Report Reveals Areas Where Retailers Can Reduce Theft and Improve Store Efficiencies

A new study, sponsored in part by ADT and its Sensormatic Retail Solutions group, reveals the need for retailers to focus on technology solutions that enhance their current operational goals and combat theft without adding labor costs. “Loss Prevention 2010: Retailers Battling Shrink in Tough Times,” found that during these challenging economic times, retailers face increased pressure to identify better business intelligence, improve inventory accuracy, and embrace more innovative uses of existing investments as a means to improve profitability and conserve working capital.

“Given the challenging conditions retailers will face in the near future, any technology enhancements must help to reduce labor costs while delivering better business intelligence”. Retailers are focused on getting the most value from their existing investments in both high and low-tech tools without having to add people to review detailed data, according to Paula Rosenblum, an analyst and Managing Partner for Retail Systems Research (RSR) and co-author of the report.

A free copy of the 24-page report can be obtained at:  Loss Prevention Shrink 2010

The on-line survey of 83 small to large multi-national retailers was conducted by RSR in the fall of 2009. Retailers identified their top three sources of shrink as employee theft of merchandise, shoplifting and employee theft of cash.

Over the past year, RSR reports that 44 percent of retailers have experienced a rise in theft, likely due to challenging economic conditions. Findings indicate that top retail performers – those whose sales growth outpaced the three percent industry average – place an even higher priority on Loss Prevention (LP): 78 percent report an increase in year-over-year LP’s priority, vs. 43 percent of underperformers.

“Given the challenging conditions retailers will face in the near future, any technology enhancements must help to reduce labor costs while delivering better business intelligence,” said Rosenblum. “Tools such as Video Surveillance, Returns and Void Management, Exception Analysis Reporting and Cash Management are crucial for retailers to be more profitable. Retailers are also paying more attention to managing their item level perpetual inventory systems to gain better insight into lost sales.”

Among the more detailed findings:

• Retailers report employee theft of cash has increased from 32 to 45 percent of total losses. This appears related to challenging economic conditions and has prompted retailers to recognize the need for better business intelligence to analyze results, rather than more staff to examine report details.
• When it comes to roadblocks impeding retailers from progressing in their loss prevention efforts, 86 percent say they are challenged for capital, 41 percent lack staff to review LP and audit data (compared to 29 percent in 2008) and 36 percent have extremely inaccurate inventory systems unable to quantify areas of loss.
• Retailers identified top technology solutions that help them overcome organizational inefficiencies including:
  - 63 percent cited better business intelligence to analyze all their data. – 40 percent cited more accurate inventory tracking to identify the items being stolen.- 39 percent cited more creative uses of existing technologies.

The report further identified areas where retailers have seen a more direct effect from the economy, most importantly, a faster rise in external theft versus internal:

• Individual customer theft of merchandise (28% increase)
• Organized gangs stealing merchandise (25% increase)
• Employee theft of cash (19% increase)

Additional study findings reveal top retail performers use business intelligence tools more frequently such as exception analysis reporting at 68 percent and returns/void management at 65 percent. To enhance the value of existing investments without adding staff to review detailed data, 31 percent of respondents report using inventory tracking systems.

“The information revealed in the research indicates the methods of retail theft are shifting. As a result, loss prevention tools must adapt to those changes,” according to Kelvin Lam, Vice President of Retail and Security Products, ADT Security, Asia Pacific. “In a tough economy, resourceful retailers are looking beyond traditional tagging and stand-alone surveillance to include software based analytic tools, integration and better inventory management systems,” said Lam.

A free copy of the 24-page report can be obtained at:  Loss Prevention Shrink 2010

About ADT Security Services

ADT Security Services, a Tyco International company, is the world’s largest provider of electronic security services to more than seven million commercial, government and residential customers worldwide. ADT’s total security solutions include intrusion, fire protection, closed circuit television, access control, critical condition monitoring, electronic article surveillance, radio frequency identification (RFID) and integrated systems. ADT’s website address is http://www.adt.com/global

About the Sensormatic Retail Solutions Portfolio

The industry-leading Sensormatic Retail Solutions portfolio offers vital loss prevention and operational improvement technologies and solutions. Backed by more than 1,500 patents, the Sensormatic solutions portfolio is sold through ADT and authorized business partners around the world. From the front of the store through the entire retail supply chain, Sensormatic solutions help keep losses lower – and profits higher. Today, over 80 percent of world’s top 200 retailers that use EAS rely on Sensormatic solutions, which include EAS, source-tagging, data analytics and in-store, item-level intelligence applications. Sensormatic forward-thinking solutions also include dual EAS-RFID technology that provides item-level security and visibility in an ever changing retail environment. For more information, please visit http://www.sensormatic.com.

Business Wire

Worth Its Weight in Junk

Charles P. Wallace at Portfolio.com reports that the junk-bond market has been on a tear. Rates are dropping, making it easier for even weak companies to raise capital.

One year after the worst credit crisis in living memory, U.S. markets have come back to life. That’s especially true in the nether reaches of fixed income, where rates on high-yield debt have dropped from the high teens to the high single digits since a rally started last spring.

That’s welcome news for investors. It’s also good news for smaller and medium-size companies that might not have the best credit ratings but still want to raise funds. Their ability to tap the access capital will improve as the rates on high-yield debt continue to fall. More and more companies that have been shut out of the market will find a way back.

High-yield bonds—or junk bonds, if you prefer—generated a 55 percent return in 2009, more than twice the performance of Standard & Poor’s index of 500 big stocks, which rose 23.5 percent. And while no one expects them to match last year’s rally, many experts believe that their prices will continue to rise and that their rates, which move in the opposite direction, will keep falling.

A number of factors will support the junk-bond rally for another year. “There are many of the view that earnings growth won’t sustain much growth in stocks next year. That helps explain the flows into the high-yield market, where there is a decent coupon and the prospect of at least a moderate capital gain,” says Martin Fridson, CEO of New York-based Fridson Investment Advisors. He expects junk bonds to deliver single digit gains in 2010.

That outlook is much better than at this time last year, when the credit markets were essentially frozen and fund managers were selling bonds at fire-sale prices because they were meeting a wave of redemptions. But the market reached a low point in March and began to climb back by summer. The average spread on high-yield bonds of all ratings narrowed to 6.34 percentage points from 18.86 percentage points in March, according to Merrill Lynch & Co. index data. The spread is the difference between the rate that junk-bond issuers pay and the rate that the Treasury pays to issue its debt. Bank of America Merrill Lynch said in a note to investors that the spread tightening is going to offset an expected rise Treasury yields as the Fed raises interest rates to damp down inflation fears.

Read more at: Portfolio.com

Beyond Economic Factors, Growth Depends on Leadership at the Restaurants

David Farkas, Senior Editor at Chain Leader writes that the role of a restaurant leader has become even more critical amid an economy so uncertain that few chains are willing to expand in the coming year. Instead, seeking traffic, they prefer to discount meals, risking their brand image.

Chain Leader recently caught up with Applebee’s franchisee Zane Tankel, whose company, Apple-Metro, continues to open restaurants despite the downturn. And why not? His 32 Applebee’s are posting nearly twice the average volume ($2.4 million) of the rest of the casual-dining system. He plans to open five more next year.

A Wharton School of Business graduate, he opened his first Applebee’s 16 years ago with partner Roy Raeburn. This year the company was named Franchisee of the Year by the franchisor.

Chain Leader invited Tankel to talk about how leadership at all levels is helping the New York-based franchise maintain its growth curve in a difficult operating environment.

Can we begin by talking about store managers and the leadership training they…

I don’t mean to interrupt you, but I gave a short speech to some franchisees a week ago in Boca Raton. I said, “We have to stop using the word ’stores.’” A store to me is lights, shelving, four walls and sneakers. If you don’t sell the sneakers, you mark them down—again and again. On the other hand, restaurants have 1,000 moving parts, many of them perishable.

Point taken, Zane.

This is how we deploy troops. If you have great general managers, you don’t need to have one area director with… In fact, we don’t call them “directors” anymore. We call them “area leaders.” Directing is monitoring, like a jail guard, making sure everyone is doing things right. We don’t need area directors with five or six restaurants; our area leaders have seven or eight. If you have the right people at the restaurant, and you’ve trained them correctly, you don’t need supervisory personnel. As Lee Iacocca said, “Lead, follow or get out of the way.”
How does training apply to bringing an assistant general manager to the GM level?

He or she has a six-week training period moving into that position. AGMs should theoretically know what they should do, so we transition him into that position. He’s following [the GM] around as his eyes and ears. We ask him or her to go to other restaurants with the area leader and look at best practices in terms of leadership.

Speaking of area leaders…

Let me just say we returned last week from an annual retreat with area leaders and department heads that was all about leadership. This year’s theme was about total utilization of the brain. We are left-brain-driven in this industry. We have shut down the creative, right-brain side. Everything in our industry is metrics: guest counts, food, liquor, labor. It’s left-brain driven. There’s not much right-brain thinking. Yet the great thinkers, the great intellects are lateral thinkers, using both sides of their brains. Your best employees need leadership from both sides of the brain, not just do this, do that.

Why didn’t you talk about leadership in a recession?

Because it takes a right-brain thinking to work through that. I call it option-solving vs. problem-solving. I can deal with the options and get the team to come up with the best ones. Two years ago we set out a strategy for this tsunami. We had no idea of the depth and breadth of it, but we knew the economy was tanking rapidly and the industry was undergoing tremendous shifts. It is exactly the same strategy we work on today, and that’s being very aggressive when negotiating a site.

Explain that strategy.

In New York when it came to rent, the landlord’s philosophy always was, “How much pain can you take?” They knew we had to open restaurants to have to upward mobility for our managers, who otherwise would leave. So they sat back, put their feet up, lit their cigars and waited. Now it’s tuned upside down. I tell them, “The only difference between you and me is you have to rent that space. I don’t. I do not have to build a restaurant. When you are ready to talk from that vantage point…”

Read more at: Chain Leader

Experts Say Small Businesses Lag In Disaster Planning

CAROLINE MCDONALD reports in Property & Casualty National Underwriter that while a majority of large businesses have contingency plans for a pandemic or other catastrophe in place, many small to medium companies do not, which can result in their demise in the wake of a disaster, according to experts.

“Small businesses that don’t have a plan in place generally don’t survive after a disaster, whether it’s a flood or a tornado. We see that anywhere from 40-60 percent of those that are hit like that simply don’t come back to business,” said David Paulison, former executive director of the Federal Emergency Management Agency (FEMA) in a phone conference with NU Online.

He added, “The truth is that it’s not that difficult to put a plan together to survive any type of catastrophic event—a disaster or something like H1N1.”

Mr. Paulison said FEMA and Homeland Security Web sites have detailed steps for putting a plan together as well as practicing the plan to make sure it works.

He recommended sites such as:

• www.ready.gov

• www.flu.gov

“These are easy to use and free,” he said.

When he was at Homeland Security, he noted, their contingency plan was practiced with employees working from remote sites to make sure they could all communicate and do their jobs.

Bob Boyd, chief executive officer of Agility Recovery Solutions consulting firm, who also took part in the phone conference, said it is no surprise that smaller businesses trail larger ones in this respect. “Large enterprise companies have a program and maybe Sarbanes-Oxley requirements and a dedicated staff,” he said.

Smaller companies, he noted, are “just now beginning to figure out how to get their arms around it, and they’re potentially more susceptible to events than a large enterprise.”

Mr. Boyd, by example, mentioned that a large bank with a branch closed can have customers visit another branch, whereas a small business wouldn’t have the same options.

According to the 2009 Disaster Recovery & Business Continuity Survey from Charlotte, N.C.-based Agility:

• Ninety percent of smaller companies (less than 100 employees) surveyed spend less than one day per month preparing and maintaining their continuity plans.

• One in five (22 percent) spend no time maintaining their plans.

• Comparatively, 20 percent of larger companies (more than 100 employees) spend over 10 days per month on their continuity plans.

In exercising a plan, Mr. Boyd said, assumptions that have been made sometimes are not valid. “It’s better to find that out.”

Dr. William Lang, former associate chief medical officer at the Dept. of Homeland Security, said during the conference that in preparing for the H1N1 virus, larger organizations can begin with their existing disaster plan and apply it to the H1N1 risks. Small to medium size business, however, may not have an all-hazards plan in place as a starting point.

He added that smaller businesses often don’t have a risk manager employed to implement a plan. “The risk manager is the owner of the business,” he said. “And how much time is [the owner] going to spend on risk management versus operating his business?”

Mr. Boyd pointed out that smaller businesses—that haven’t been mandated by a regulator to put a plan in place—may perceive that implementing an all-hazards plan is too time-consuming and costly.

Dr. Lang said a roadblock to putting a pandemic plan in place is what he called “pandemic fatigue,” or apathy, caused by the perception that the H1N1 virus may be a “non-event.”

While the likelihood is that we may be facing a “bad flu season” rather than a full-blown pandemic, some businesses may be hit with high absenteeism rates, he observed.

He explained that the effect to businesses is different than other disasters because it affects people rather than the facility, meaning that companies need to protect their employees.

Situations that need to be planned for include:

• Employees who may have used up their sick leave.

• Contractors who may come to work sick.

• Parents who might have to stay home to care for a sick child and need to be covered for in the office.

“A pandemic doesn’t have geographic lines, unlike a hurricane or earthquake,” he said.

He said insurance agents and brokers can play a big part in helping smaller businesses get up to speed in this area. “This is a perfect opportunity for agents and brokers,” he said, adding that some insurers give discounts for recovery plans.

Good Employees Work Toward their Strengths

Maureen Moriarty writes in the Puget Sound Business Journal that wise companies and bosses understand the importance of aligning worker roles to their strengths. If you are interested in increasing performance, morale and employee satisfaction, helping an employee discover, see and then play to his or her “strengths” is critical.

We all have parts of our human selves that we are “blind” to; areas that others know about us that we can’t see. The best leaders help their employees see their capabilities (and potential) and then create conditions to help them bring their best forward in their jobs. Part of that formula is first identifying worker talent — or their strength versus skill.

Talent is something you are born with — it doesn’t go away. It allows us to do things consistently and at the top of our game. For example, being analytic or strategic are talents. Talent can’t be trained in workers — it is either there or it isn’t. In contrast, skills can be trained but aren’t innate. For example, learning how to successfully “check out a retail customer” is a skill — it usually involves learning the steps. In the same way, learning a new software program is a skill; it can be taught.

Best practice leadership includes helping people identify, own and reinforce their core strengths and talents. People at work who are doing activities aligned with their talents feel powerful, enthusiastic, confident and passionate. In contrast, those who are doing activities not aligned with their talents are often frustrated, drained, bored and wondering if their workday will ever end.

Marcus Buckingham, best-selling author for his “Strength” based approach to work, identifies through his Gallup research with over 2 million people a direct correlation of an individual’s core talents (strengths) to high performance. He defines a strength as not simply something you are good at but something you find so satisfying that you look forward to doing it again and again. My own experience as a career coach confirms Buckingham’s premise that people are more satisfied and productive in jobs that allow them to do what they naturally do best.

As a career coach, I find it sad that Buckingham’s research shows that only 17 percent of the work force believe they use all of their strengths on the job. How can this be?

Part of the answer is many workers settle for jobs that don’t allow them to do what they do best; they take jobs that simply aren’t the best fit for their talents and gifts. This can lead to worker boredom or even anxiety if the worker doesn’t have the core talent required to be effective in the position. Consider, for example, someone who lacks interpersonal effectiveness working in a sales or leadership role, or someone who isn’t detail-oriented being required to spend the day doing spreadsheet tasks.

But management is also part of the problem. Too often hiring managers get overly focused on experience and skills versus hiring for the core talents and strengths that would allow someone to work optimally in the position.

What can managers do?

Establish a method to identify individual strengths. Buckingham offers a “Strengthfinder” assessment (for the price of a book) and there are various other personality profile tools to help individuals and companies identify core strengths.

Read More at: Puget Sound Business Journal

Small Business Owners Take On Tax Man

Business Owners Seek to Cut Costs by Appealing Property Assessments

Raymund Flandez of the Wall Street Journal reports that the bad economy and the deteriorating commercial real-estate market have motivated some small-business owners to fight their tax assessments.

Ann Jones of Columbia, S.C., thought there might be a mistake when she received a property valuation from Richland County in January. The co-owner of the Dog Eared Corner LLC, a pet-grooming company, saw her commercial property’s value assessed at $287,000, after she had just bought the three-story building three months earlier for only $210,000.

Ms. Jones decided to file an appeal with the tax assessor’s office. She told them about the new appraisal done during the purchase, the wear-and-tear of her building and the fact that comparable business properties in the area were empty. As a result: her tax bill of $7,200 was reduced to $5,900 this year.

“For a small business in a bad economy, this reduction is a lifesaver,” says the 54-year-old Ms. Jones. “When you’re in a survival mode, every dollar counts.”

The property-tax burden on a business varies widely, but being a fixed cost, it’s significance has increased as revenues dwindle and margins erode in the recession. This has made commercial property tax appeals, which are processed in the same manner as residential property tax appeals, a more popular option for small-business owners looking to cut costs.

Some business owners are prompted to appeal because of fresh assessments that lag behind the current value of the business’s property. South Carolina, where Ms. Jones runs her business, recalculates property values every five years; the last assessment was in 2004.

Some states have doled out fresh assessments in the midst of budget shortfalls. Cities and counties are under pressure to stabilize their budgets by making sure revenue from property taxes continues.

“Municipalities are caught in a hard spot,” says Tom Bothen, associate director of the Center for Urban Real Estate at the University of Illinois at Chicago.

Although some commercial property owners routinely appeal assessments each year or whenever there’s a new one, industry experts say there’s been an inordinate number of clients this year who are appealing for the first time.

John Terrana, a partner at Forchelli, Curto, Deegan, Schwartz, Mineo, Cohn & Terrana LLP in Uniondale, N.Y., says he’s been getting 20% more inquiries this year over last year for tax appeals. Lance Hulsey, vice president of Haws Consulting Group, a property tax consulting firm in Campbell, Calif., says his firm is doing 30 to 40 appeals this year versus 20 to 25 last year. Brian Bishop, senior consultant at the Aegis Group LLC in Nashville, a property tax consultancy, says he has about 15 clients this year, versus the four to five clients last year.

Mr. Bothen says that the cost of appealing by using lawyers is paid through a contingency basis—an average of a third of annual tax savings won. Mr. Bishop’s firm, for example, takes a 20% to 40% contingency fee. Mr. Hulsey’s firm charges 20% to 35% of annual tax savings. And the risk that a property value is raised from an appeal is minimum, experts say, since there are typically only two results: Win a reduction on the assessment or pay the current assessment as is. Some states are gearing up for more filings.

Read more at: Wall Street Journal

National Grid Will Pay Up to 70 Percent of Energy Efficiency Upgrades

Larry Rulison writes in the Albany Times Union that Mark Siegal had everyone’s attention Friday morning at National Grid’s energy efficiency expo at the Albany Marriott.

Siegal is the manager of National Grid’s commercial and industrial energy efficiency programs, and he was explaining to a room full of business owners how a new program that targets small businesses works.
There was a reason for so much interest. National Grid’s Small Business Energy Efficiency Program, which targets businesses such as convenience stores, pizza shops, hair salons and auto dealers, pays up to 70 percent of the costs of energy efficiency upgrades. It’s available to small businesses that use 100 kilowatts of power or less.

National Grid also allows business owners to finance the remaining costs interest-free for 24 months.

“It’s up and running,” Siegal told the room. “This may be a great program for you.”

National Grid’s program was created through the state’s Energy Efficiency Portfolio Standard, which is designed to reduce electricity usage in the state by 15 percent by 2015. The goal — also called “15-by-15″ — was originally proposed under former Gov. Eliot Spitzer and continues to be supported today by Gov. David Paterson.

Last year, the state Public Service Commission approved the Energy Efficiency Portfolio Standard, and it’s funded through a surcharge on all utility bills called the System Benefits Charge that also goes toward other energy efficiency programs in the state.

Up to $85 million is expected to be available through National Grid’s small business program, which includes a free energy audit. Typically, the greatest energy savings can be achieved through replacing light bulbs and changing controls and motors in walk-in or reach-in coolers often found at small supermarkets, convenience stores and florists.

Siegal says National Grid has completed 350 energy audits so far and installed $2 million in new equipment. The average project costs $6,000, which means that the typical out-of-pocket cost comes to $1,800, which can be paid off through the business’s National Grid bill over two years without interest.

In most cases, new high-efficiency lighting makes the biggest difference in energy costs. And in most cases, the lighting is actually better.

“You save a lot of energy and still get the same value for that lighting,” Siegal said.

National Grid has subcontracted energy efficiency firms to manage the small business program for them.

One of them is SmartWatt Energy Inc. of Ballston Lake, which is managing the program in the Syracuse area.

Chris Covell, the president of SmartWatt, said small businesses are perfect for energy audits because many of them make few changes to their operations.

“With a small business, the lights turn on, and that’s all they think about,” Covell said at the expo.

But the potential savings can be huge, he says. The typical retail business spends about half of its electric bill on lighting, and SmartWatt can cut that lighting portion in half with new equipment.

“Business has been good,” Covell said. “It’s been a good year.”

Read more: Albany Times Union

Plumbing for Joy? Be Your Own Boss

Sue Shellenbarger writes in the Wall Street Journal that:

’Roger the Plumber’ owns his own business and is excited to go to work every day.Steve Hebert for The Wall Street Journal

By economic yardsticks, Roger the Plumber should be feeling pretty low. Roger Peugeot, owner of the 14-employee Overland Park, Kan., plumbing company that bears his name, is part of a sector hit hard by shrunken credit and slumping sales. He has been forced to reduce staff and is battling new competition from other plumbers fleeing the construction industry.So why is Mr. Peugeot so happy? He genuinely likes fixing plumbing messes, for one thing, and despite the worst recession he has seen, “I’m still excited to get up and go to work every day,” he says. He relishes running into people at the local hardware store whom he has helped in the past. And in hard times, he says, his fate is in his own hands, rather than those of a manager. “Even when things get tough, I’m still in control,” he says.

In the broadest, most-comprehensive survey yet of how occupation affects happiness, business owners outrank 10 other occupational groups in overall well-being, based on the landmark survey of 100,826 working adults set for release today. Defined as self-employed store or factory owners, plumbers and so on, business owners surpassed 10 other occupational groups on a composite measure of six criteria of contentment, including emotional and physical health, job satisfaction, healthy behavior, access to basic needs and self-reports of overall life quality.

This puts Roger the Plumber well ahead of movers and shakers typically regarded as the top of the heap in society—professionals such as doctors or lawyers, who ranked second, and executives and managers in corporations or government, who came in third—according to the Gallup-Healthways Well-Being Index, a collaboration between Gallup and Healthways, a Franklin, Tenn., health-management concern. This is despite business owners ranking below those more-prestigious occupations in physical health and access to basic needs, such as health care.

The findings, psychologists say, reflect the importance of being free to choose the work you do and how you do it, the way you manage your time, and the way you respond to adversity. Regardless of occupational field, the survey suggests that seeking out enjoyable work and finding a way to do it on your own terms, with some control over both the process and the outcome, is likely for most people to fuel satisfaction and contentment.

“Despite the recession, it still pays to be your own boss,” says Frank Newport, editor in chief of the Gallup Poll. The survey, adds John Howard, director of the National Institute for Occupational Safety and Health, “reaffirms my view that the more control you have over your work, the happier you are.”

Read More at: Wall Street Journal

Annual Worker Evaluation Benefits Growing Family Businesses

James Lea writes in the Triangle Business Journal that as a family business grows and becomes more complex, the owners should start looking for ways to make management and operations more systematic and professional. Business practices that worked fine when the company was three people, two desks and one telephone just don’t get the job done when employees, customers, facilities and revenues have ballooned.

One professional management tool that’s especially useful to a growing family business is the annual performance evaluation. It’s a systematic way of accurately measuring the work performance and output of each management and operations employee, family and non-family alike, against a previously agreed-upon set of criteria and performance targets.

When done correctly, a performance evaluation – PE, for short – works well for family companies because it produces valuable information about operating productivity, both strong areas and weaknesses. Because it’s a way of giving objective feedback, PE reduces the hemming-and-hawing or hurt feelings that can result from one family member evaluating another. PE is also a great help in work planning and in reinforcing everyone’s commitment to the business goals of the company and the family. And it can be useful in simplifying some of the stickiest management decisions that family companies face: compensation.

Some people think of workplace evaluation as a supervisor reviewing an employee’s work and pointing out the past year’s foulups and failures. T’ain’t so with PE. The supervisor and the employee look back together over the past year’s achievements and areas needing improvement. Then they look forward and set performance objectives and output targets for the upcoming year.

That’s what creates each employee’s individual index of accomplishment and gives the supervisor and the employee something constructive to talk about during the evaluation interview.

Negative feedback can be hard to give and hard to take in any work situation. The intermingling of family relationships with supervisor-subordinate relationships in a family business can make it even harder. Any structured method helps to relieve the unpleasantness of an evaluation’s downside. But performance evaluation is one of the best methods because the performance checklist, which has been created jointly by the supervisor and the employee, and the employee’s performance targets are there in black and white.

Pegging the company’s compensation policy to PE helps to solve another common problem in family businesses: how to structure family employees’ compensation packages, annual raises and other incentives fairly and reasonably. When family members’ work plans and performance targets are being set for the upcoming year, salary-increase percentages and nonsalary incentives can be attached to those targets upfront. Later, when it’s time to calculate each person’s reward for contributing to the company’s success that year, it’s clear who deserves what size piece of the pie. No questions, no excuses, no 11th-hour renegotiation. The compensation formula is objective, and no one gets cast as either Santa Claus or The Grinch.

A well-structured PE form will not only pinpoint inadequate or off-target performance, it also will help to track down the reasons, which can be pretty deeply hidden and hard to uncover. Even better, PE helps supervisors and employees do all that in an objective, cooperative fashion that makes correcting the problems a lot easier and faster.

For information on how to set up and implement annual performance evaluation in your family-owned business, check the Web or the nearest college or business school business library. It might be worth spending a few bucks for a consultant to get things started.

Lea is a professor at the University of North Carolina at Chapel Hill and a family business speaker, author and adviser. Contact him at james.lea@yourfamilybusiness.net.

Triangle Business Journal

Fed Pressures CIT for Survival Plans

Darrell Hughes and Maya Jackson Randall report in the Wall Street Journal that the U.S. Federal Reserve is stepping up pressure on CIT Group Inc. to come up with a viable plan for survival.

CIT agreed to submit two separate plans to the Fed in coming weeks, the company said on Thursday. One would give a roadmap for maintaining sufficient capital and another would outline ways CIT plans to improve its overall financial condition. Additionally, the commercial lender has agreed to give the Fed a say over dividend payments, debt and stock purchases.

The order gives the New York lender 15 days to submit its capital plan and 75 days to hand in a report on improving its financial position.

“It sounds like there isn’t enough progress on the company’s restructuring,” said Scott Peltz, managing director of restructuring at consultancy RSM McGladrey in Chicago. “The Fed is effectively saying that it doesn’t believe the company is going in the right direction and it either has to get on track or take more definitive action, which would be bankruptcy.”

Also Thursday, CIT announced that it put in place a stockholder-rights plan to preserve potential income-tax benefits. Company spokesman Curt Ritter declined to comment further.

According to the Fed order, the goal of the written agreement is to “maintain the financial soundness” of CIT so that it can serve as a source of strength to its Salt Lake City state-chartered bank.

CIT bonds and shares rose on Thursday. The shares added 17 cents, or 13%, to $1.45.

CIT, which became a bank-holding company in December, has been working in recent weeks to avoid filing for Chapter 11 after finding itself shut out of the capital markets and unable to persuade the government to stand behind its debt. The company faced a worsening liquidity crisis as its customers drew down credit lines, draining its cash.

The lender got more breathing room last month when it received a $3 billion emergency loan from a group of its six largest bondholders. Still, the company has said more than once a host of issues have left “substantial doubt” about its ability to continue.

The company last week tweaked the terms of a crucial tender offer for $1 billion of floating rate notes due Monday and has stopped paying dividends on some preferred stock.

Wall Street Journal

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