The unconventional CFO

Roseland, NJ, is only 20 miles west of New York City but, nestled in the rolling hills of the Garden State, it feels like a world away. Here, in a pleasantly manicured corporate campus lies the corporate headquarters for ADP, one of the world’s leading human resources and payroll processing companies. The building is an expansive representation of how it operates. Its wide, open spaces suggest a sense of breadth. Its glass-walled offices suggest transparency. Its multilingual signage nods to its operations in more than 100 countries. And video monitors mounted on mobile Segway-like platforms that let video-conferencing colleagues move through the facility as if they were there notes an appreciation for highly technical solutions.

ADP processes the pay for some 36 million people around the world (24 million in the United States and 12 million internationally)—more than the population of Canada. It moved more than $1.7 trillion in FY2015 in client tax, direct deposit, and related client funds—more than the size of Saudi Arabia’s economy. It services a professional employer organization (PEO) group of more than 400,000 employees—more than the entire workforce of Kroger, the Home Depot, or Target.

Its work puts it directly in line with the many compliance requirements that come along with getting paid on time, ranging from timely filing of hiring and firing paperwork to participating in the Affordable Care Act’s healthcare mandates to working with the IRS to pilot a more secure W-2 form filing to processing wage garnishments, and much more. So to many, ADP looks like it’s a payroll company, but to Jan Siegmund, its CFO, it is much more. To him—and the rest of the executive leadership—ADP is a compliance company. And compliance is something Siegmund loves to talk about, an interesting development since four years ago he was relatively new to the world of compliance. But that hasn’t stopped him from becoming ADP’s cheerleader for the company’s dedication to compliance as a career path, as a product, as a service, and as a calling.

The strategy man

Jan has been at ADP since 1999, working through the ranks in a variety of strategic roles that culminated in his becoming chief strategy officer in 2004. He held that role for eight years, overseeing the company’s long-term planning and providing guidance on mergers & acquisitions and overall product strategy.

Alongside that, in 2007, he also became president of ADP Value Added Services, a business unit that delivers compliance solutions to ADP’s more than 65,000 clients across 110-plus countries. He focused on payroll tax filings, payroll money movement, and numerous compliance services ADP attached to its human capital management solutions.

“I was surprised by how complex and detailed regulatory requirements are today. For somebody with a strategic background, it was a humbling experience.”

Jan Siegmund, CFO, ADP

These twin progressions gave Siegmund insight to ADP’s operational and growth strategies, but it made him an unconventional choice for the role of CFO, since he did not have an accounting or finance background. But when the opportunity presented itself, ADP reckoned that being the right kind of outsider also made him the right pick for the job.

“I think the intent of our CEO and our board was to add two components to the finance function,” Siegmund says. “First, to leverage the CFO function to drive and support change in our own organization. And second, to look at the finance function through a strategic lens and to see how ADP’s own compliance efforts fulfilled a strategic aim as part of a larger enterprise risk management program. Global security, audit, and a number of compliance responsibilities all reside in the CFO office. Having an integrated view of how to drive all of that in a strategic way was, I think, part of the decision.”

But the first 100 days were not easy for Siegmund. Entering a new role that he did not have a traditional background in forced him to learn a great deal in a short period of time. But he threw himself into it in a way that not only got his skill level where it needed to be, but it also forged the kinds of relationships he felt were crucial to succeed as ADP’s CFO. It was a process not unlike what many compliance officers have gone through themselves when first brought into their role.

“It certainly was an interesting 100 days for me,” Siegmund says. “Having had the advantage of a fairly good understanding of the broad mechanics of ADP, I was lacking much of the detail on what was driving the finance organization, from basic things like external reporting and taxes to compliance, internal audit, and the FP&A function.”

This led to an intense learning period in which Siegmund tried to absorb as much of the functional specifics of these areas as he could and put it in a strategic context of what they meant to ADP. To learn what he needed to know, Siegmund attended a lot of team meetings, not only with functional leaders, but with their rank and file. He engaged with everyone he could to establish a dialogue and, in those discussions, gain an understanding of the actual function of a particular team and how it tied to the company’s overall direction.

“Luckily, I had a strong finance function leader who very generously supported my coming on board,” Siegmund says, “but I was surprised by how complex and detailed regulatory requirements are today. For somebody with a strategic background, it was a humbling experience.”

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By his own admission, Siegmund became CFO at an interesting time, amid a barrage of new regulations. But in the years since, he has gained some perspective not just on his own role, but on what it means to be a CFO at a time when the U.S. federal government is pushing some 4,000 new regulations to track every year. And more importantly, it has given him some perspective on where compliance fits in.

“Compliance is an interesting topic for me personally and for ADP as an organization,” Siegmund says. “ADP views compliance as value proposition. In many companies, compliance might be seen as a burden and often complicated, but it has a different status here in our day-to-day culture. Our business is to help our clients comply with myriad rules and regulations so, for us, incremental compliance burden is a challenge, yes, but it is one we meet in a constructive way.”

One such way is on how he deals with the legion of compliance issues arising from the Affordable Care Act. In his role as CFO, he has to oversee ACA-related client compliance solutions for some 10 million people within ADP’s client base, while also making sure ADP is itself compliant with the law. “That is the fun of my specific role at ADP,” Siegmund says. “I get to deal with the compliance requirements for ADP as an enterprise, but I also have the opportunity to impact how these solutions are developed for our clients. I can be my own client for these products and solutions.”

ADP’s own compliance program has around 100 people. The chief compliance officer reports to the general counsel. The ERM team reports to the CFO. Global security and audit also report to the CFO. Siegmund and the general counsel share many of the same core initiatives, and their teams work very closely through the ERM program, which focuses on actionable and practical objectives based on six to eight core initiatives.

“One of my areas of passion and pride is that we have managed our ERM program so that it is aligned with the company’s larger strategy, has the buy-in from people in the field, has a strong business orientation, is integrated into operational plans, and is supported by our field executives,” Siegmund explains. Issues that are identified as key risk factors are each owned by one of the members of ADP’s executive committee, have their own action program, and get funding. The prioritization is done annually by a small team from the executive committee that drives not only the ERM program, but also other strategic teams within ADP, audit and compliance.

“It’s an efficient and practical program that gives me comfort that we have identified the right risk factors for the company and that we have an effective way of driving risk improvement initiatives systematically,” Siegmund says. “A large, complex process where many staffers assess risk is less effective than a more focused, senior-driven discussion to pick initiatives and make real progress on them.

Siegmund feels that ADP’s chief audit officer, who also runs the ERM program, is an instrumental driver for all of this. Her ability to connect with senior-level executives and drive true buy-in is a key factor. Another helpful factor is the “risk wheel,” a framework used not only in ERM, but adapted across the company in various other initiatives, such as data security. Use of the risk wheel permeates the organization as a simple, powerful framework. For Siegmund, it’s used to assess how well the ERM program is working, as well as how well ADP is succeeding at its core function of moving money on behalf of its clients. “We move $1.7 trillion in money each year, and there’s a lot of risk in that. It’s a very compliance-intensive operation, and we leverage the same ERM process to drive our own compliance program, which is 100 percent compatible with the company’s overall ERM program,” Siegmund says.

Alphabet soup: the IRS, ACA, and FLSA

ADP moves such a huge volume of money that it is the largest taxpayer to the IRS on behalf of its clients, which also makes the company the most important source of cash that goes into U.S. government coffers. This is where Siegmund stresses how ADP’s payroll process business intrinsically links to compliance. ADP sees that as every bit as central to its business model as payment processing. There cannot be one without the other. And in the case of the IRS, that puts the company in a unique position both as a regulated entity and adviser to the regulator.

“We have excellent relationships with the IRS and other tax authorities,” Siegmund says. “The IRS is keenly interested in treating all clients on an equal basis. It’s their mandate. But over the years we have partnered with many interesting projects to help find the best solutions for the U.S. taxpayer, where we offer input to the technicalities of those solutions. When the government wants to change the tax structure or create new tax incentives, it’s important that it is operationalized. If the government wants to make an incremental tax imposition on payroll, how can that be implemented in a timely manner? ADP works closely with the IRS to find solutions to allow industry to file efficiently but also for the IRS to do it in an effective and controlled way.”

An example of this is ADP’s recent work with the IRS on an effort to improve the security of electronic tax filing in general and to create more secure W-2 files in particular. Last year, ADP processed about 60 million W-2s filed in the United States. Historically, fraud and misuse have bedeviled this IRS form. At the moment, the IRS has partnered with a few trusted organizations (ADP among them) in a pilot program that will allow ADP to print a secure code on W-2s and to incorporate that code on the back end of the company’s own electronic W-2 filings that would allow the IRS to match and validate the W-2 forms that are filed by employees to the W-2s that are submitted by ADP on behalf of its clients, thereby eliminating the opportunity to misuse the W-2 in the tax-filing process. That requires a trusted partner, and since ADP and the IRS have such a long-running working relationship, ADP is often at the forefront of new tax solutions. The W-2 program is just a pilot now, but for forms in 2016 it will include some 20 percent of all tax filers and, if successful, could be rolled out nationwide after that. For ADP, the benefit of being in the pilot program is that its clients can be early filers with the new system.

“Government agencies are often in a difficult position because they are expected to deliver a lot with limited resources. We have a good understanding of that and, in ADP’s case, we can file large volumes of tax returns through electronic integrations and batch processing—with a much lower error rate than the rest of the industry—to allow the IRS to process those returns very efficiently, so that creates a good win-win situation,” Siegmund says.

The IRS isn’t the only federal leviathan where ADP has its compliance work cut out for it. As the United States continues to understand the implications of the Affordable Care Act, healthcare compliance is a very complex, difficult issue for employers, with very high stakes for failure. We have not seen regulatory change of this magnitude impacting this many employers in this many countries in my lifetime,” Siegmund says in a way that somehow seems like an understatement.

The ACA mandates that companies above 50 people provide healthcare solutions for their employees, which requires benefit administration solutions. It requires employers to carefully monitor the part-time/full-time component of their staff to make sure eligible workers can get enrolled; that requires labor management systems. On top of that, there are myriad reporting and compliance requirements that employers have to fulfil. They must ensure the healthcare they provide is affordable and deal with the numerous care options that employees have and the \management responsibilities that come with it. Employees can opt out of public health plans and go to exchanges, and that triggers many interactions between the exchange, the IRS, and the company to ensure shared responsibility. Does the company have to pay any fines that result? Are employees eligible for subsidies? “These are just a few of the considerations the ACA has imposed, and a true compliance solution here has to address all of them,” Siegmund says.

As difficult as the ACA is to contend with, at least employers know it’s there. In contrast, the Fair Labor Standards Act, starting Dec. 1, 2016, will significantly expand overtime rules, extending protections to some 4.2 million U.S. workers and impact virtually every employer in the country. The new rules will expand the salary threshold and minimum salary requirements for white-collar exempt employees. And yet, according to ADP’s own research, only 25 percent of small businesses and 50 percent of mid-sized businesses are even aware of these new overtime requirements, let alone compliant with them. Compliance is often thought of as something involving large, public companies in highly regulated industries. But with the FLSA, we see a major compliance initiative affecting companies that might not even have a dedicated compliance officer.

“The FSLA overtime requirements are interesting because they are so easy to get wrong,” Siegmund says, explaining that over the last few years, ADP underwent a systematic screening of all of our job functions to ensure we would be compliant with this law. It was a significant undertaking to assess each function by wage level and by responsibility to make sure they were compliant with the letter of the law, since significant fines can ensue if that is not done correctly. “In this case, at the most basic level, payroll and time/attendance solutions are the foundation to stay compliant, which is why we have compliance experts working with these rules and regulations so they can work with clients to make sure any mistakes are avoided. Now imagine this challenge for a smaller client that doesn’t have a dedicated compliance team or compliance offer. The owner or financial person takes responsibility for that, but it’s too complicated to handle solo, which is why even small companies look to firms like ADP for help.”

A perfect example of what ADP thinks is a good value proposition, especially for smaller clients: ADP is an industry leader in facilitating wage garnishments. This is a very regulated situation, and about 7-8 percent of all employees have their wages garnished through divorce, credit problems, child support, and other situations. There are 55,000 organizations issuing wage garnishments in the United States alone. The fines for not garnishing wages on a timely and correct basis are very expensive. And, it’s not a pleasant process. The person getting garnished is not happy, and the person receiving the garnishment is often dependent on these payments, so ADP has developed a solution to automate garnishment liens and apply the very complex rules that vary by state and by type of garnishment to ensure that the process is handled the right way. It’s based on proprietary software, but can only be handled by a high level of expertise. It’s proven to be a very needed product; this is an area where even Fortune 1000 companies need help, but it’s also one of those areas where good compliance work also produces a tangible social benefit. It’s heartwarming, Siegmund says, to see how passionate associates in this business are, because their mission is to support a good cause and to administer a kind justice. The children receiving timely child support payments certainly wouldn’t argue. And this, for Siegmund, is the ultimate payoff for compliance work and why he is so devoted to it. It is technical and demanding, yes. But ultimately it is about people. And people are always worth the effort.