior managers.

Creating specific types of qualified retirement plans is another option. Some companies create safe-harbor 401(k) plans, which offer automatic contributions in accordance with specific federal guidelines. Plans meeting these guidelines are able to sidestep nondiscrimination tests, which allow all eligible employees, including senior management, to maximize their contributions.
Employee eligibility and contribution requirements for safe harbor 401(k) plans are the same as for other 401(k) plans, with one exception. In these plans an employer is required to make a 100 percent vested contribution for each employee or a matching contribution that adheres to federal requirements. There are several ways to structure these plans but they must provide all employees with an equal employer contribution.
For some companies with collectively and non-collectively bargained employees, separate qualified retirement plans are an option. Creating two plans tends to group highly compensated employees together, which decreases the likelihood that senior executives would face restriction on their contributions.
While these plan options may help, the annual limits on contributions to tax-deferred plans may still be inadequate for some highly compensated employees.
The final option, exclusive supplemental retirement and compensation plans, or SERPS, provides the most flexibility. Companies are not required to provide these benefits to all employees, so they can offer senior managers additional retirement compensation though this approach. SERPS are variously designed, but many offer some combination of elective compensation deferrals, various stock options, stock bonus plans or stock appreciation rights (SARS). SARS are an obligation to provide compensation, generally based on the value of a company’s stock, at a particular point in time, such as retirement. Non-qualified benefits are not protected from creditors, however, which mean senior managers could become creditors in a bankruptcy proceeding, for example, and potentially lose these benefits.
Often non-qualified compensation plans are associated with “rabbi trusts,” which are agreements between an employee and employer for payment at a specified future time. Nondiscrimination rules to not apply to rabbi trusts, so they can be provided exclusively to certain employees and, properly structured, they allow income tax deferrals for the employee.
Other compensation typically offered to highly compensated employees include various “perks,” such as tax preparation services, paid legal work or financial planning or any number of other benefits. However, these perks generally do not directly contribute to retirement.

Providing appropriate retirement compensation for highly paid senior managers does take planning, but it is often necessary to retain top talent.

Alan Goldfarb is director of Financial Strategies for Weaver and Tidwell Financial Advisors Ltd. (www.wtadvisors.com) in Dallas, Texas. A Certified Financial Planning practitioner, Goldfarb has been named Top Financial Advisor by Worth magazine six times. He holds an MBA in economics and management from the University of North Texas and a bachelor’s degree in engineering and management from Fairleigh Dickinson University. He can be reached 972-960-1100.

Familiar? The time was 1992. The S&L crisis of the prior few years had resulted in the failures of thousand of thrifts and the creation of the Resolution Trust Corporation. A sluggish economy ensued which prompted many voters to forget about George H W Bush’s early successes in Iraq as the Democratic candidate, Bill Clinton, campaigned on a motto “it’s the economy, stupid.” A former governor of Arkansas, Clinton was little known outside of his home state, but created a strong buzz among disgruntled voters looking for change. Despite rumors of past “affairs” and suspect business dealings, Clinton rode his optimistic message all the way to D.C. and was greeted by a friendly Congress eager to implement change, much to the chagrin of many conservative Americans.

Fast forwarding 16 years…
§ A severe financial crisis resulted in the failure of major banks and long-standing investment firms at a cost of hundreds of billion of dollars to the American taxpayer.
§ The domestic budget deficit ballooned as a bailout plan was devised to a tune of $700 billion (and counting) and the government even raised the federal banking insurance limits to better protect depositors.
§ A government rescue fund similar to the RTC was created to buy bad assets from ailing institutions to help improve their capital positions and also make equity investments in certain banks.
§ The domestic (and global) economy moved into recession as a result of the financial crisis and a continued slowdown in the housing sector.
§ In the ensuing presidential election, a relative unknown, young Democrat ousted the more experienced Republican.
§ The President-elect gained support through his charismatic personality, excellent communication skills, and well-articulated message of “hope,” despite some concerns about his prior affiliations.
§ With early foreign policy successes in Iraq long forgotten, a president named George Bush prepared to leave office with extremely low approval ratings.
§ In the aftermath of the election, the Democrats then controlled both the White House and Congress for the first time since then Republican Revolution of 1994.
§ Early on, some Americans feared “socialism” as certain proposals like government mandated health care were bantered around.

Fresh off his historic victory, President-elect Barack Obama prepares to enter office at a time of intense challenges facing the country. Weakness in the housing sector led to a significant credit crisis which reshaped the entire landscape of the financial industry. The government was forced to enact a comprehensive bailout plan and continued to work with banks and investment firms to improve their balance sheets. Obama inherits a domestic economy on the verge of recession (if not already in one), a global slowdown that threatens to hinder recovery for the foreseeable future, and a volatile stock market that has caused even the most experienced and patient of investors to rethink their strategies. His message of change and hope (and motto “eight years of failed Bush policies”) resonated with voters, though the time for action (and results) is drawing near.

That was Then, This is Now…

Today Americans are justifiably concerned for their jobs, their pocketbooks, and their investment (retirement) accounts. Obama will not have the luxury of time to bask in the glow of victory as the people will be looking to him to deliver on that message of hope and change. He will be tested early and often as Republicans begin planning for a “revolution” in 2010 (much like Newt Gingrich led in 1994).

From a market perspective, some investors remained concerned about Obama’s views on tax policy, particularly capital gains and corporate tax rates. Some are fearful that a Democratic president and Congress could enact legislation that harms the pocketbooks of the upper class (the country’s largest investors) and attempt to push through spending packages that further inflate the budget deficit. Others worry about the continued prospects for free trade in a global marketplace and predict that labor unions will gain power at the expense of Corporate America.

While these concerns create pessimism for the markets (even more than already exists), the optimists point out that many of these same fears existed in 1992. The Dow Jones soared over 200% during the Bill Clinton years, the strongest performance in the post World War II era. While no one dare predict comparable appreciation for the foreseeable future, the similarities of the times should lend some optimism for the investment markets. Congratulations, good luck, and let’s get to work, Mr. President.

The information set forth was obtained from sources which we believe reliable but we do not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation by us of the purchase or sale of any securities. Past performance is not a guarantee of future performance.

RB Brounes & Associates 4607 BRAEBURN DR. ▪ BELLAIRE, TEXAS 77401 ▪ 713.962.9986 ▪ ron@ronbrounes.com