Who you have at the helm of your company impacts how successfully your team will operate. Your organization’s executives do a lot to maintain the level of performance your organization is known for. From managing finances to executing the business strategy, there’s no shortage of tasks to give employees what they need. To ensure these high-ranking team members stay at your company and feel encouraged to produce high-quality work, provide top-notch executive compensation packages that meet their needs.
Want to know how to build an executive pay package to make your executives happy and motivated? Continue reading to discover ways your benefits can help your company stay competitive.
The importance of a strong executive compensation package
The U.S. Bureau of Labor Statistics estimates about 311,600 openings for top executives each year, with a 3% increase in growth from 2023 to 2032. While this is encouraging for individuals looking to secure a role as a chief executive officer (CEO), chief financial officer (CFO), or other high-ranking professional, companies have their work cut out for them. How can your organization attract—and keep—top talent in such a vast and opportune market? One of the main ways is through a well-crafted executive compensation package.
An executive compensation package is the combination of salary, inclusive benefits, and bonuses an organization offers to executives and other top management positions in return for their employment. The federal government requires all public companies to disclose how much money their executives earn through their compensation plan, including how the companies calculate those figures. Depending on what state your company is in, there may also be additional guidelines you must follow.
Positions that earn this type of compensation often include:
- CEOs
- CFOs
- Presidents
- Vice Presidents
Many industries are extremely competitive, meaning skilled workers have their pick of companies they’d like to work for. To get them to consider your organization, it’s important to showcase your company’s offerings through a well-crafted executive pay plan. This plan helps you get top talent’s attention, improves worker retention, and ensures your company follows HR compliance rules regarding executive compensation.
On top of attracting and retaining top industry executives, a compensation plan helps companies figure out their overall budgets by determining the amount they plan to spend on hiring a CEO. The bottom line is that without this type of pay structure, it’s difficult to stay on budget while keeping talent engaged and motivated.
What strong executive compensation packages include
Executive pay combines the salary, benefits and nonfinancial elements that can help drive performance and encourage applicants to take your company seriously. These economic advantages and perks are part of a compensation package that doesn’t change over time. Executives can rest assured that what you offer them is what they’ll receive upon employment with your business.
While every executive compensation package is unique, these are the standard elements that should be included:
- Base salary: A fixed, yearly salary the potential employee would expect to earn. Companies often pay this throughout the year in monthly or bimonthly amounts. Deloitte discovered that most base salaries constitute about 30% of the total compensation offered.
- Short-term incentives: Bonuses and annual incentives are usually non-fixed, one-time sums of money based on key performance indicators.
- Benefits: Benefits are additives to salaries, like health and life insurance, severance pay, and other prerequisites, including gym memberships, company computers or mobile phones, etc. It can also include different styles of paid time off (PTO), including holidays, vacation time, sick or personal days, and bereavement days.
- Bonuses: Considered performance-based annual incentives, bonuses are an extra non-fixed sum of money that can be added to a base salary in a year, depending on the person’s job abilities.
- Equity: Some companies offer equity compensation, a type of ownership that enables the employee to make a specified share of money based on the organization’s performance.
- Stock: Executive plans often include different stock options that employees can choose from at a reduced price.
- Other benefits: Any other advantageous and innovative benefits your company offers that can set your company apart from other organizations.
Types of executive compensation
The combined benefits, bonuses and nonfinancial perks can be split into different categories based on the time frame that will impact the person receiving them: short-term, medium-term, and long-term incentives. Short-term benefits immediately contribute to the person’s pay without additional time or performance. These include benefits like health insurance, subsidized meals, a company phone or laptop, paid expenses, and more.
A CEO’s role is to ensure the business strategy is followed and goals are met. If that’s the case, medium-term incentives can be introduced. These benefits are based on the company’s performance rather than the employees’. Lastly, long-term incentives include stocks or equity—benefits that gain value over time as the company grows and flourishes.
Tips for building an executive compensation plan
Remain competitive and attract the talent you're seeking. Here are some recommended best practices to follow when making executive compensation decisions and putting together your company’s plan:
Look at competitors
Keep up with other industry leaders by checking their job postings and what they offer top executives. You can also pay attention to executive compensation trends. It helps you understand where you rank among your competitors, giving the insight necessary to make compelling annual compensation incentives such as retirement plans, base pay or total salary, company stock options, and other executive perks. Also, look at your peers’ company performance to see the impact of the compensation package on senior executive accomplishments.
Ensure base pay isn’t the only benefit you’re offering
While it’s crucial to include executive pay within your plan, winning packages will more often than not focus on other incentives and perks to help attract top talent. You can make this happen while still ensuring your company benefits by keeping benefits pointed toward the areas of business that will have the most positive impact on growth and financial health. For instance, create short-term incentives to reward executives for their contributions each year based on your company’s goals and related key performance indicators.
Focus on executive perks: They hold weight
Benefits packages and executive perks may make up only a fraction of your company’s compensation plan, but the value potential candidates put into these rewards can’t be overlooked. While long-term goals like stocks and bonuses boost company performance, ensuring your C-suite is well taken care of keeps them engaged and active within your company—boosting retention and ultimately suite is well taken care of keeps them engaged and active within your company—boosting retention and, ultimately, earning the organization money in the long run.
Stay compliant with federal and state regulations
The United States Securities and Exchange Commission (SEC) mandates that any public company in the U.S. file disclosures for executive compensation, including how much CEOs and CFOs get paid. To ensure your organization follows these rules, you must file several documents with the SEC that include the this information:
- Annual proxy statement
- Annual reports on Form 10-K
- Registration statements when they register for sale
Keep the whole company on the same page
Generally, top-level employees can’t be successful without the entire company pushing to achieve the best possible results. By creating a healthy company culture that promotes hard work from the top down, all team members will desire to see the company succeed. According to Harvard Business Review, most annual compensation packages have a pay structure where 29% of compensation is based on the individual’s performance and 71% on the performance of the organization. When your whole business is on the same page and working toward the same goals, the attraction and retention of employees on all levels improve, and people are rewarded more thoroughly.
Build your executive plan with Marsh McLennan Agency
The most effective executive compensation packages will align with your business goals and strategies, providing critical details to potential employees and laying out your hopes for the position. Whether your business philosophy, mission and vision, or organizational structure, it’s vital that you consider what key elements you base your compensation package on.
Need assistance with your plan creation or other human resources-related responsibilities? Let Marsh McLennan Agency help you build an executive compensation package that will give you a leg up on your competitors and provide potential employees with compliant benefits to meet their needs. Contact one of our HR specialists today to start your journey to a limitless future.
