Should Your Business Be an LLC or an S Corp?

Here’s how to decide whether to incorporate your business as a limited liability corporation or an S corporation.

You’ve finally decided to start a business of your own. Or maybe you have been running one as a sole proprietor, even moonlighting on the side, and have decided you need to protect your personal assets from those involved with your growing business. You might even decide that there could be a tax break in it for you. Whatever your reasoning, you’re likely contemplating a choice that many entrepreneurs face: Should your enterprise be structured as a limited liability corporation (LLC) or an S corporation (S corp), which is named after subsection S of Chapter 1 of the Internal Revenue Code?

These two organizational forms have similarities and differences–which can make choosing between them and others, like a C corporation (which includes publicly-held companies), confusing at best. Each state might also have different rules that come into play. That’s why you’ll want to get some input from a respected accountant and/or attorney to help you decide what might be the best fit for your business.

Defining the Benefits

A major advantage of organizing your business as an LLC or an S corp is that you can protect your personal assets from the creditors of your business. “Limited liability means you can’t be financially responsible for more than your investment in the company,” writes Greg McFarlane in his book, Control Your Cash: Making Money Make Sense. “If you put in $10,000, and incur $11,000 in debt, you’re only potentially liable for $10,000. Your creditors (check that, your LLC’s creditors) can’t ‘pierce the corporate veil,’ as the phrase goes.”

Another common aspect of LLCs and S corps is that they help you avoid paying both personal and corporate taxes. The difference is that in an S corp, owners pay themselves salaries plus receive dividends from any additional profits the corporation may earn, while an LLC is a “pass-through entity,” which means that all the income and expenses from the business get reported on the LLC operator’s personal income tax return, says Ebong Eka, a CPA who also pens his own blog about the world of entrepreneurship at MoneyMentoringMinutes.com.

Both LLCs and S corps can also deduct pre-tax expenses, such as travel, uniforms, computers, phone bills, advertising, promotion, gifts, car expenses, and health care premiums, McFarlane writes.

Note the Differences
 
Once you understand the benefits that come from LLCs and S corps, it’s time to explore some of the pros and cons of each approach. Here are some of the key differences, according to Eka:

LLC Pros:

The owner of a single member LLC doesn’t have to file a tax return for the LLC, as they only report the activity on their personal tax return.

Ease of setup: Most LLC forms are only a single page for single member LLCs.

Inexpensive to start: The cost of setting up an LLC is also inexpensive, usually just a couple hundred dollars.

Guidelines: The red tape involved in forming an LLC isn’t as stringent as that involved with S corps, which also leads to savings on accountant and attorney fees, among others.

LLC Cons:

  1. Self-employment tax: Single member LLC owners are required to pay self-employment tax on income generated in the LLC, which means making quarterly estimated payments to the IRS.
  2. Owners of LLCs must make sure they don’t pierce the “corporate veil,” meaning they have to operate the LLC separately from their personal affairs. “The LLC must not be a shell but an operating entity,” says Eka. “There have been cases where a business owner lost their protection because there was no distinct difference between the LLC and its owner.”

Dig DeeperWhat Is an LLC?

S Corp Pros:

  1. The key advantage of an S corp is that it offers tax benefits when it comes to excess profits, known as distributions. The S corp pays its employees a “reasonable” salary, which means it should be tied to industry norms, while also deducting payroll expenses like federal taxes and FICA. Then, any remaining profits from the company can be distributed to the owners as dividends, which are taxed at a lower rate than income.

S Corp Cons:

  1. S corps have more strict guidelines than LLCs. Per the tax code, Eka says, you must meet the following standards to create an S corp:
    • Must be a U.S. citizen or resident.
    • Cannot have more than 100 shareholders (a spouse is considered a separate shareholder for the purpose of this rule).
    • Corporation can only have one class of stock.
    • Profits and losses must be distributed to the shareholders in proportion to the shareholder’s interest. For example, you can’t have disproportionate distributions of dividends or losses. If a shareholder owns 10 percent of the S corp, he or she must receive 10 percent of the profits or losses.
  2. It costs more to form an S corp.
  3. Shareholders must adhere to the requirements at all times. If they don’t, they risk disallowing the S corp election, and the corporation would be treated as a C corp with its corresponding restrictions.
  4. Passive income limitation: You can’t have more than 25 percent of gross receipts from passive activities, such as real estate investment.
  5. There can be additional state taxes for S corps.
  6. Shareholders should pay attention to paying themselves a “reasonable” salary for the work they perform for the S corp, since the IRS is increasingly scrutinizing S corps for this.

Case Study: Why an LLC Might Be Best for Your Business

Given that it takes far less red tape to organize and is generally cheaper to administer, the LLC might be your best choice if you’re a new business owner or operate an internet business, says Eka.

There is also another key benefit of LLCs: You can elect to be taxed as an S corp while retaining the structure of an LLC. Consider the case of Mike Turner, founder of Front Street Brokers, a real estate agency in Boise, Idaho. When he started his business, which sells high-end homes and properties, he was advised to form it as an LLC, which he did. However, a couple years later, as the business began to earn more revenue, Turner was shocked by the amount of taxes he was paying the IRS.

It was then that his accountant told him how he could elect to be taxed like an S corp while keeping his LLC intact. Turner decided to make the switch. He began paying himself and his wife a modest salary, which he also pays fees on (such as FICA and unemployment insurance), and then paying himself a monthly dividend from the extra profits his company was earning.

“The rules are I must pay myself a realistic salary,” says Turner. “I can’t pay myself minimum wage, and do the rest in dividends. But in my industry, the average salary is not that high, so I can still take a hefty amount via the dividends.” The difference has been a savings of between $6,000 and $8,000 a year in federal taxes. “I feel I get the best of both worlds,” he says. “For my small business, I get all the legal benefits of running my small business through an LLC, but I can be taxed as an S corp, which saves me money at tax time.”

Case Study: Why an S Corp Might Be the Better Choice

While Turner’s story is a compelling one for a smaller, lifestyle business, the truth is that fast-growing businesses that plan to bring on investors or share the ownership of the company with employees may need to consider making the switch to an S corp sooner rather than later.

Consider the case of Vicky Phillips, the founder of GetEducated.com, which provides guides and ratings for college courses and programs offered online. Phillips originally started her business, which is based in Burlington, Vermont, as an LLC and has kept it that way for 10 years. But now that her business is established–it now earns $1 million in annual revenue–she’s ready to bring on investors to expand even faster.

In talking to her advisers, she came to realize that it was in her best interest to convert her company into an S corp, despite some of the disadvantages of doing so. “There’s much more paperwork required to substantiate everything,” she says, since running an S corp requires you to hold meetings, keep minutes, make resolutions, elect officers, and produce formal financial statements. “But the S corp structure creates more separation between me and the company, which is something that investors and bankers are more comfortable with.”

Phillips says that she spent about $6,000 on attorney and accountant fees making the switch over from an LLC, the assets of which were essentially bought by the new S corp, though she admits she could have spent less if she had been willing to do more of the paperwork herself. “I’m not a huge fan of more paperwork, which is one of the key reasons we held off on making the switch for as long as we did,” she says. 

Will Movie Theaters Survive When Audiences Can Stream New Releases?

Last month Warner Brothers announced that all of the movies it will release in 2021 will be available on Warner’s HBO Max subscription streaming service — on the same day they premiere in U.S. theaters. That includes such expected hits as Matrix 4DuneGodzilla vs. Kong, and The Suicide Squad.

This announcement has had a seismic impact on the movie industry, for several reasons.

First, prior to this announcement almost all major Hollywood movies were given a three-month exclusive theatrical release before they were available on in-home channels. Indeed, theater owners had threatened to boycott any studio that violated the exclusive theatrical release window — a threat that AMC Theaters acted on in April of 2020, when, to punish NBCUniversal for releasing Trolls World Tour simultaneously in theaters and on digital channels, it announced a boycott of all of the studio’s movies.

Second, while several studios had released movies on digital channels while theaters were closed during COVID-19, Warner’s announcement covered its entire 2021 slate, including movies slated for release late in 2021 when most industry observers believe theaters will no longer be subject to COVID-19 restrictions. This made it appear to some that Warner wanted to make these temporary COVID accommodations permanent.

Theaters owners and other industry observers were quick to criticize Warner’s move. Chris Johnson, the CEO of Classic Cinemas, called Warner’s decision “ridiculous and short-sighted,” and Adam Aron, the CEO of AMC Theaters, argued that Warner would “sacrifice a considerable portion of the profitability” of movies that bypassed the traditional theatrical release. David Sims piled on in The Atlantic, saying of Warner’s decision, “Audiences will have little incentive to pay more to see these films in theaters.” His conclusion? “Theater chains are right to fear for their survival.”

These concerns reflect the conventional wisdom in the industry: that given the choice, many consumers will avoid the “big screen” theatrical experience in favor of the convenience of watching the same movie at home. If that’s true, it would obviously be ruinous for theaters.

But is it true? Will early digital releases significantly harm theatrical revenue? We analyzed that question in a recent research study, and what we found might surprise those who are concerned about digital platforms encroaching on the theater business.

In the study, we analyzed what happened to theatrical revenue in Korea from 2015 through 2018 — a period during which Hollywood studios significantly shortened the exclusive theatrical windows for their releases, from three months to only one month. We found that, after controlling for differences between movies with early digital releases versus traditional release windows, early releases had a statistically and economically insignificant impact on theater sales, equivalent to around a 0.8% drop in total theatrical revenue during the first eight weeks of the movie’s theatrical run in Korea. Most theatergoers, it turned out, remained loyal to the theatrical experience even when they had the option of watching the movie at home while the movie was still showing in theaters.

We should interpret this result with some caution, of course. U.S. consumers may behave differently than Korean consumers when it comes to early digital releases, and our study results only apply to movies that received an exclusive theatrical release for at least four weekends — a release window more similar to the 17-day exclusive theatrical window that AMC and NBCUniversal ultimately negotiated than to the “day-and-date” HBO Max availability proposed by Warner.

Nonetheless, our broad finding is consistent with what we’ve seen in other settings where many feared that new digital products would cannibalize existing markets. For example, our past research found that making books available on Amazon’s Kindle platform didn’t significantly cannibalize hardcover sales, unbundling digital singles from albums didn’t damage overall music revenue, and releasing movies on iTunes didn’t harm those movie’s DVD sales. In each case, the data showed that opening new digital channels wasn’t a zero-sum game. Rather, the new digital products appealed to new and previously untapped customers, and making them available to the market ultimately benefitted both consumers and sellers.

What we learned in our Korean study suggests that a similar effect may exist for movies, which in turn suggests that John Fithian, the president of the National Association of Theater Owners, was right when he argued that “theaters provide a beloved immersive, shared experience that cannot be replicated” — but that Jason Kilar, the CEO of WarnerMedia, was also right when said that early digital releases provided an opportunity to give customers a choice “whether that choice is to enjoy a great new movie out at the cinema, to open up HBO Max, or to do both.”

That’s an encouraging sign. Maybe, when it comes to how movies get released, studio executives and theater owners have more to agree on than they realize.

Pajamas Are the New Sweatpants—How to Wear Them Everywhere

Men and women are trading their sad WFH uniforms for snazzy sleepwear, spending every waking hour in snugly bliss. These expert tips will help you style PJs for almost any socially distant activity.

PAJAMAS ARE at least partially responsible for keeping Vincent “the Chin” Gigante out of jail for decades. Starting in the 1960s, the late Mr. Gigante, a notorious New York mob boss, feigned mental illness in a surprisingly successful scheme to convince authorities that he couldn’t possibly be the head of the Genovese crime family. To keep up appearances, he’d meander through his Greenwich Village neighborhood mumbling to himself while wearing slippers, sleepwear and a bathrobe. His pajama game helped him elude arrest until the 1990s, at which point he was locked up for racketeering and conspiring to murder his Mafioso rivals.

SHARE YOUR THOUGHTS

How have you integrated pajamas into your work-from-home look? Join the conversation below.

Today, the Chin’s ploy wouldn’t fool anyone. As the pandemic persists, pajamas have come to seem entirely sensible as all-day wear for social-distancing women and men. Whether you’re Zooming with the boss, running to the store or hosting your pod for cocktails and charades, sporting pajamas from morning ’til the next morning—a style strategy once reserved for degenerates and hung-over college students—no longer provokes censure. Today, in fact, if a man wanted to convince the world he was certifiable, he might have better luck striding down 6th Avenue in a pinstripe suit and a hat.

COZY NIGHT OUT Filmmaker Sofia Coppola wearing a silky sleepwear set on the 2013 Met Gala red carpet with designer Marc Jacobs.PHOTO: GETTY IMAGES

“People are looking for a different way to find comfort and fashion together,” said Roopal Patel, the fashion director of Saks Fifth Avenue. She noticed an uptick in the store’s sleepwear sales after the world hit pause last March. Ms. Patel observed that people are procuring extensive pajama wardrobes and assigning different styles to different isolation activities. “Everyone is experimenting with how to wear these pieces with their everyday looks, which they may not have done a year ago.” Indeed, if you pick the right pair, pajama dressing resolves the WFH-era dilemma of how to remain stylish at home. Emulate Sofia Coppola’s marvelous 2013 Met Gala look: metallic Marc Jacobs PJs, subtle sparkly jewelry and a mid-heel sandal. Do not mimic the Dude’s disheveled SoCal-stoner style in the supermarket scene of 1998’s “The Big Lebowski.” Tired, tattered bathrobes should be left in the closet, or the trash.

It might seem counterintuitive, but a sharp pair of PJs can look more put-together than the sad WFH uniform to which so many have succumbed: sweatpants, T-shirt and hoodie. The former is “crisp and happy,” said George Cortina; the latter, “sloppy and slovenly.” Mr. Cortina, 55, is a New York fashion editor (who contributes to WSJ.) and pajama evangelist who’s worn custom cotton pairs everywhere from tony Paris eateries to scene-y Los Angeles hangouts. “If you have a fresh set of pajamas,” he said, “there’s something beautiful in the choice you’ve made. If you’re wearing sweats, it’s gray and dreadful.” Mr. Cortina so strongly believes that PJs are the ultimate all-occasion ensemble that, this March, he’s launching a line of unisex poplin pairs with Savile Row tailor Anderson & Sheppard. They’ll come in un-dreadful “1960s Italian Riviera” hues like hot pink and lavender.

According to market research firm the NPD Group, as of November 2020, year-to-date pajama sales were up 5% nationwide—a margin expected to increase once holiday sales are factored in. Specialty sleepwear brands have enjoyed an even greater surge: The Great, a Los Angeles casual wear label, and 24-year-old Miami brand Eberjey both report that they saw pajama sales double last year and, after less than a year in business, Los Angeles loungewear upstart Leset sold out of almost every item on its website last spring.

Sleepwear as a comfy-on-the-job alternative to tired WFH sweatpants and sets playfully frolicking through the urban wilds.ILLUSTRATION: JACK RICHARDSON

It’s no surprise, then, that other brands are pivoting to snooze style. The new appetite for PJs led New York label Adam Selman Sport, known for flamboyant workout wear, to bump up the launch of its sleepwear line a full year, said its namesake designer. San Francisco lifestyle brand Athleta debuted its sleep range this month and Parisian fashion house Christian Dior just released its “Chez Moi” capsule, which includes such swank, snugly wares as toile-print pajamas with black piping.

“Our perception of these garments has shifted,” said Lorna Hall, the director of fashion intelligence at London trend forecasting firm WGSN. “We value them more now and many of us are prepared to spend more on them because we’re spending so much time in them.” With nowhere to go but the couch, many see standard apparel purchases as “a waste of money,” said Ms. Hall. Pajamas, on the other hand, seem a justifiable indulgence.

SLEEP-CHIC A guest pairs Valentino pajamas with a pair of pointy pumps outside the brand’s Paris fashion show in September 2019.PHOTO: GETTY IMAGES

Some have indulged more than others. Vanessa Chamberlin, 51, a Las Vegas author who was feeling glum after weeks of sheltering in place, giddily relayed that she’s bought 21 pairs of PJs. “I put on my pretty clothes a few times and walked around the house, but it didn’t make sense,” she recalled. “I thought, ‘How do I get my fashion back? How do I get my sense of feeling good, but also what’s going to be a useful thing to wear?’ And it was pajamas.” She mostly wears traditional, button-front separates, reserving four floral pairs exclusively for gardening.

Dianna Cohen, the New York founder of haircare brand Crown Affair, has procured three pairs of formal silk pajamas to wear on Zoom calls. In the before times, Ms. Cohen, 29, enjoyed teaming playful PJ tops with jeans for dinners out. Now, she sports full sets to the grocery store. “The combo of an oversize coat, a pajama and a clog is kind of the look these days,” she laughed. “I definitely wasn’t wearing that before the pandemic.”

Snooze-wear’s unparalleled ease makes it perfect for long days of sightseeing—provided you style it properly.PHOTO: JACK RICHARDSON

Steve Schwartzman, a 57-year-old Seattle attorney, has adopted a similar errand style—pajama bottoms by Burberry, Ralph Lauren or L.L.Bean mixed with T-shirts, Gucci loafers and a long coat for his morning coffee runs. “No one cares anymore,” he reasoned. “It’s just about being comfortable and getting through things.”

Pajamas’ newfound popularity comes as many re-examine their priorities and focus their lives around family, home and simply feeling good. Once the world reopens, designers, retailers and consumers agree that we’ll be unwilling to relinquish jammies’ cozy reassurance. Mr. Cortina contends that we won’t have to. “If [your pajamas] are great-looking, you can wear them anywhere,” he said. Perhaps, but only with proper styling.

Women should start at the bottom of their look with a kitten heel, like Prada’s pastel spring styles, or a favorite leather loafer. Saks’s Ms. Patel suggests mixing PJs with other closet staples, like a cashmere sweater for videoconferences or a tailored blazer for dinner at home. Mariela Rovito, the co-founder of Eberjey, advises women to accessorize with “a little bit of jewelry and a soft lip.” And Adam Selman, the New York designer, says to embellish with attitude. “If you pull it off with confidence, you can get away with murder.”

WAKING DREAMS Sublime men’s and women’s sleep sets for working, resting and entertaining. From left: For Fetching a Morning Latte, Men’s Pajama Set, $198, sleepyjones.com; For a Monday Zoom Meeting, Women’s Sleep Shirt, $275, intothebedroom.com; For Lounging Luxuriously, Women’s Skin Top, $68, Bottoms, $135, Cardigan, $250, goop.com.PHOTO: F. MARTIN RAMIN/THE WALL STREET JOURNAL (SLEEP SHIRT)

Other fans have reservations. “Don’t go into a boardroom with pajamas, but you can totally go to brunch,” said Ms. Cohen, who would also wear them to gallery openings and internal meetings. While Mr. Schwartzman will remain devoted to his pajamas on weekends, he thinks PJs in the workplace is a step too far. “I’ve got some fancy pajamas,” he said, noting he spent New Year’s Eve in a Sleepy Jones style, “but I don’t think I could carry that off in the office—it would be a little too much.” Or, more accurately, not enough.

Wherever you choose to venture in your PJs, Ms. Rovito offers this advice: Ensure you’re well groomed. “You can’t have pajamas and bedhead,” she scoffed. “That’s not a good combination.” Some might even say it’s criminal.

From left: For Sprinting to the Store, Men’s Top, $49, Bottoms, $49, Robe, $85, thewhitecompany.com; For the Laziest Days, Women’s Pajama Set, $84, lakepajamas.com; For Date Night In, Women’s Top, $1,850, Bottoms, $1,650, Dior Soho Pop-Up, 646-694-9701.
THE BIG-SCREEN SLEEP

Somehow, there’s still no Oscar for cinema’s most memorable pajamas, so we’ve taken it upon ourselves to dole out the honors. Here, 5 notable moments from movie history.

PHOTO: EVERETT COLLECTION
Least Cringe-y Twinning

Irene Dunne and Cary Grant, ‘Penny Serenade’ (1941)

Skip cheesy matching PJs and instead opt for subtly complementary sets, like those of this celluloid couple.

PHOTO: EVERETT COLLECTION
Best Oversize Fit

Claudette Colbert, ‘The Palm Beach Story’ (1942)

Whether fleeing your marriage via train (a la Ms. Colbert’s character) or lazing on a Sunday, you can’t go wrong with a few sizes up.

PHOTO: EVERETT COLLECTION
Best Monochrome Moment

Whoopi Goldberg, ‘Jumpin’ Jack Flash’ (1986)

As Terry Doolittle, Ms. Goldberg offers a lesson in layering with matching red pajamas, scarf and gloves—penguin slippers optional.

PHOTO: EVERETT COLLECTION
Most Likely To Repel a Date

Tom Hanks, ‘Big’ (1988)

Comic-book-themed flannel sets should only be worn for Pajama Day at your elementary school or on the most desperate of laundry days.

PHOTO: EVERETT COLLECTION
Coziest Cameo

Meg Ryan, ‘Sleepless in Seattle’ (1993)

What Ms. Ryan’s Annie Reed wears is everything loungewear should be: soft, gray, chic. Thick, ribbed socks are the cherry on top.—Sara Bosworth

CFOs Face Challenges Forecasting Capital Spending Plans for 2021

Finance chiefs must decide whether to make long-term investments based on changes in demand during the pandemic

Finance chiefs across industries are facing a common challenge: Predicting whether pandemic-driven shifts in customer demand and consumer behavior are here to stay.

The task, which is part of the budgeting process for 2021, in many cases means placing a bet on what they expect the future will look like—and what they think their companies should spend on plants and other big-ticket items.

Capital expenditures are investments in assets such as land, buildings and technology that companies use to generate growth. Executives often make these longer-term spending plans covering multiple years.

The pandemic has made the call much harder. “They look at their projects, they look at their capex, and they don’t know where things are going to be in the future,” said Mark Gottfredson, a partner at advisory firm Bain & Co.

Finance chiefs are responding by closely monitoring changes in consumer buying patterns and running more scenarios than they have in the past to model future demand, executives said. Some are looking at previous forecasts for 2021 and beyond to see if they can accelerate or bolster existing spending plans, especially in industries that have fared well during the pandemic. Executives in sectors that are suffering, for example hospitality or travel, are doing the opposite: Slashing their companies’ capex budgets to preserve cash and postponing investments until later.

Clorox Co. , which has seen especially high demand for its disinfecting wipes in recent months, is adding lines at plants in Georgia and Maryland to produce more wipes and solutions for electrostatic machines that clean surfaces, for example in schools or hospitals.

The Oakland, Calif., company is increasing its spending target for capex in fiscal 2021 to between 4% and 4.5% of sales revenue, up from its 3% to 3.5% range in previous years. That is to meet what Clorox’s management believes will be higher demand going forward, Chief Financial Officer Kevin Jacobsen said.

Companies are also increasing investments in regional distribution centers, as retailers look to reduce the distance traveled by trucks to deliver their goods, said Josh Nelson, an associate principal at consulting firm Hackett Group Inc.

E-commerce giant Amazon.com Inc. has been among the most aggressive investors in logistics and distribution globally. The company, whose sales have soared in recent months, spent $25.3 billion on capex during the first nine months of 2020, or about 50% more than during all of 2019.

The Seattle-based online retailer moved up investments that were initially scheduled for 2021 to meet demand and reduce shipping delays, CFO Brian Olsavsky said on a recent earnings call. Amazon earlier this year said it planned to spend more on capex in 2020 than in 2019, when it invested $16.9 billion, but didn’t disclose a target for 2020. Amazon declined to comment on its capex budget for the year ahead.

“We’ve got to play the hand that we’re dealt,” Mr. Olsavsky said on the earnings call. The company’s spending on transportation could remain elevated for years to come, he said.

Crocs CFO Anne Mehlman said the shoe company is building out its distribution centers in Ohio and the Netherlands because of an increase in online sales.

PHOTO: CROCS

Other companies are investing in their supply chains. Crocs Inc., known for its plastic clogs, is building out its distribution centers in Ohio and the Netherlands because of an increase in online sales, said Anne Mehlman, the company’s CFO. Crocs plans to spend about $50 million on capex this year, roughly on par with 2019, Ms. Mehlman said. She declined to comment on the budget for 2021.

At the same time, CFOs on the other end of the economic spectrum, in industries such as energy, hotels and airlines, are being forced to revamp their capex budgets. They have to weigh the need to conserve cash without choking off growth. “It’s a fine balance,” said Hackett’s Mr. Nelson, adding that companies face the risk of potentially missing the target on the right level of investment, which could harm their business.

Industrial firms, such as manufacturers and auto makers, are forecast to slash capital spending by between 20% and 30% in 2020, according to a recent report from Bain, which analyzed 935 companies. By comparison, industrials slashed their capex budgets by an average of 34% between 2008 and 2010, Bain said.

Oil giant Chevron Corp. cut its 2020 budget by around 20% amid a drastic fall in oil prices and plans to reduce its spending plans by 26% next year and through the middle of the decade.The San Ramon, Calif., company said this month it would spend $14 billion next year and no more than $16 billion a year through 2025. It previously had said it would allocate $19 billion to $22 billion a year through 2024.

“Our capital program reflects that we are planning for lower prices over those five years, that’s because air travel is not going to come back tomorrow, and the economy is going to come back but there is going to be lag,” CFO Pierre Breber said.

Finance leaders at hospitality companies also are facing tough choices. Wynn Resorts Ltd. this year had planned to remodel the rooms at its namesake Las Vegas resort and casino, but put those plans on hold in the spring in an effort to shore up cash. The company in November reported a $1.8 billion loss for the first nine months of the year, compared with a $195.9 million profit for the same period in 2019.

Most of Wynn Resorts’ capex plans remain on hold, finance chief Craig Billings, said last month on an earnings call. “We are only proceeding with the highest priority projects,” Mr. Billings said.

Wynn Resorts declined to comment further.

—Christopher M. Matthews contributed to this article.

Write to Kristin Broughton at Kristin.Broughton@wsj.com

How Managers Can Support Remote Employees

In the global transition from corporate hallways to home offices, we’ve left something behind: meaningful access to managers. Gone are the instant answers to unblock progress, information streams that managers are privy to before the rest of the organization, informal feedback and coaching while walking together after a meeting, and predictable process and structures for communicating about work and ensuring mutual accountability.

Last week, during a coaching call, a senior director lamented, “I’m stalled because I don’t know how to connect with my manager on the less formal stuff — the way I used to.” He’s not alone. Manager distancing is frustrating employees and stalling work.

But managers are finding themselves struggling, too. For every employee who is trying to reach their manager, a manager is attempting to connect with half a dozen or more direct reports, plus trying to get direction from their own boss. In a poll of my coaching clients last week about their biggest challenges, their key themes were about how to stay connected with each team member, help manage their own and others’ stress, maintain team morale and motivation, run engaged meetings, track and communicate progress, and help their team shed nonessential work.

My coaching clients — managers in a variety of organizations — and I have worked through several scenarios and arrived at these six strategies to augment availability to employees when working remotely. We’re seeing early indications that implementing these strategies can reduce manager and employee stress, address concerns about employee work progress, increase productivity for them and their teams, and restore and maintain healthy communication channels.

Bridge distance through frequent connections.

Yuval*, CEO of a 1,000-person high-tech company, messages or calls his direct reports at least once a day, usually without a specific agenda. He says things like, “Checking to see if you need anything from me,” “What questions do you have for me today?” “Just learned about X and want you to be the first to know,” and “Thinking of you; reminded of our winter team outing and your killer s’mores as I look at the picture on my home office wall.” Instead of simply asking his direct reports to get in touch with him as needed, Yuval proactively manages the frequency of connection. This way, he always has a finger on the pulse of his team, especially those directs hesitant to reach out and add more to their boss’s plate during a crisis.

Blast through questions with office hours.

Managers make dozens of decisions daily and provide their people with scores of data points via informal conversations. These interactions don’t merit full meetings, but when they’re ignored, little things can languish and become looming problems. Marissa, executive director of a non-profit, has started holding office hours: an hour a day in which she invites her directs to join her on a video conferencing app if they have concerns that can be addressed in 10 minutes or less. When one person joins, she locks the meeting — the online version of shutting the office door. Everyone understands they should try back in about 10 minutes if a lock is in place. For more complex issues, Marissa asks her directs to schedule a dedicated meeting. Allocating time to deal with the flurry of daily issues maintains work fluidity and prevents small sore spots from festering into large pain points.

Provide stability through consistent rituals.

In lives riddled with unpredictability and constant change, rituals provide predictability and structure. While we don’t know what challenges we’ll face tomorrow, we do know there will be some. We can better manage the unpredictable by containing it within structured rituals whenever feasible. Here are some examples of how managers have ritualized their availability: 15-minute morning check-ins to regroup on overnight developments and establish a course for the day; opening a meeting by having everyone share one word to describe their current state of mind followed by an elaborative sentence (or saying “pass”); or a theme for each week’s meeting, such as everyone wears a hat. By creating a predictable ritual and leading by example, managers can foster a sense of connection, safety, and fun, even while their teams are buffeted by the forces of change.

Enhance safety through clear boundaries.

Expanding your availability as a manager can also have downsides. Some team members might not desire frequent connection as they continue to adjust to the new normal and wrestle with complex emotions. Others might want more time from you than your capacity allows. Be transparent about your availability plan, then set boundaries and invite others to do the same. You can say, for example, “I’m prioritizing my time with you. I’ll reach out in a variety of ways, from checking in with you daily to having office hours. Let me know if you need some space and don’t want to connect quite so frequently. I’ll also do my best to respond to your messages the same day. However, I’m taking advantage of this unique opportunity to reserve 30 minutes each day at noon to have lunch with my family.” By setting expectations and giving others space, we meet people where they are and give them permission to set their own boundaries.

Stay ahead of the game by inviting problems, not just solutions.

Our previous rules of engagement have gone by the wayside, so no one has definitive solutions. Invite your team to come to you with problems, even if they don’t yet have solutions. Consider saying, “In our current world, we all have questions, few people have answers. If you see signs of trouble, issues that aren’t visible to me, don’t wait to come to me until you have an accompanying solution. Bring me your early indicators and together we’ll devise experiments to tackle the challenge.” Explicitly signaling you want to know about budding problems will enable greater periscopic vision and access to broader sets of solutions.

Enable capacity through feedback.

The subtleties of nonverbal communication are lost in remote work, even with the video turned on. People’s need for recognition and good news is exacerbated in trying times. Reserve time at the end of each day to provide specific, positive feedback for good work (not just great work). Appreciation expressed can help smooth a lot of disruptive discomforts. Also provide timely corrective feedback before shortfalls aggravate your pile of problems. Small and frequent performance guidance circumvents major corrections down the road and allows everyone to stay in sync despite distance and daily change.

Researchers Teresa Amabile and Steven Kramer have extensively studied employee motivation and found that making progress in meaningful work is the key to keep employees engaged. While the swift shift to remote work can cause stress and many complications to daily activities, your job as a manager is to remove as many barriers to forward momentum as possible. By communicating a clear availability plan, you can help your team members feel better connected to you and address any concerns or questions as they arise.

*All names and identifying information have been changed.

These Tiny Last-Minute Tax Changes Could Be a Big Deal in 2021

From stimulus checks to early retirement-plan withdrawals, here are some late-breaking items that could alter either your 2020 return or how you approach your taxes in the year to come

With taxes, small changes often add up to big differences—and major confusion.

Last year Congress passed two important bills in response to Covid-19 that contain a slew of tax changes, with the most recent one signed by President Trump on Dec. 27. Some of the changes apply only to 2020, while others affect more than one year or take effect beginning in 2021. The new year also brings automatic inflation adjustments that slightly shift tax brackets and some other thresholds.

That’s a lot to keep straight, so here’s a rundown of the most recent tax changes and when they apply, according to the Senate Finance Committee, plus an overview of this year’s key tax numbers. Happier New Year in 2021!

• Stimulus payments. The year-end relief and spending package just signed into law includes a second round of stimulus checks. This payment is up to $600 per taxpayer ($1,200 for married joint filers) plus $600 per qualifying child under age 17. It begins to phase out at $75,000 of adjusted gross income for most single filers and $150,000 of AGI for most married joint filers. For individuals without children, the payments go to zero when income reaches $87,000, or $174,000 for couples filing jointly. The second round of stimulus payments, like the first, isn’t taxable.

Payments are already going out, and most are based on taxpayers’ income as listed on their 2019 tax returns. If the recipients’ 2020 income turns out to be much higher, they won’t need to give the payments back. Taxpayers who earned too much in 2019 to receive checks but whose income dropped enough to qualify for the stimulus can claim payments through their 2020 tax returns.

• Unemployment pay. Among other changes in this area, the new law extends unemployment pay of $300 a week for many people from Dec. 26, 2020 to March 14, 2021, and sometimes longer. It increases the maximum number of weeks of benefits to 50 from 39 in many cases, and it allows states to forgive overpayments of benefits when repayment would “violate equity and good conscience.”

Unemployment compensation is taxable, although tax rates drop as income does. Recipients should expect to receive a Form 1099-G for 2020 payments that will be reported to the IRS.

• Charitable deductions. In its December bill, Congress extended and expanded charitable write-offs for taxpayers who take the standard deduction instead of itemizing them on Schedule A.

But the expansion applies to donations made in 2021. It allows single taxpayers to deduct up to $300 in eligible donations and married joint filers to deduct up to $600. For 2020, the limit remains $300 for both single and joint filers.

Also for 2021, this deduction reduces taxable income but not adjusted gross income. AGI is a key threshold for other tax provisions, such as Roth IRA contributions, the 3.8% surtax on investment income, and income-based Medicare premiums.

In addition, the new law extends the ability of individuals who itemize deductions on Schedule A to deduct donations up to 100% of adjusted gross income through 2021.

• Flexible spending accounts. Many workers with FSAs that allow them to use pretax dollars to pay for unreimbursed health expenses (like glasses) or dependent-care expenses (like summer camp) didn’t use all the money in their 2020 accounts because of the pandemic. The IRS had limited ability to ease FSA rules, but Congress has now done so.

Participants in such plans can carry over unused funds from 2020 to 2021 and 2021 to 2022, or for up to 12 months for companies with fiscal years. For dependent-care accounts, the law extends the age limit from 12 to 13 for some carried-over funds. For workers to take advantage of these changes, company plans must often opt into the new rules.

• Medical-expense deductions. The December law enacted a permanent threshold of 7.5% of adjusted gross income for deducting medical expenses. Without the change, the AGI threshold would have risen to 10%.

Relatively few taxpayers take this write-off because their expenses don’t exceed the threshold. But the deduction covers a wide range of unreimbursed costs when it does apply, and it’s valuable to people who have very large medical expenses, such as from nursing-home care. For a list of allowed expenses, see IRS Publication 502.

• Business-meal deductions. Acting on a request from President Trump, Congress has enacted a 100% deduction for business-meal and beverage expenses in 2021 and 2022, up from 50% in 2020. It applies to delivery and carryout meals as well as those in restaurants.

• Retirement-plan withdrawals. The new law has a permanent provision allowing victims of officially declared disasters such as hurricanes and fires to make withdrawals up to $100,000 of IRA and 401(k) assets. These withdrawals can then be included in taxable income or restored to the account over as long as three years. For people younger than 59 1/2 who take such payouts, the 10% penalty on early withdrawals doesn’t apply.

This relief is similar to what Congress allowed for people affected by Covid-19 in 2020. So far, however, lawmakers haven’t extended this relief for Covid victims into 2021.

Tiny Money Changes

Tired of 2020? Here are the small financial tasks, habits, and tips to help you achieve your 2021 goals.

Tiny Changes Can Help You Achieve Savings Goals for Retirement

Your 2021 Budget: Plan Ahead, but Not Too Far Ahead

How to Better Keep Track of Small Expenses and Fees in New Year

Write to Laura Saunders at laura.saunders@wsj.com

Cruise Ships Can’t Sail Away From Covid

Small luxury operators have tried strict testing requirements and capacity limits, but onboard outbreaks persist

Authorities around the world halted voyages on large passenger ships in March after Covid-19 tore through scores of vessels, but cruising never really stopped.

Smaller cruise ships exempted from the suspension continued to sail selected routes. To keep the deadly virus off ships, these boutique operators experimented with a variety of new precautions.

The result: They mostly failed.

Coronavirus infections repeatedly pierced so-called safety bubbles promoted by luxury cruise lines. Since June, about 200 people have tested positive for the virus on nearly two dozen cruises, according to a Wall Street Journal tally. At least one person, a crew member, died in his cabin with the virus, according to the U.S. Centers for Disease Control and Prevention.

“Transmission has not been controlled sufficiently,” the CDC said in a September report that cited the virus’s continued spread on smaller cruise ships as one of the agency’s reasons for extending its ban on sailing for large ships.

The recent outbreaks suggest that it will be nearly impossible to prevent the spread of infections in the short term without extreme measures that would drastically increase costs and reduce the entertainment value of a cruise.

That reality has put the big companies that turned cruising from a luxury escape into a high-volume business— Carnival Corp. CCL 1.68% Norwegian Cruise Line Holdings Ltd. NCLH 0.98% and Royal Caribbean Cruises Ltd. RCL 3.00% —in a race against the clock. They need to find a way to get ships moving again so they can start generating revenue again.

Currently, companies are working on protocols to protect crew members. Once they demonstrate proficiency, federal authorities will allow them to offer test cruises, though none have been scheduled, so far. The big operators hope to resume regular paid cruises from U.S. ports in 2021, though the timing is unclear. The CDC has said it will issue guidance in coming months.

The more the industry learns about the virus, the clearer it becomes that an arsenal of expensive precautions are needed. Many of the smaller ships that sailed through the summer and fall imposed a series of new protocols such as requiring preboarding Covid tests, daily temperature checks and sharply reduced passenger loads.

Luxury brand Ponant, owned by French billionaire François Pinault, scheduled travel through nearly virus-free French Polynesia on its ship Paul Gauguin. Norway’s Hurtigruten Group AS restricted participation on the Roald Amundsen’s cruise along fjords to the country’s residents. Seattle-based UnCruise Adventures promised to reinvent its popular cruises in Alaska aboard the Wilderness Adventurer with a slew of new protections, such as operating at 40% passenger capacity and adding frequent Covid tests, temperature checks and limiting movements on and off the ship.

The cruise liner Paul Gauguin cut short its first voyage in months after a passenger tested positive for Covid-19, prompting passengers to disembark early in Tahiti, above.

PHOTO: SULIANE FAVENNEC/AGENCE FRANCE-PRESSE/GETTY IMAGES

Within days of launching most of these cruises, crew or passengers became ill or tested positive for Covid-19. The reversals reflect the limitations of Covid-19 tests on a virus that can take days to incubate, and, in at least one case, failures by cruise management to properly quarantine crew or sound the alarm when employees became sick.

UnCruise Chief Executive Dan Blanchard said in an interview that a passenger from Texas tested positive for the virus during the Wilderness Adventurer’s Alaska cruise in July, forcing the company to “shut the thing down” and return to port. Mr. Blanchard said subsequent tests showed the passenger wasn’t infected and the initial test produced a false positive, but the company decided to cancel its Alaska cruises until April of 2021 because too many risks were beyond the company’s control.

“We need to have rapid, reliable and regular testing at transportation hubs” like airports and port facilities, said Mr. Blanchard. “Secondary to that is the vaccine.”

France’s Ponant said in promotional brochures that it collaborated with medical experts to protect passengers from the virus when the Paul Gauguin resumed sailing in French Polynesia in late July after a hiatus that started in March. Safety measures included regular Covid tests and an entire deck devoted to isolation staterooms to contain any outbreak.

A few days after the voyage began, an American woman traveling with her mother tested positive for Covid-19, prompting Ponant to cut short the cruise and suspend sailing in the region, said Hironui Johnston, an official with French Polynesia’s tourism ministry. A spokesman for Ponant declined to comment.

Another ship, the Norwegian-owned SeaDream I, required 53 passengers to provide proof of negative coronavirus test results before boarding in Barbados in November.

Ben Hewitt and his husband, David McDonald, were returning to their cabin after lunch, a few days into the mask-free cruise, when a doctor in a protective suit ran past them in a passageway. A short time later, the captain announced a positive Covid-19 case on board, the first of seven passengers and two crew with eventual confirmed cases.

‘A false sense of security.’ Ben Hewitt and his husband, David McDonald, were among 53 passengers on the SeaDream I when a Covid outbreak started.

PHOTO: CRUISE WITH BEN AND DAVID

Passengers said they later learned that an extended American family had partied in Miami’s South Beach after testing negative for Covid-19 and before traveling to board the ship in Barbados. Their infections illustrate the risks of relying on preboarding tests as a safeguard against the virus.

Passengers were “lulled into a false sense of security,” said Mr. Hewitt, who avoided the virus. The ship’s owner, Norway-based SeaDream Yacht Club, canceled its remaining 2020 cruises. The company did not respond to requests for comment.

Lou and Teresa Mello, from Charleston, S.C., spent more than a week in isolation at a facility in Barbados after testing positive. They recall riding to shore for a beach excursion with the infected family.

“It was a one-week escape for us. It backfired, obviously.” Mr. Mello, a retiree, said, adding that he and his wife won’t risk another cruise before there’s a vaccine. “It only takes one or two people not doing the right thing” to put everyone at risk.

For Lou and Teresa Mello, above, a vacation turned into more than a week in isolation after testing positive for Covid aboard the SeaDream I.

PHOTO: LOU AND TERESA MELLO

Another Norway cruise line, Hurtigruten, is under investigation by the country’s police and health authorities after 42 crew and 29 passengers on the ship Roald Amundsen tested positive for Covid-19 following two July cruises. All passengers were residents of Norway, which at the time had only a handful of Covid-19 cases. The ship’s crew, about 80% of whom were hired from foreign nations, were required to have proof of negative Covid-19 tests before they journeyed to Norway.

A study of the outbreak commissioned by Hurtigruten found that many of the ship’s crew were not properly isolated in cabins during a mandatory 10-day quarantine. It cited evidence that some had worked near passengers before completing the quarantine. The report also said the ship’s doctors did not report to authorities that some of its crew had been isolated with Covid-19 related symptoms such as fevers and coughs as early as four days into the first cruise.

The company let passengers disembark 10 days later in Tromsø, Norway, shortly before it sent four sick crew members to a local hospital. Hurtigruten learned later that day, July 31, that two crew tested positive for Covid-19.

Dozens of passengers and crew tested positive for Covid after two cruises in July aboard the Norwegian cruise liner MS Roald Amundsen. Among the problems described in a subsequent report, some crew members failed to observe quarantine protocols.

PHOTO: NTB SCANPIX/REUTERS

Dr. Stephen Ostroff, former chief medical officer for the Food and Drug Administration, said it is virtually impossible to keep the virus off ships so long as it is spreading in communities. “Nothing will ever do that perfectly, so you also need measures to keep it from spreading—on the ship or ashore,” he said.

The CDC in October laid out several steps that cruise companies must take to prove crew safety. If they meet those tests, the companies will be allowed to launch test cruises designed to assess their ability to protect crew and passengers from infection, including rapid testing of all passengers and crew before ships leave port and before travelers disembark.

Cruise companies can enlist volunteer passengers for the voyages, provided they are not given incentives and are informed about health risks. After Royal Caribbean announced in November that it was seeking passengers for the test cruises, the company said 100,000 people volunteered within a few days; the cruises have yet to be scheduled.

One of the few countries to successfully thwart the spread of coronavirus on cruise ships is Japan. The nation experienced one of the first and largest Covid-19 cruise outbreaks in February on Carnival’s Diamond Princess, which carries more than 3,600 passengers and crew. More than 700 of the ship’s passengers and crew tested positive for the virus and 14 died.

Japanese cruise lines restarted sailing on some ships in late October under strictly controlled conditions. So far, there have been no reported Covid-19 cases on board but the appeal of a carefree cruise has been replaced by a maze of restrictions.

Passengers are required to take a virus test before boarding. Masks, temperature checks and regular onboard tests are mandatory. Journeys range from one- to four-day cruises, which may include a brief stop to destinations such as a deserted beach.

One of the ships, Asuka II, has closed the mahjong room and the disco lounge. Passengers can share a meal only with cabin mates or family at designated tables surrounded by plastic panels.

Kahoru Horiuchi, 66, was one of 150 guests who sailed from Yokohama two days before Christmas on the Asuka II, which can carry up to 850 passengers. On the one-night cruise, a first for Mrs. Horiuchi and her husband, the couple was prohibited from having close contact with other guests.

“It was fine that there was no talking, no mingling,” Mrs. Horiuchi said. “It was actually quite relaxing.”

The Discipline of Teams

What makes the difference between a team that performs and one that doesn’t?

Early in the 1980s, Bill Greenwood and a small band of rebel railroaders took on most of the top management of Burlington Northern and created a multibillion-dollar business in “piggybacking” rail services despite widespread resistance, even resentment, within the company. The Medical Products Group at Hewlett-Packard owes most of its leading performance to the remarkable efforts of Dean Morton, Lew Platt, Ben Holmes, Dick Alberding, and a handful of their colleagues who revitalized a health care business that most others had written off. At Knight Ridder, Jim Batten’s “customer obsession” vision took root at the Tallahassee Democrat when 14 frontline enthusiasts turned a charter to eliminate errors into a mission of major change and took the entire paper along with them.

Such are the stories and the work of teams—real teams that perform, not amorphous groups that we call teams because we think that the label is motivating and energizing. The difference between teams that perform and other groups that don’t is a subject to which most of us pay far too little attention. Part of the problem is that “team” is a word and concept so familiar to everyone. (See the exhibit “Not All Groups Are Teams: How to Tell the Difference.”)

Not All Groups Are Teams: How to Tell the Difference

Working Group Strong, clearly focused leader Individual accountability The group’s purpose is the same as the broader organizational mission Individual work products Runs efficient …

Or at least that’s what we thought when we set out to do research for our book The Wisdom of Teams (HarperBusiness, 1993). We wanted to discover what differentiates various levels of team performance, where and how teams work best, and what top management can do to enhance their effectiveness. We talked with hundreds of people on more than 50 different teams in 30 companies and beyond, from Motorola and Hewlett-Packard to Operation Desert Storm and the Girl Scouts.

We found that there is a basic discipline that makes teams work. We also found that teams and good performance are inseparable: You cannot have one without the other. But people use the word “team” so loosely that it gets in the way of learning and applying the discipline that leads to good performance. For managers to make better decisions about whether, when, or how to encourage and use teams, it is important to be more precise about what a team is and what it isn’t.

People use the word “team” so loosely that it gets in the way of learning and applying the discipline that leads to good performance.

Most executives advocate teamwork. And they should. Teamwork represents a set of values that encourage listening and responding constructively to views expressed by others, giving others the benefit of the doubt, providing support, and recognizing the interests and achievements of others. Such values help teams perform, and they also promote individual performance as well as the performance of an entire organization. But teamwork values by themselves are not exclusive to teams, nor are they enough to ensure team performance. (See the sidebar “Building Team Performance.”)

Building Team Performance

Although there is no guaranteed how-to recipe for building team performance, we observed a number of approaches shared by many successful teams. Establish urgency, demanding performance …

Nor is a team just any group working together. Committees, councils, and task forces are not necessarily teams. Groups do not become teams simply because that is what someone calls them. The entire workforce of any large and complex organization is never a team, but think about how often that platitude is offered up.

To understand how teams deliver extra performance, we must distinguish between teams and other forms of working groups. That distinction turns on performance results. A working group’s performance is a function of what its members do as individuals. A team’s performance includes both individual results and what we call “collective work products.” A collective work product is what two or more members must work on together, such as interviews, surveys, or experiments. Whatever it is, a collective work product reflects the joint, real contribution of team members.

Working groups are both prevalent and effective in large organizations where individual accountability is most important. The best working groups come together to share information, perspectives, and insights; to make decisions that help each person do his or her job better; and to reinforce individual performance standards. But the focus is always on individual goals and accountabilities. Working-group members don’t take responsibility for results other than their own. Nor do they try to develop incremental performance contributions requiring the combined work of two or more members.

Teams differ fundamentally from working groups because they require both individual and mutual accountability. Teams rely on more than group discussion, debate, and decision, on more than sharing information and best-practice performance standards. Teams produce discrete work products through the joint contributions of their members. This is what makes possible performance levels greater than the sum of all the individual bests of team members. Simply stated, a team is more than the sum of its parts.

The first step in developing a disciplined approach to team management is to think about teams as discrete units of performance and not just as positive sets of values. Having observed and worked with scores of teams in action, both successes and failures, we offer the following. Think of it as a working definition or, better still, an essential discipline that real teams share: A team is a small number of people with complementary skills who are committed to a common purpose, set of performance goals, and approach for which they hold themselves mutually accountable.

For managers to make better decisions about whether, when, or how to encourage and use teams, it is important to be more precise about what a team is and what it isn’t.

The essence of a team is common commitment. Without it, groups perform as individuals; with it, they become a powerful unit of collective performance. This kind of commitment requires a purpose in which team members can believe. Whether the purpose is to “transform the contributions of suppliers into the satisfaction of customers,” to “make our company one we can be proud of again,” or to “prove that all children can learn,” credible team purposes have an element related to winning, being first, revolutionizing, or being on the cutting edge.

Teams develop direction, momentum, and commitment by working to shape a meaningful purpose. Building ownership and commitment to team purpose, however, is not incompatible with taking initial direction from outside the team. The often-asserted assumption that a team cannot “own” its purpose unless management leaves it alone actually confuses more potential teams than it helps. In fact, it is the exceptional case—for example, entrepreneurial situations—when a team creates a purpose entirely on its own.

Most successful teams shape their purposes in response to a demand or opportunity put in their path, usually by higher management. This helps teams get started by broadly framing the company’s performance expectation. Management is responsible for clarifying the charter, rationale, and performance challenge for the team, but management must also leave enough flexibility for the team to develop commitment around its own spin on that purpose, set of specific goals, timing, and approach.

The best teams invest a tremendous amount of time and effort exploring, shaping, and agreeing on a purpose that belongs to them both collectively and individually. This “purposing” activity continues throughout the life of the team. By contrast, failed teams rarely develop a common purpose. For whatever reason—an insufficient focus on performance, lack of effort, poor leadership—they do not coalesce around a challenging aspiration.

The best teams also translate their common purpose into specific performance goals, such as reducing the reject rate from suppliers by 50% or increasing the math scores of graduates from 40% to 95%. Indeed, if a team fails to establish specific performance goals or if those goals do not relate directly to the team’s overall purpose, team members become confused, pull apart, and revert to mediocre performance. By contrast, when purposes and goals build on one another and are combined with team commitment, they become a powerful engine of performance.

Transforming broad directives into specific and measurable performance goals is the surest first step for a team trying to shape a purpose meaningful to its members. Specific goals, such as getting a new product to market in less than half the normal time, responding to all customers within 24 hours, or achieving a zero-defect rate while simultaneously cutting costs by 40%, all provide firm footholds for teams. There are several reasons:

  • Specific team-performance goals help define a set of work products that are different both from an organization-wide mission and from individual job objectives. As a result, such work products require the collective effort of team members to make something specific happen that, in and of itself, adds real value to results. By contrast, simply gathering from time to time to make decisions will not sustain team performance.
  • The specificity of performance objectives facilitates clear communication and constructive conflict within the team. When a plant-level team, for example, sets a goal of reducing average machine changeover time to two hours, the clarity of the goal forces the team to concentrate on what it would take either to achieve or to reconsider the goal. When such goals are clear, discussions can focus on how to pursue them or whether to change them; when goals are ambiguous or nonexistent, such discussions are much less productive.
  • The attainability of specific goals helps teams maintain their focus on getting results. A product-development team at Eli Lilly’s Peripheral Systems Division set definite yardsticks for the market introduction of an ultrasonic probe to help doctors locate deep veins and arteries. The probe had to have an audible signal through a specified depth of tissue, be capable of being manufactured at a rate of 100 per day, and have a unit cost less than a preestablished amount. Because the team could measure its progress against each of these specific objectives, the team knew throughout the development process where it stood. Either it had achieved its goals or not.
  • As Outward Bound and other team-building programs illustrate, specific objectives have a leveling effect conducive to team behavior. When a small group of people challenge themselves to get over a wall or to reduce cycle time by 50%, their respective titles, perks, and other stripes fade into the background. The teams that succeed evaluate what and how each individual can best contribute to the team’s goal and, more important, do so in terms of the performance objective itself rather than a person’s status or personality.
  • Specific goals allow a team to achieve small wins as it pursues its broader purpose. These small wins are invaluable to building commitment and overcoming the inevitable obstacles that get in the way of a long-term purpose. For example, the Knight Ridder team mentioned at the outset turned a narrow goal to eliminate errors into a compelling customer service purpose.
  • Performance goals are compelling. They are symbols of accomplishment that motivate and energize. They challenge the people on a team to commit themselves, as a team, to make a difference. Drama, urgency, and a healthy fear of failure combine to drive teams that have their collective eye on an attainable, but challenging, goal. Nobody but the team can make it happen. It’s their challenge.

The combination of purpose and specific goals is essential to performance. Each depends on the other to remain relevant and vital. Clear performance goals help a team keep track of progress and hold itself accountable; the broader, even nobler, aspirations in a team’s purpose supply both meaning and emotional energy.

Virtually all effective teams we have met, read or heard about, or been members of have ranged between two and 25 people. For example, the Burlington Northern piggybacking team had seven members, and the Knight Ridder newspaper team had 14. The majority of them have numbered less than ten. Small size is admittedly more of a pragmatic guide than an absolute necessity for success. A large number of people, say 50 or more, can theoretically become a team. But groups of such size are more likely to break into subteams rather than function as a single unit.

Why? Large numbers of people have trouble interacting constructively as a group, much less doing real work together. Ten people are far more likely than 50 to work through their individual, functional, and hierarchical differences toward a common plan and to hold themselves jointly accountable for the results.

Large groups also face logistical issues, such as finding enough physical space and time to meet. And they confront more complex constraints, like crowd or herd behaviors, which prevent the intense sharing of viewpoints needed to build a team. As a result, when they try to develop a common purpose, they usually produce only superficial “missions” and well-meaning intentions that cannot be translated into concrete objectives. They tend fairly quickly to reach a point when meetings become a chore, a clear sign that most of the people in the group are uncertain why they have gathered, beyond some notion of getting along better. Anyone who has been through one of these exercises understands how frustrating it can be. This kind of failure tends to foster cynicism, which gets in the way of future team efforts.

In addition to finding the right size, teams must develop the right mix of skills; that is, each of the complementary skills necessary to do the team’s job. As obvious as it sounds, it is a common failing in potential teams. Skill requirements fall into three fairly self-evident categories.

Technical or Functional Expertise.

It would make little sense for a group of doctors to litigate an employment discrimination case in a court of law. Yet teams of doctors and lawyers often try medical malpractice or personal injury cases. Similarly, product development groups that include only marketers or engineers are less likely to succeed than those with the complementary skills of both.

Problem-Solving and Decision-Making Skills.

Teams must be able to identify the problems and opportunities they face, evaluate the options they have for moving forward, and then make necessary trade-offs and decisions about how to proceed. Most teams need some members with these skills to begin with, although many will develop them best on the job.

Interpersonal Skills.

Common understanding and purpose cannot arise without effective communication and constructive conflict, which in turn depend on interpersonal skills. These skills include risk taking, helpful criticism, objectivity, active listening, giving the benefit of the doubt, and recogniz-ing the interests and achievements of others.

Obviously, a team cannot get started without some minimum complement of skills, especially technical and functional ones. Still, think about how often you’ve been part of a team whose members were chosen primarily on the basis of personal compatibility or formal position in the organization, and in which the skill mix of its members wasn’t given much thought.

It is equally common to overemphasize skills in team selection. Yet in all the successful teams we’ve encountered, not one had all the needed skills at the outset. The Burlington Northern team, for example, initially had no members who were skilled marketers despite the fact that their performance challenge was a marketing one. In fact, we discovered that teams are powerful vehicles for developing the skills needed to meet the team’s performance challenge. Accordingly, team member selection ought to ride as much on skill potential as on skills already proven.

Effective teams develop strong commitment to a common approach; that is, to how they will work together to accomplish their purpose. Team members must agree on who will do particular jobs, how schedules will be set and adhered to, what skills need to be developed, how continuing membership in the team is to be earned, and how the group will make and modify decisions. This element of commitment is as important to team performance as the team’s commitment to its purpose and goals.

Agreeing on the specifics of work and how they fit together to integrate individual skills and advance team performance lies at the heart of shaping a common approach. It is perhaps self-evident that an approach that delegates all the real work to a few members (or staff outsiders) and thus relies on reviews and meetings for its only “work together” aspects, cannot sustain a real team. Every member of a successful team does equivalent amounts of real work; all members, including the team leader, contribute in concrete ways to the team’s work product. This is a very important element of the emotional logic that drives team performance.

When individuals approach a team situation, especially in a business setting, each has preexisting job assignments as well as strengths and weaknesses reflecting a variety of talents, backgrounds, personalities, and prejudices. Only through the mutual discovery and understanding of how to apply all its human resources to a common purpose can a team develop and agree on the best approach to achieve its goals. At the heart of such long and, at times, difficult interactions lies a commitment-building process in which the team candidly explores who is best suited to each task as well as how individual roles will come together. In effect, the team establishes a social contract among members that relates to their purpose and guides and obligates how they must work together.

No group ever becomes a team until it can hold itself accountable as a team. Like common purpose and approach, mutual accountability is a stiff test. Think, for example, about the subtle but critical difference between “the boss holds me accountable” and “we hold ourselves accountable.” The first case can lead to the second, but without the second, there can be no team.

Companies like Hewlett-Packard and Motorola have an ingrained performance ethic that enables teams to form organically whenever there is a clear performance challenge requiring collective rather than individual effort. In these companies, the factor of mutual accountability is commonplace. “Being in the boat together” is how their performance game is played.

At its core, team accountability is about the sincere promises we make to ourselves and others, promises that underpin two critical aspects of effective teams: commitment and trust. Most of us enter a potential team situation cautiously because ingrained individualism and experience discourage us from putting our fates in the hands of others or accepting responsibility for others. Teams do not succeed by ignoring or wishing away such behavior.

Mutual accountability cannot be coerced any more than people can be made to trust one another. But when a team shares a common purpose, goals, and approach, mutual accountability grows as a natural counterpart. Accountability arises from and reinforces the time, energy, and action invested in figuring out what the team is trying to accomplish and how best to get it done.

When people work together toward a common objective, trust and commitment follow. Consequently, teams enjoying a strong common purpose and approach inevitably hold themselves responsible, both as individuals and as a team, for the team’s performance. This sense of mutual accountability also produces the rich rewards of mutual achievement in which all members share. What we heard over and over from members of effective teams is that they found the experience energizing and motivating in ways that their “normal” jobs never could match.

On the other hand, groups established primarily for the sake of becoming a team or for job enhancement, communication, organizational effectiveness, or excellence rarely become effective teams, as demonstrated by the bad feelings left in many companies after experimenting with quality circles that never translated “quality” into specific goals. Only when appropriate performance goals are set does the process of discussing the goals and the approaches to them give team members a clearer and clearer choice: They can disagree with a goal and the path that the team selects and, in effect, opt out, or they can pitch in and become accountable with and to their teammates.

The discipline of teams we’ve outlined is critical to the success of all teams. Yet it is also useful to go one step further. Most teams can be classified in one of three ways: teams that recommend things, teams that make or do things, and teams that run things. In our experience, each type faces a characteristic set of challenges.

Teams That Recommend Things.

These teams include task forces; proj-ect groups; and audit, quality, or safety groups asked to study and solve particular problems. Teams that recommend things almost always have predetermined completion dates. Two critical issues are unique to such teams: getting off to a fast and constructive start and dealing with the ultimate handoff that’s required to get recommendations implemented.

The key to the first issue lies in the clarity of the team’s charter and the composition of its membership. In addition to wanting to know why and how their efforts are important, task forces need a clear definition of whom management expects to participate and the time commitment required. Management can help by ensuring that the team includes people with the skills and influence necessary for crafting practical recommendations that will carry weight throughout the organization. Moreover, management can help the team get the necessary cooperation by opening doors and dealing with political obstacles.

Missing the handoff is almost always the problem that stymies teams that recommend things. To avoid this, the transfer of responsibility for recommendations to those who must implement them demands top management’s time and attention. The more top managers assume that recommendations will “just happen,” the less likely it is that they will. The more involvement task force members have in implementing their recommendations, the more likely they are to get implemented.

Business Travel Was Terrible—and I Miss It So Much

A newfound appreciation for long waits at airports, bland rental cars and rooms without views

I keep hearing business travel may never return to pre-pandemic levels— Bill Gates suspects 50% of it will disappear—and it makes me sad. I should be grateful to have a job of any kind, and I am, but I miss those work escapes.

If I’m being honest, my family misses my business travel more than I do. My family has been saying polite things about how being stuck at home in 2020 has made us all closer, but I think they’ve had enough. They’d really prefer me out of the house. If I ever leave again, they’re going to celebrate like they won the Super Bowl.

I’ll be back in two days, I’ll say.

Take 20, my family will say.

I miss little things about work travel, like packing. I’d fold my clothing into a bag, and I’d think: I should bring my running shoes. Then I’d think: Who are you kidding? You’re never going to go running. Then: No, no, I really am going to go running.

So I’d always pack the running shoes. And I’d never go running.

I miss getting to the airport early. I got this habit from my father, the ultimate panicky early bird. My father wanted to get to the airport when the architect was still presenting the blueprints to build the airport. He liked to be the first person through the door, when the pilots were hitting the snooze button at the Hyatt. Even then, my father worried he was cutting it close.

I miss the hour it takes me to figure out how to turn on the hotel TV.

I don’t miss everything. I don’t miss the line for the only airport Starbucks. You could show up at 4:45 a.m., and there would be 80 people on line. And I’d always get stuck behind someone buying mochaccinos for an entire high school orchestra.

I admit: I kind of miss the Guy Doing a Long, Loud Conference Call That Everyone Can Hear. You know this guy. He’s pacing and gesturing at Gate 35D, bellowing away, like he’s doing Shakespeare in the Park. He’s got thoughts about the meeting. He’s got thoughts about the client. He’ll yammer away, straight through boarding, down the walkway, and right until takeoff, when the flight attendants beg him to hang up. I always think the other people on his call are thinking: I can’t wait for this guy to shut up.

I miss the pilot calmly talking about where we are on line for departure. I miss the boring testimonial for the airline featuring the airline CEO. I’m already on the plane, I think. I miss sitting next to a traveler who opens up a laptop and starts reading a big, complicated report, with lots of graphs. I’m always impressed: Wow, this person is really committed to their job. Then, 40 seconds later, they switch to a Bruce Willis movie.

I miss LaGuardia Airport. OK, that’s a lie. I don’t miss LaGuardia Airport.

I miss getting to my hotel room and dramatically opening the curtain—to a view of pigeons playing poker in an abandoned parking garage. I miss the hour it takes me to figure out how to turn on the hotel TV. I miss the hotel water, which I drink, only to later discover a tiny sign telling me it costs $11 a bottle. I miss the rental cars, which were always dull. I miss the rental car agent trying to talk me into a PT Cruiser for an extra $7 a day. Come on. Do it. Live a little, man.

I miss almost all of it. I have a feeling we’re going to get at least partly back there, not just because of the hopeful news about vaccines but because we probably need face-to-face contact a little more than we think. I don’t think work travel will ever vanish. Mostly because our families want us out of the house.

Write to Jason Gay at Jason.Gay@wsj.comManage Publishing

Home Design for the Post-Covid-Pandemic Age

This past year has been a time of upheaval and change, forcing Americans to rethink how they live. As architects, we believe our homes must change to support the new demands on our living spaces and communities.

During lockdown, countless people have had to find room in their homes for offices, exercise spaces and more. They’ve also had to use their porches and lawns as informal social spaces as gathering places like cafes have shut down.

THE YEAR IN REVIEW

We have an idea that gives people a way to help transform their homes for this new environment—as well as build social and neighborly dynamics in their communities that will endure long after Covid has passed.

The idea is called a “super porch”—not a literal porch, but an enclosed space that covers a chunk of people’s front lawns and can be used for numerous functions. We are currently designing our first model for a small house on a tight urban lot in Los Angeles.

Positioned between the front door and driveway, it consists of a floor and roof supported by columns, like a covered patio, with sliding glass walls and wood shutters to let you see out and let the neighbors see in. The super porch is outfitted with conveniences like power outlets, integrated storage, outdoor heaters, a lockup bar and music.

On one level, this space is designed to add extra space for all the new tasks we have to do at home, such as teaching and exercising. In addition, it acts as a vital transitional space—somewhere to take off work shoes and store away packages before you enter the main house.

The super porch, a multiuse, glass-walled space on the front lawn, would enable residents to work, learn, exercise—and socialize with neighbors.

PHOTO: RIOS

But, much more broadly, the super porch is also a social space. Because the walls are transparent, you can see the street outside, watching cars and joggers go by, and saying hello to people as they pass; they can wave to you or drop over to chat. You’re not holed up inside working at a desk or exercising in a basement room—you’re out on your lawn, in public, interacting with the neighborhood.

Now imagine a street full of super porches: rows of houses with people visibly on their lawns, all available and part of the neighborhood in a way that they wouldn’t be otherwise. It would transform sidewalks into vital social scenes instead of the usual silent ghost towns.

Facing outward

We hit upon the idea for this space when we realized that the porch and the front yard—and even the sidewalk—are some of the greatest untapped resources in our neighborhoods. The traditional front porch is the original place of overlap, where public meets private, where diverse and flexible activities occur and where our families can socialize with our neighbors and friends.

After the closure of restaurants, cafes and bars during the pandemic, people began using their porches—as well as their stoops and front yards—as replacements for the public spaces they missed. They rediscovered the idea of using porches and lawns as places for growing and gardening, working and making, relaxing and playing. This space in front of their house became a place that rescued them from isolation.

The super porch builds on this idea. It is a place to carry out household activities, as well as to meet and greet and stay connected. You can work in it during the day and, because of the glass walls, you can still say hello to neighbors passing on the street. During leisure hours, you can simply hang out with your family and interact with the outside at the same time.

An audience gathered to hear a group called Opera on Tap perform from the balcony of a home in Brooklyn, N.Y., in October.

PHOTO: KRISANNE JOHNSON FOR THE WALL STREET JOURNAL

Your children could use the space as a ready-made lemonade stand or party area, where guests could mingle in the open air to ease the fears of Covid. Over the course of the year, it can change from birthday pavilion to haunted house to fruit stand to a performance stage—sharing the fun with the neighborhood.

The super porch also serves as an intermediate space between the public realm and the spaces in our homes. Those functions are now served by entry vestibules and mud rooms, but many homes lack them. We all need a place to safely transition people, pets or packages from the outside world into the safety of our home. The super porch will do just that—and continue to add to our daily lives long after the pandemic is over.

Outside and in

If the idea of the super porch spreads, it has the potential to transform our neighborhoods. Instead of a series of manicured lawns, the street will become a lively landscape of activity. As neighbors engage each other more readily, we will create stronger and safer communities.

Our underused front yards will become bastions of wellness, community and even the economy. Whether someone is growing food, conducting yoga classes or using it as a home office, the super porch makes the neighborhood streetscape more lively, adding color and diversity while connecting the neighbors to each other. Adoption of the super porch could potentially support a faster shift away from an auto-oriented lifestyle, and nurture a community-based, entrepreneurial, small-town culture.

We don’t know the limits to this idea yet, but the biggest changes to all of our living conditions will take place on the porch and the front yard. It is the next domestic frontier.

Mr. Salvadó is the creative director, architecture, for the design firm RIOS. He can be reached at reports@wsj.com.Manage Publishing