Sunday, April 10, 2011

Talent Trumps Tax Incentives in Corporate Relocations

By Matt Egan
Published April 01, 2011
| FOXBusiness

The high-stakes game of corporate relocation can have a huge economic impact on the bottom lines of both companies and states.

Even the threat of relocating, such as the subtle one fired off by Illinois-based Caterpillar (CAT: 109.82, -0.03, -0.03%) last week, can have a lasting impact on profits and recruitment efforts.

While states vying to lure a company to relocate its headquarters inside their borders typically offer attention-grabbing tax breaks and other incentives, savvy CEOs should resist basing their decision on those fleeting goodies and give greater weight to a location's long-term ability to attract and retain talent.

“Recruitment and retention gets to the heart of what the company is. If you don’t keep talented people, you can’t make any money to pay taxes on,” said Mark Sweeney, senior principal at McCallum Sweeney, a site selection consulting firm.

Moves within the U.S. have become even more important as new laws put on the books by Congress have largely taken the option of fleeing to more tax-friendly countries off the table.

Even the threat of relocating, such as the subtle one fired off by Illinois-based Caterpillar (CAT: 109.82, -0.03, -0.03%) last week, can send shockwaves through a state.

Doug Oberhelman, the CEO of Caterpillar, appeared to raise the possibility of leaving Peoria, Ill., in a letter last week to Gov. Pat Quinn that leaked to newspapers.

“I want to stay here," Oberhelman reportedly said in the letter, which expressed concern about the state’s plan to raise personal income taxes to 5% from 3% and corporate taxes to 7% from 4.8%. "But as the leader of this business, I have to do what's right for Caterpillar when making decisions about where to invest."

Premium Put on Talent

If Caterpillar was seriously considering a move, relocation experts would list cities that make the most economic sense, especially on the labor side. The focus on talent in corporate relocation boils down to a city’s ability to either supply the workers needed to operate the headquarters or the likelihood employees and job candidates will want to move there.

“This is a long-term decision. You need to be in a market that can support your skill set,” said Mark Seeley, senior managing director of CB Richard Ellis’ Labor Analytics Group. Seeley notes that labor typically represents 70% to 80% of the operating cost of the headquarters.

Companies weigh a slew of attributes used to measure each location’s quality of life, including housing affordability, commuting conditions, local education, safety and recreational activities.

“Everyone thinks their quality life is great and they say that in all sincerity. But there is a difference in quality of life between a small town in South Dakota and Chicago,” said Sweeney, whose firm is based in Greenville, S.C.

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