Dennis Carlson
Executive Benefits & Total Rewards Advisor
In our Executive Benefits series, we've explored the “three Rs framework” and taken a deeper look at “restoration” benefits. In this installment, we turn our attention to perhaps the most recognizable "R" in executive benefits: “reward.”
When most organizations think about rewarding key employees, base salary and annual bonuses are usually the first options that come to mind. However, forward-thinking companies understand that a well-structured executive rewards program can provide substantial value that cash compensation alone can’t match.
The strategic purpose of executive rewards
Reward-focused executive benefits serve multiple strategic objectives:
- Attraction: Differentiate your organization in a competitive talent market.
- Retention: Create meaningful "golden handcuffs" that grow in value over time.
- Alignment: Link executive rewards to organizational performance and goals.
- Recognition: Acknowledge outstanding contributions and leadership.
- Customization: Address the unique needs and preferences of key individuals.
Unlike restoration benefits, which fill gaps in standard benefit programs, reward benefits are designed to offer extra value beyond standard compensation packages.
Key categories of executive rewards
Executive bonus plans offer extra compensation and can be tied to individual, team, or organizational performance. These can take various forms:
- Supplemental retirement plans: Additional retirement benefits beyond qualified plans
- Deferred compensation: Current earnings invested for future payment
- Executive bonus life insurance: Company-funded insurance that accumulates cash value
Well-structured bonus plans create strong alignment between executives and organizational goals while encouraging long-term employee retention.
Executive healthcare enhancements
While standard health plans meet basic needs, executive healthcare enhancements offer extra peace of mind and personalized care:
- Executive physicals and medical expense reimbursement: Comprehensive health assessments and coverage for costs not included in group plans
- Long-term care: Protection against future extended care expenses
- Concierge healthcare services: Priority access to top specialists
- International healthcare coverage: Seamless protection during global travel
These benefits address the unique health needs of executives who often face high stress, demanding travel schedules, and limited time for personal healthcare management.
Specialized protection programs
Beyond standard group coverage, specialized risk protection programs offer enhanced protection, including:
- Executive disability programs: Higher income replacement percentages and improved contract terms
- Key person life insurance with split-dollar arrangements: Benefits both the organization and the executive or their family members
- Executive liability coverage: Protects executives from personal liability risks
- Identify theft and cyber-protection: Includes reputation management services
These programs often offer portable coverage that executives can keep regardless of employment changes, creating lasting value.
Lifestyle and perquisite programs
Well-chosen perquisites—or perks—can significantly enhance an executive's quality of life while reinforcing organizational culture, including:
- Executive financial, wealth management, and tax services
- Executive equity compensation consulting: Includes IPO and liquidity event consulting
- Executive coaching and professional development
The most effective executive perk programs are designed to reflect an organization's values rather than simply offering generic status symbols.
Designing an effective reward strategy
Effective executive reward programs share several key characteristics, such as:
1. Strategic alignment
The most effective programs align directly with organizational goals and strategies. Each benefit should reinforce desired behaviors and outcomes rather than exist in isolation.
2. Clear eligibility criteria
Well-defined eligibility guidelines ensure transparency and fairness while creating aspirational targets for rising leaders. Criteria might include:
- Position or role within the organization
- Performance metrics or achievement levels
- Tenure or service milestones
- Critical skills or expertise
3. Competitive benchmarking
Regular market analysis keeps your executive benefits competitive. This research should consider:
- Industry-specific norms and expectations
- Geographic compensation trends
- Organization size and complexity
- Talent competition dynamics
4. Tax efficiency
Strategic benefit design considers tax implications for both the organization and the executive, maximizing after-tax value while ensuring compliance.
5. Balance between short- and long-term incentives
The most effective reward programs strike a balance between immediate recognition and benefits that foster long-term value and encourage retention.
Maximizing return on investment (ROI)
Executive benefits represent a significant investment. To maximize ROI:
- Regularly communicate value: Ensure executives understand the full value of their benefits package.
- Solicit feedback: Gather input on which benefits provide the most perceived value.
- Measure utilization: Track which benefits are actually used.
- Analyze retention impact: Evaluate how benefits influence the retention of key talent.
- Review periodically: Refresh offerings to align with changing needs and goals.
Finding the right balance
While reward benefits deliver substantial value, they must be proportionate to the organization's resources and culture. The optimal approach:
- Aligns with organizational values and objectives
- Creates meaningful differentiation without excessive costs
- Remains justifiable to all stakeholders
- Evolves as organizational needs change
- Complements rather than replaces competitive cash compensation
Next steps
Before implementing reward benefits, it's essential to first address any restore needs that exist in your organization. As we discussed in our previous post on benefits restoration, ensuring your key employees have the same level of protection as the rest of the organization lays the foundation for a comprehensive executive benefits strategy.
With the restore elements in place, you can then evaluate your reward benefits strategy with these focused questions:
- Do our executive reward programs clearly align with our organizational growth objectives?
- Have we gathered direct feedback from key employees on which reward benefits they value most?
- Are our reward offerings competitive with organizations targeting similar executive talent?
- Have we structured our reward benefits for optimal tax efficiency?
- Do our executive rewards create lasting value that increases over time, encouraging long-term retention?
By thoughtfully addressing these questions, you can design reward programs that offer meaningful incentives for your key talent while aligning with your organization's strategic objectives.
