Designing an attractive compensation plan can help incentivize executives to meet critical business goals. Comprehensive benefits packages generally consist of a base salary, short- and long-term incentive pay, and optional benefits like gym memberships and retirement accounts.
A well-structured executive benefits plan can be effective at attracting top talent, rewarding loyal executives, retaining staff and minimizing after-tax costs to the employer. Executive benefits plans should comply with federal and state laws that dictate what benefits are mandatory and which are optional. When structuring a benefits plan, businesses should keep the following information in mind:
Building A Competitive Benefits Plan
Approximately 49 percent of employees will look for a new job within the next 12 months due to dissatisfaction or confusion over benefits, according to Aflac. Benefits show employees that the company is invested in their health and future. Building a solid benefits package for executives can also attract and retain the best workers and help differentiate the business from its competitors.
When structuring a benefits plan for executives, consider adding these compensation components:
Short- And Long-Term Incentives
Both short-term and long-term incentives are designed to motivate executives to continue performing at their best.
Short-term incentives often include annual bonuses that reward executives for achieving short-term business goals or objectives. Bonus metrics can vary from business to business but are usually based on the executive’s performance, as well as financial metrics like net profit, revenue growth and return on capital. Short-term incentives are a simple way for businesses to offer executives additional cash in exchange for a job well done.
Long-term incentives are what really set executive compensation packages apart from other employees. Businesses know how costly it can be to replace an executive. According to Employee Benefits News, it can cost a company $50,000 or more to replace an executive that makes $150,000 per year.
Long-term incentives encourage executives to remain on the job longer to reach these awards that are typically based on operational or financial performance.
Deferred Compensation Plans
A deferred compensation plan is another benefit plan that can bring value to your company for executives. A deferred compensation plan entails the employer holds back a certain amount of an employee’s pay until a specific date. Once that date is hit, usually on retirement, the large sum of money is then given to the employee.
This can be beneficial for employees for a few reasons. Firstly, there is a tax benefit. The money going into a deferred compensation plan is not taxed yearly on the earnings. It can also reduce the yearly tax that the employee has to pay. Secondly, the money has the potential to increase in capital gain, specifically if offered in stocks or investment accounts. A few plans that operate in this way can be retirement plans, pensions, and stock options.
Selective Retirement Plans
Not all retirement plans are equal, they offer different options and benefits. Choosing the right plan for your executives can make a big difference. Working with an employee benefits consultant is not only going to make the process of finding the right plan easier but going to ensure that you are choosing a plan that has your executives in mind.
When offering benefits plans for executives, it is important to ensure that the plan chosen complies with the Employee Retirement Income Security Act (ERISA) of 1974. This federal U.S. tax and labor law were established to set minimum standards for most voluntary health and retirement plans in the private industry. A benefits consultant is aware of all the requirements and will make sure you are well informed and within these restrictions.
Asset allocation investment strategy is centered around the diversification of one’s portfolio. This aims to balance risk and rewards based on an individual’s goals and their risk tolerance. The three main asset classes are equities, fixed-income, and cash and equivalents. Asset allocation is not a one-size-fits-all. By working with a benefits consultant, they are able to provide you with assistance through this process in order to ensure the employee is comfortable and confident with their portfolio. Adding this benefit to your structured plans can be a very impressive benefit. It shows that you as an employer want to provide your employee with a way to grow their wealth and give them the tools they need to do so.
Why Offer Benefits Plans For Executives?
Your executive team is vital to the operation of your business. Your executives are tasked with daily roles that would leave your corporation at a standstill if they did not perform their jobs. One of the best ways to show them their value is to offer them specialized benefits plans. Working with a benefits consultant will help you provide top-tier benefits at the best overall price to your company.
Speak With An Employee Benefits Consulting Firm
Executive compensation and benefits plans are complex topics that can create many challenges for growing businesses. However, working with an experienced employee benefits consulting firm can help ensure that the executive benefits plan is properly structured. For more information about how to structure benefits plans for executives, contact the professionals at New City Insurance.