A purpose. Community. Professional growth. A paycheck. What employees get out of work varies depending on their role, so you can’t approach everyone with one-size-fits-all encouragement. If a company wants to retain good leaders, which is crucial for any future business success, many different incentives should be considered — not the least of which is compensation.
But that means more than just their base salaries and quarterly bonuses. How can businesses attract talented executives and keep the executives they already employ?
Hint: Planning for a rewarding future is key.
What are businesses looking for in an executive, and vice versa?
Whether you’re an employer wanting to keep executives happy or advising a business on keeping sought-after executives in their corner, first ask a simple question: What is desired in an executive, and what does the executive desire out of the work relationship with your business?
Understanding the motivations of executives and how they may fit in with the specific company culture can help you craft a better compensation and benefits plan that will entice executives to stay.
Consider industry leadership compensation trends
Next, look at what else is happening in the industry. If competitors are seeing major success with retaining their executives while still achieving their goals, see what you can find out about their culture and compensation.
Of course, there’s the current salary and bonus structure to think about, but is that enough? Today, salaries and bonuses alone won’t cut it. What does a company have to offer as a reward for years of hard work when it’s time to cash out for retirement?
Develop effective deferred compensation plans
Enter the deferred compensation plan. Deferred compensation plans, such as a 457(b) or 457(f), offer major cash payouts in the future that executives can look forward to in their dreams of a satisfying retirement, making for a powerful incentive to remain with the company. But how can you best implement such a plan?
Steps for considering executive deferred compensation plans
Determine short-term and long-term outcomes
Salary and bonuses are short-term ways to keep executives around. But those can easily be matched by competitors. If a business’s goals are to retain the skills and expertise of their current team of execs, they’ll need to get them set up now and for the future. The goals of the company and the executives should align.
Confirm the roles and responsibilities of managing the plan
Establish clear and specific roles so everyone knows who’s in charge of what. Will there be a committee to select and oversee the plan? Who should be on it? What aspects of managing any chosen deferred compensation plan will you be in charge of versus the plan provider? Work with others in the company so they understand who does what in terms of plan creation, negotiations and reporting.
Set realistic target dates for plan implementation
Don’t rush, but don’t dawdle. An executive’s time is of the essence, so find a date of implementation that makes sense and is realistic. We’re probably talking several months at the very least, as businesses ought to expect a few weeks of working with consultants and financial professionals to put the right plans in place.
After that, getting the plans started will also take time to ensure everything rolls out without a hitch and that everyone (executives, board members etc.) is fully aware and ready to go. It takes time to do it right — and that’s okay.
Assess the executives’ goals and requirements
What are the executives’ expected years of service? Are they in the company for the long haul, or do they have other aspirations in mind? Given their positions and compensation, they may be subject to certain tax regulations that lower-paid employees are not, which may affect how much they can contribute to their retirement plan at a time.
Knowing their intentions as well as any unique policies regarding their level of compensation ahead of time is important.
Determine the key products and funding
How will any plan be funded? What’s the best option in terms of the market right now? Financial professionals can join heads and discuss where these funds are coming from. Know where the market is projected to head in the near and distant future, and determine the risk appetite for the company and executive team.
Pitch the plans
You’ve been in the retirement plan game for a while, so see what types of plans and providers are the best fit for the executive team. Be prepared to bring options to the table for consideration along with the expertise to explain them.
Address hypotheticals
This is where lawyers may need to be involved if any contracts are being drawn up relating to these plans. Hypotheticals such as “What if they leave earlier than expected” or “What if their position or the team is eliminated” need to be accounted for so there’s a fallback plan in place.
Ensure strict compliance with laws and regulations
Any kind of deferred compensation plan for high-paid executives will need to withstand the tightest scrutiny and not put the company in jeopardy, financially, legally or otherwise. All payments and plans must be justified and stand up to examination from the IRS and other agencies. Be ready to defend it.
Set up ongoing oversight
Along those lines, establish ongoing oversight for all plans. At a minimum, plans should be reviewed annually, and adjustments may be needed along the way. The market varies and laws change, so keeping up to date with everything is crucial to remaining in compliance with regulations as well as keeping executives happy.
Options and understanding
What’s critical in terms of keeping executives around is understanding their needs and goals and meeting them with the right options that set them up well right now and in the future. That’s where professionals can help make a difference with guidance that steers the company and its executive team in the right direction.
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