Commentary: In today’s economy, the supply versus demand ratio of good jobs and great talent is definitely skewed in favor of those with great talent. In 2008 the economy went over the cliff and companies had to cut everywhere, including benefits, bonuses and even salaries. Over the last seven years the economy has been on a very healthy rebound and so have business balance sheets and bottom lines. One area of business that hasn’t kept pace with the rebound is compensation for key talent – the A players that really make the company thrive.
If you are talented and have highly desirable experience and skill, you are getting calls from headhunters trying to get you to switch companies. The offers can include better benefits, signing bonus, increase in base salary and hefty written bonus plans. For the really key people, they are also getting executive benefits such as deferred compensation plans, restricted executive bonus plans and cash balance plans. These types of exclusive incentives not only get top talent to switch companies, but they also get the top talent to stick with the new company.
Also see: “Workplace culture is king.”
The question to ask yourself is what kind of plans do you have in place to recruit, retain and reward your top talent? If the answer is ‘none,’ then you may be naïve and unaware that the competition is laying it all out on a silver platter to entice your top talent. The good news is: It is possible to offer your top talent benefits plans that you do not have to offer the entire company. These benefits can also come with long-term vesting periods, which is how they got the name ‘golden handcuffs.’
Ask yourself another question: If your top one or two or three employees left, what would that mean for your business? What would the cost to your business be? The likely answer is that investing in your top talent, offering them special executive benefits, is far less costly than having them work for your biggest competitor.
Also see: “How to overcome executive benefit challenges.”
The most common and easy to implement executive benefit is deferred compensation. With deferred compensation, you are creating an employment agreement with the key person that states if they stay with you for a certain period of time, and hit their performance metrics, they will receive compensation. The time period is usually five, 10, or even 15 years. The total dollar amount likely needs to be at least twice their annual compensation. So for someone making $200,000 per year you would put in $40,000 per year over a 10-year period so they could have $400,000 if they are still with you in 10 years. This provides long-term retention and performance incentive to key people while at the same time allowing the company to recoup the investment if the key person is not there after the time period. This can also be coupled with your key personnel life insurance policies.
There are a variety of ways to set up these deferred compensation plans. Since they fall under the non-qualified benefits arena, it becomes a blank slate for the company and owner to decide how best to set up — everything from the vesting schedule to the time period and funding amounts are all up to the company. From a tax standpoint the plans can be designed where the employee does not experience any tax liability until the compensation is actually received down the road. However, if the company is looking for immediate deductions the plans can be altered.
Deferred compensation is just one of several executive benefit options used to retain talent. As a benefit decision-maker and/or CEO, it is important that you think outside the box and make it a point to keep your top people on your team. Executive benefits are what top companies in the world are implementing, and it’s time for your business, whatever size it may be, to start thinking about it.
Jeff Socha is a senior partner and adviser at Ark Financial Group, based in Austin, Texas. Ark Financial Group specializes in helping business owners with taxes, executive benefits, cash management and succession planning.
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