10/10/2023

Crafting an Attractive Rewards Package for C-Suite Executives

Crafting an Attractive Rewards Package for C-Suite Executives

Attracting and retaining top talent in the C-suite is a critical challenge for organisations. To address this, creating an enticing benefits package for executives becomes paramount. Not only does it shape how top executives behave but it also helps determine what kinds of executives an organisation attracts. In this blog, we will delve into the crucial components that make up an executive’s rewards package and explore the considerations necessary for building a well-balanced and attractive offering.

 

The Building Blocks

A typical executive compensation package comprises both financial and non-financial elements, including salary, perks and benefits, bonuses, and Long-Term Incentive Plans (LTIPs).

Salary: The foundation of any renumeration package lies in the base salary, often paid in cash. When deciding just how much to offer, there is a lot to weigh up. Companies should consider what their existing board members are earning, but also what the market rate is in order to remain competitive. More than this though, companies need to calculate just how much value this role will bring to their organisation.

Perquisites: Non-financial benefits are often as important as annual salaries for job-seeking executives. In our post-pandemic world, the kinds of perks executives can expect have evolved somewhat. There is now more of a focus on maintaining work-life balance, a notorious difficulty among board-level workers.  Common perks include extra holiday, flexible hours, a 4-day work week, health and life insurance (for family members as well as the individual), or paying for them to complete their MBA.

Bonuses: In addition to a base salary, executives would expect annual bonuses to be awarded to them. These short-term incentives may be at the discretion of the board or dependent on specific performance metrics, such as profit margin increase or meeting critical project deadlines. These bonuses can be swapped for equity.

Long-Term Incentive Plans (LTIPs): Similar to annual bonuses except the performance period typically spans 3-5 years known as a vesting period. Executives might receive their reward only when the vesting period is complete, or they might receive proportionate value each year. These rewards might be a mix of cash and equity.

C-Suite Rewards Building Blocks. 4 Icons demonstrate the 4 building blocks; salary, perquisites, bonuses, and LTIPs.

Cash vs Equity

Instead of a cash lump sum, executives may receive their rewards in the form of equity. Stock Options allow an executive to purchase a number of shares in the business, linking their financial success with that of the business. Restricted Stock is similar but requires a vesting period before the employee can receive their rewards i.e. a long-term incentive.

For a long time, cash has been regarded as less incentivising than stock-based compensation plans. The argument goes that cash is a nice one-off reward, but the motivation is short-lived. Whereas gifting equity to an employee gives them part-ownership of the company and therefore gives them a vested interest in the company’s performance.

However, recent research from John Kelper finds that cash-based rewards are more incentivising than previously thought, especially in the early stages of an executive’s career. Kelper concludes that, regardless of the form bonuses take, bonuses encourage better cooperation across departments as they hold leaders collectively responsible for key performance goals.

Equity-based rewards might also be better suited to start-ups as they require lower upfront costs and can help the company get off the ground as the recipients are equally motivated to build a financially successful business.

C-Suite Rewards - Cash v Equity. Two columns weigh up the pros and cons of choosing cash or equity for C-Suite reward packages.
 

Long-Term vs Short-Term Goals

LTIPs play a crucial role in encouraging executives to focus on long-term organisational goals. According to a World at Work survey, the use of LTIPs in c-suite executive compensation plans is increasing. When they first start their survey in 2007, only 35% of businesses surveyed had an LTIP, which grew to 62% in 2019.

The argument for LTIPs is that they encourage leadership behaviour and decisions that are more aligned with the company’s long-term goals. If a compensation package were made up entirely of short-term incentives, then executives may be tempted to make quick-win decisions simply to boost their annual income. LTIPs also help with talent retention as executives would suffer a loss of earnings if they left the business before the vesting period is complete.

Of course, short-term incentives have their place. Candidates don’t want to have to wait 3-5 years before they start to see a return on their efforts. Moreover, companies that are going through transformational change may benefit from focussing more on short-term goals.

C-Suite Rewards: Long-term vs Short-term
 

Individual vs Company Performance

Just as with other considerations, a careful balance has to be achieved between elements that rewards individual achievements or collective achievements. Rewards based on organisational metrics such as profit margins, revenue growth, and shareholder returns will help to motivate executives in line with the company’s long-term plans. However, metrics like this are often influenced by multiple people across multiple divisions. This can either boost cross-departmental collaboration, or it can breed frustration.

Harvard Business Review found that rewards tied to an executive’s individual performance were “positively associated with job satisfaction.” However, rewards that relied on corporate-wide metrics made staff less committed and frustrated with management. It’s understandable that team-members will be demoralised after putting in lots of effort on their part, only to be stumped because someone else is underperforming.

C_Suite Rewards: Individual vs Company KPIS
 

Company Philosophy

Throughout all of these considerations, it’s important to bear in mind your company’s overall philosophy. Do you value collaboration and cohesion? Or is yours a company which values personal accountability? Do you value profit over all else, or do you measure success in other ways?

We’ve spoken a lot about finance-based metrics, but any performance incentive can also be measured by non-financial metrics. According to FW Cook’s 2018 Global Top 250 Compensation Survey, 70% of companies use non-financial metrics and 26% of them use at least one ESG goal. For example, you could measure employee diversity, company culture perceptions, or progress on sustainability goals.

Crafting a well-balanced benefits package for C-suite executives requires a thoughtful approach. By carefully balancing different aspects and keeping company values at the core, organisations can create a rewards package that not only attracts but retains top executive talent.

C-Suite Rewards: Introducing them to the team
 

Presenting Your Rewards Package to Potential Candidates

In the previous sections, we’ve discussed general considerations for building your rewards package. Now it’s time to bring all those ideas together and put your potential candidate at the centre. Why? Because you now have to assess the candidate’s current compensation package and how yours compares. Understanding their current remuneration not only demonstrates a commitment to fairness but also helps tailor an offer that reflects their market value and ensures a smooth transition.

If you’re offering LTIPs, it’s fair to assume that your candidate is already working towards a long-term reward in their current role. Recognising the potential financial impact of forfeiting such benefits, companies may consider offering a ‘golden handshake’ or a compensation package that offsets the loss incurred by leaving existing LTIPs. This proactive approach acknowledges the barriers associated with senior executives walking away from potential payouts, fostering goodwill, and making the transition more enticing.

C-Suite Rewards: Accepting a Job Offer
You should also bear in mind any individual motivators. While financial incentives like LTIPs or equity may resonate strongly with some, others may be primarily motivated by factors such as job satisfaction, company culture, and work-life balance. Crafting a personalised rewards package that aligns with the specific motivators of each board member showcases a nuanced and thoughtful approach to talent management.

Finally, it’s crucial to acknowledge that senior leaders haven’t just reached their positions because they’ve put in the correct number of work hours. Rather, they have gotten where they are because of the wealth of experience and expertise they bring to the table. Organisations must recognise the importance of a comprehensive rewards package in attracting and retaining such high-calibre talent. Beyond salary and bonuses, perks like professional development opportunities, mentorship programs, and a supportive work environment contribute significantly to making an offer compelling for senior executives. This holistic understanding of what motivates and retains top talent is vital in shaping competitive and attractive rewards packages for C-suite candidates.

At Parkinson Lee, we are your executive recruitment partners. We can work with you to craft the perfect rewards package to attract your ideal candidates. Call us today if you have a vacancy you’d like to discuss.

 

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