Important Factors to Consider When Designing Executive Benefit Packages
Updated: Jan 27, 2021
Incentivizing executives to meet business objectives is one of the most important factors in designing executive benefit packages. A sound plan depends on good governance and well-established compensation practices that are aligned with the organization’s overall goals.
There are several types of executive benefit plans and each one compensates differently according to the needs of the organization’s industry. To be assured you are maximizing your efforts, consult with your third party administrator to determine which package will suit your company best. When you are ready to move forward it is important to consider the following elements:
1) Define the eligible group. Who do you want to impact? Unlike qualified plans, which must be offered to a non-discriminatory group of employees, a non-qualified plan may be offered to a select group based on certain job titles and/or level of compensation and responsibilities.
2) Outline the purpose. Understand that the executive benefits package is designed to attract and retain select talent, reward performance and years of service. These benefits help you attract the key executives who will contribute to your company’s growth and profitability.
3) Determine competitiveness. There is tremendous competition to retain valuable, high-performing executives. Know your industry’s peer group and what other organizations are providing to their executives. A balanced benefit package that incentivizes performance can also improve recruitment and retention efforts, positioning your company to achieve its set business goals.
4) Identify benefit types. There are many factors beyond compensation that you will need to consider when assembling an executive benefit package. Voluntary plans, company contributions, make up contribution plans due to government limitations in qualified plans, and enhancements to existing group benefit plans (life insurance, disability, and long-term care) are all components that will need to carefully be addressed.
5) Create a solid framework. In designing the overall executive benefits package, make sure each component is well defined and documented. Important factors include – defined contribution, defined benefit, wealth building, wealth preservation, personal risk mitigation or elimination, personal asset protection and credit exposure to the organization.
6) Understand plan costs. It is critical to the financial well-being of the organization to understand the total costs associated with the executive benefits package. Be sure to review your organization’s corporate financial sensitivity to cash flow and profit and loss (P&L), economic costs, as well as tax costs to the executives you are compensating.
7) Verify proxy disclosure. How sensitive is your company to disclosure of benefits? In this climate of intense scrutiny, some organizations must not only understand their executive benefit packages and where they fit into the total compensation picture, but they must also be prepared to defend the plans in proxy statements.
There is a lot of work involved with developing solid executive benefit packages that keep your organization competitive, integrates goals and contains performance measurements that tie back to compensation. These packages can be structured in many different ways. To maximize organizational performance, it is important to work with your plan administrator who can see to it that your organization’s executives have been properly incentivized and your company’s goals are aligned.