Executive Compensation Fundamentals – Are You Competitively Rewarding Your Key Talent?

As organizations prepare themselves for a post-COVID-19 environment, many are well positioned for extensive growth and recovery. A surprising number of organizations saw record-breaking years, due to having adapted their products or services to meet needs at the time or having received PPP loans and other federal assistance, despite 2020 predictions of an economic downturn. Compounded with an increasingly tight labor market (and the long-predicted pre-COVID labor shortage), organizations are faced with significant talent attraction and retention challenges. So what steps can you take to win the “war for talent?” It starts with the concepts of total rewards and executive compensation.

Total Rewards & Executive Compensation

When it comes to attracting and retaining key talent, a solid total rewards program is essential. Effective executive compensation programs rely upon five fundamentals, including:

  • A well-defined total rewards philosophy
  • Clearly stated policies and practices
  • Accurate market-based compensation data
  • An overall plan that closely aligns with the organization’s strategic goals and objectives
  • A governing body to provide oversight

Meeting Market Standards

Organizations that lack these fundamentals or do not prioritize executive compensation are at risk of rewarding these critical positions blindly against the market, creating space for competitors to lure key talent away. Privately held businesses are especially at risk and most likely to be significantly out of alignment with the marketplace, as these companies may rely upon humble, hard-working owner and founders to step away from daily operations to ensure the appropriate rewards program is in place.

Facing the Challenge & Taking the Next Steps

Engaging with an executive compensation professional can provide CEOs, Board members and family offices with the guidance needed to ensure that leadership talent is appropriately rewarded. A compensation consultant is a neutral advisor that will guide the organization through current best-practices and assist in creating a plan that is aligned with the organization’s strategic goals and financial parameters. They can serve as a trusted advisor, provide access to powerful tools and data sources as well as act as a sounding board for creative approaches.

In addition, expanding executive compensation packages beyond a base salary and an annual cash incentive (i.e., short-term incentive or cash bonus plans) to include long-term incentives, such as stock or phantom stock, is an option that involves a number of accounting, legal, tax, cost and documentation issues. Plans can also include perquisites like executive life, medical and non-qualified retirement savings plans. An experienced advisor can be instrumental in designing a plan that works for your organization and allows you to retain critical talent for years to come.

For More Information

Don’t know where to start? Talk to our team of expert executive compensation, total rewards and outsourced human resources services professionals by contacting us today.

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This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. In addition, this publication may contain certain content generated by an artificial intelligence (AI) language model. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.

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