Dennis Carlson
Executive Benefits & Total Rewards Advisor
What are executive benefits? This is a question I've been discussing extensively with colleagues and clients. While the term suggests these benefits are exclusively for those in the C-suite, the reality is more nuanced.
Executive benefits aren't just for executives; they're specialized offerings for any key employees whose contributions are vital to your organization's success. While they often benefit these key employees, they can also reduce business risks associated with them.
In my experience consulting with organizations of all sizes, I’ve noticed the need for a simple framework to help employers categorize and provide context for these important benefits and risk control programs.
I call it the “three Rs of executive benefits.” And no, they aren't recruit, reward, and retain—though those are certainly valuable outcomes of a well-designed benefits strategy.
Defining executive benefits
Simply put, these are benefits that an organization provides to a select group of individuals or specific key employees, going beyond the standard offerings available to all staff.
These specialized benefits serve multiple purposes: they acknowledge exceptional contributions, provide appropriate protection at higher levels, address the unique needs of key personnel, mitigate risk, and align with strategic business objectives. Now, let’s move on to the framework.
The three Rs
Restore
Several core benefits are inherently tied to an employee's compensation. However, many employer plans have (often arbitrary) maximum limits on these benefits—limits that work well for 80% to 90% of employees—but often don't align with an organization's goals for key personnel and can leave highly compensated employees with inadequate protection.
Benefits restoration plans address this gap by making up for these "lost" benefits. They typically supplement:
- Group life insurance
- Group disability/income protection
- Retirement programs
For example, a benefits restoration plan should ensure that a key employee, whose compensation exceeds the maximums of group disability insurance, still receives income protection proportional to their total earnings—just like all other employees—rather than only protecting the portion of their income that falls below the standard group disability insurance limits.
Reward
This is what most people think of when they hear "executive benefits." The reward category focuses on strategic recruitment and retention goals.
Your organization's specific objectives and overall benefits philosophy should guide which additional benefits to offer and to whom. Common reward-category benefits include:
- Executive bonus plans
- Executive medical reimbursement programs
- Specialized life and disability insurance
- Deferred compensation arrangements
These benefits help attract and retain exceptional talent by offering meaningful short- and long-term incentives beyond base compensation.
Risk
When clients ask about "key person" insurance, they're often referring to one of two distinct concepts. About half the time, they want to provide additional benefits to reward a valuable employee, which falls under the reward category above.
The other half of the time, they're referring to protection for the business itself—policies that pay the company in the event of a key employee's death or disability. These arrangements fall under the risk category because they protect the organization's interests rather than directly benefiting the employee.
The risk category includes:
- Key person insurance policies
- Buy-sell agreement funding
- Business continuation planning
While these programs primarily safeguard the organization, they're still considered executive benefits because they typically involve executives, owners, and other key personnel.
Why does any of this matter?
Understanding these three Rs—restore, reward, and risk—provides a clear lens through which to evaluate your organization's approach to executive benefits. This framework helps ensure you're addressing all three critical dimensions related to your key employees rather than focusing exclusively on just one aspect.
A comprehensive executive benefits strategy should consider:
- Where core group benefits plans fall short for key employees (restore)
- How to meaningfully recognize exceptional contributions (reward)
- How to protect the organization from the loss of crucial personnel (risk)
In upcoming posts, we'll explore each of these dimensions in greater depth, examining specific strategies, implementation considerations, and how to measure their effectiveness.
Next up: a deeper dive into "restore"—we’ll highlight how organizations can address the limitations of qualified plans and ensure appropriate benefits for key contributors at all levels.
If you're ready to build an effective executive benefits strategy, get in touch with a Marsh McLennan Agency consultant.
