Executive compensation: Benefits that go beyond salary

Attracting and retaining top-level talent to the workplace is crucial for businesses today as they seek to minimise churn and ensure they have the edge over their competitors.

Competitive wages, which meet or surpass the cost of living, are perhaps the most important part of appealing to junior staff.

But while a good salary will be important for managers and leadership roles too, executive compensation packages and other forms of benefits, such as equity and bonuses, can really set you apart.

So, beyond advertising your executive job vacancies with a strong and fair baseline wage that sufficiently reflects the unique responsibilities of the role, what else is there to offer?

The most valued executive perks

Bonuses

Bonuses are perhaps the first thing we think of when looking at other forms of compensation for executives.

They can be tied to performance metrics and provide a welcome financial reward when key milestones are achieved – such as profit targets, growth in the business, or reaching a larger market share.

It’s important to remember that unless they are paid directly into a pension scheme, bonuses are part of your income and are subject to tax. But bonus packages can be negotiated by employer and employee to find the right balance between being of benefit to the executive, as well as incentivising them to achieve certain goals.

Equity compensation

Equity compensation can provide long-term incentives for executives to assist with the growth of the organisation, as well as the potential to receive dividends in the future.

Equity, such as shares (stocks) and share (stock) options, effectively allows employees within the organisation to own a small part of the business.

There are a number of tax-efficient equity schemes available.

• EMI (Enterprise Management Incentive): A government-backed share options scheme aimed at organisations with less than 250 employees. 
  
  
• CSOPs (Company Share Option Plans):  Suitable for businesses of any size and have recently seen government amendments to the maximum amount an employee can hold, making them even more flexible.
  
  
• Growth shares: Especially relevant for fractional executives, such as contract CFOs, who can benefit from value created above a specified threshold (hurdle rate). 
  
  They can be tied to the outcomes of the project they are assisting with, or to certain milestones within it and also provide good flexibility to both employers and employees.
  
  
• RSUs (Restricted Stock Units): Although less common in the UK, RSUs are typically awarded to executives as part of long-term incentive plans, providing a clear and tangible reward for employee contributions.
  
  Though less tax-efficient than UK-specific schemes, RSUs are particularly beneficial for larger companies, especially those that are publicly listed or planning to go public.

Ultimately, equity helps build alignment between the goals of the executive and the overall aims of the organisation, with the promise that they will benefit from the expected growth in the value of their shares over time.

Flexible benefits

Flexibility, when it comes to benefits, is another way to appeal to new executive-level employees.

Giving staff a degree of control over how their bonuses are delivered and how much equity in the business they have will contribute to their financial well-being and help foster a positive business culture.

Flexibility can be built into other benefits too, such as private insurance and pension plans. Giving executives control here (perhaps they want to divert more or less of their monthly wage to these areas?) can help spur them on to take the decision to accept a role in your organisation. 

Additionally, more options to work from home and the ability to take more holiday days are also key considerations for organisations looking to sweeten the deal for new executives.

Other executive perks

Here are some additional perks which specifically appeal to executives:

• Private health and/or dental insurance: These are important considerations for staff, particularly as they get older and their circumstances change. 
  
  
• Life insurance coverage: This will offer financial security to the family of the employee in the event of their death and might also be of importance to executive-level staff.
  
  
• Company cars and leisure benefits: This includes discounted gym memberships and access to health or leisure clubs, and can also be offered to executives and tailored to their interests.

These offerings signal care, respect and long-term investment in your leadership team. 

How executive benefits differ from standard employee offerings

Financial wellbeing is important for staff at every level of your business. But benefits and compensation packages for executives can certainly look quite different to those in entry-level or junior positions.

From an administrative perspective, executives will likely have a more complex job role that may also include management responsibilities over other members of staff.

Additionally, they might be responsible for larger budgets and have a bigger impact on business strategy and the evolution of the organisation.

Executive benefits will need to reflect this – perhaps in the flexibility or control of how they are received, or simply the comparative size of the bonuses when they are paid out.

Executive-level staff are harder to replace than standard employees – due to the complexity of their job role and the experience they have – so comprehensive benefits packages and flexible compensation options will increase the chance they will stay with your organisation for the long term.

It is also likely that individuals who are at the executive stage in their careers will have different needs when it comes to their financial wellness.

Benefits packages which are geared towards where these staff members are in their lives – if, for instance, they are closer to retirement age, or want to increase the amount of time they can work from home – will signal that your organisation is mindful to their specific needs.

Growing pay transparency is shaping trends 

In recent years, UK businesses have had to rethink how they approach pay and benefits.  This is partly in response to the Coronavirus pandemic, ongoing cost-of-living challenges and the rising demand for pay equity.

Incorporating pay transparency into business culture has been a big part of this; in an effort to close gender pay gaps, as well as to boost staff retention, and promote achievable career progression within organisations.

As a result, we’re seeing a shift. Executive pay is no longer increasing at the rates it once did:

• Research into executive pay from the WTW shows that executive salary increases have been fairly restrained at around 1.5% per year over the last decade.
  
  
• Alvarez & Marsal describes how, when considering UK inflation, CEOs at the top FTSE 100 companies have actually seen a real-terms decline of around 30% over the past decade.

However, this doesn't necessarily mean executives are being compensated less overall. The Executive pay in the UK report also highlights: 

• For the latter half of this ten-year period, the median three-year share price among these companies has averaged a 10% increase. 
  
  
• Incentive opportunities have increased both annually and in the long term, with median long-term awards (i.e. bonuses) rising to over 275% of salary.  

Introducing competitive compensation and benefits for executives

It’s clear to see that competitive compensation for executives should be a key consideration for all businesses today. Especially as responsible organisations seek to build better pay transparency and equity between employees, while still working to appeal to new talent and retain executive-level staff for the long term.

It is, however, something of a balancing act to get right.

Executive compensation must be:  

• Flexible and ultimately reward those it is designed for.
• Tied to company performance and the expectations of shareholders.
• Competitive enough to attract top leaders.

This is why equity schemes and bonuses that are tied to performance are proving integral to leading organisations that want to reward their executives, while also ensuring that these rewards are aligned with the growth of the business.

Interested in shaping up your executive benefits? Book a free consultation today to explore your options!