Retaining Executive Talent During Economic Difficulties

Today’s business environment remains challenging for employers of all sizes and within all industries. Difficult-to-navigate economic conditions, underscored by persistent inflation and rising interest rates, have only heightened business leaders’ focus on operational costs and return on investment – and made the retention of key workers critically important. Staff turnover at a senior level is always costly and disruptive, but in today’s market it can be especially brutal to organizations’ bottom line.

Nonqualified deferred compensation (NQDC) plans, some of which include bank-owned life insurance (BOLI) policies, are an important piece of the retention puzzle – but in many cases, are being underutilized. When used correctly, NQDC plans are a tool that aligns employees’ behavior with the overall strategy of an organization and even generates better performance for the institution.

Importantly, employee retention is no longer solely a Human Resources issue, it’s an operational imperative. At a time when everyone is looking to offer the right resources and benefits to keep their top talent and mission-critical employees, especially in the financial services industry, implementing innovative executive benefits solutions that go beyond the standard practices can enhance a bank’s ability to succeed and protect a critical resource: their people.

Executive benefits solutions can help employers retain their top talent, but only if employers are aligned with what top their talent wants and have actionable, timely knowledge of the current market landscape. Broad-based benefit plans provide adequate coverage to most employees within an organization. However, regulations means these broad-based solutions leave top employees with shortfalls in areas such as retirement, life insurance and disability coverage. Executive benefit solutions can help bolster a competitive program to support your top-level talent through strategic design, implementation and administration.

To help address this matter, NFP surveyed several tenured C-suite decision-makers on executive compensation strategies, from a mix of industries that include financial services, manufacturing and real estate. Of those surveyed for the 2023 NFP Executive Compensation and Benefits Trends Study, 78% were in the financial services sector.

Among business leaders, 98% believed it is important to retain top talent, 93% feel executive benefits have been successful in retaining top talent and 82% offer non-qualified deferred compensation (NQDC) plans to retain their top talent. The survey also revealed employers have opportunities to improve their NQDC plans, including driving higher usage and better long-term outcomes. Respondents reported their NQDC plan eligibility rates have increased by 45% since 2020, a favorable trend, but have only seen a 32% increase in participation rates over the same period.

Reframing the Conversation
Bank boards should tailor their institution’s plans to the unique needs of their executives and untangle the complicated plan details for eligible participants. Continuous plan communication and knowledge-sharing can also increase executives’ perception of these valuable benefits packages.

Even with a demanding marketplace and focus on retention, companies continue to rely on standard benefits that can seem homogeneous and unchanged. For example, 81% of decision-makers said they don’t plan to select new executive benefits. Employers need to maximize executive benefits to realize their true value. There are several untapped benefits – such as supplemental executive medical insurance and college tuition for children – that are seldom offered but can set an employer apart. Benefits like these can enhance a compensation package’s attractiveness for current and prospective executives.

The Cost of Replacing Top Talent
The 2023 NFP Executive Compensation and Benefits Trends Study data reflected that the retirement behaviors of executives across industries are evolving in a polarized way. Nearly a third of respondents said they intend to retire later than expected, while a quarter anticipate retiring sooner than they had originally planned. With retirement trends shifting in two different directions, companies need to develop benefits plans that fit these varying needs. There’s no question that employers understand talent drives success and that top-tier executive benefits solutions attract and retain top talent. Their challenge is keeping them within budget in the face of rising costs and an unsettled economy.

Though there is a price tag to offering a strong and creative executive benefits package, it is a critical expense that can help with your bottom line: recruiting top talent is expensive and time-consuming, especially as executive demand increases. According to the Society for Human Resource Management and Center for American Progress research, the costs to replace a highly compensated executive are estimated to be 200% to 400%, if counting indirect expenses, of the annual salary associated with that position. Ultimately, businesses are resorting to creative offers to keep their executives satisfied at a manageable cost.