Some 45 percent of executives are on the move these days, actively looking for new job opportunities, a trend that should concern employers, says Joe Crea, president of Benefits Resource Group.
“Often an executive is just not engaged, he or she has decided there’s more money to be made elsewhere, or they’re dissatisfied with the company,” Crea says.
Smaller companies that lose a key executive are the most affected. “On average, it costs companies 2.5 times the salary of the executive lost in order to find and hire their replacement,” Crea says. However, there are strategies employers can use to keep key executives around for the long term.
Smart Business spoke with Crea about executive retention programs and how they benefit employers.
What can happen when an executive leaves?
There can be real concerns from clients when they learn a key executive is leaving. Many will wonder why the person is leaving, what’s going on with the company that might have caused the executive to leave and if that loss will affect company productivity.
In instances where an executive is essential enough to a business, that business’s lending institution might have worked covenants in existing loan agreements that could be affected by an executive’s exit.
There’s also the time and cost to a company to replace the executive, such as the cost of a headhunter and time spent on training a replacement.
What are the issues executives have?
Executives can be unhappy with their current compensation. Perhaps they have the sense that the company lacks direction, there’s uneasiness at the office or they have a crazy boss. While many younger executives may wait for changes to happen, those who are older would rather not stick around until things settle, so they seek a better fit.
What can be done to retain these folks?
Essentially benefits can be used by a company to try to lock-up their key executives in some way — vesting programs that offer greater rewards for sticking around. Very few people today have confidence that they’ll be able to retire with an income that’s consistent with what they earn today. There are programs that help supplement retirement income, which puts executives’ minds at ease knowing they’ll have something for the future
These benefit programs meet three key executive concerns: Do I have enough to retire? What happens if I’m disabled? Will my family have enough money if I die prematurely?
Among these programs are split dollar arrangements that are life insurance policies that are owned in part by the company and in part by the executive.
There are restrictive endorsement bonus programs whereby special company bonuses are released on a vesting schedule.
A salary continuation program allows a company to designate a salary continuation amount paid over a defined period in the event of disability, death or retirement.
A phantom stock program is an agreement between the executive and a company whereby a value is attached to a ‘share’ of the company, though no true stock exists, and a payout is given in the future based on the value and number of ‘shares’ owned.
Supplemental executive retirement programs offer a defined retirement benefit in the future that’s offset by what the executive will receive in Social Security or other retirement programs.
Also, there are Section 162 programs that are special company-sponsored life insurance programs that offer executives death benefits and income prior to or at retirement. And there are many others.
How can a retention plan help?
Employers need to develop an awareness of issues at hand. Often times these issues are left unaddressed in lieu of day-to-day needs.
For example, a client in Texas had three executives but only had two of them under a non-compete agreement.
To avoid creating a situation where the executive could leave and take a block of the company’s business out the door, the client decided to implement a supplemental retirement program to lock the person up. Understanding the problems that might occur could mean the difference between losing or retaining an employee who’s crucial to your company’s success. ●
Joe Crea is president of Benefits Resource Group. Reach him at (216) 393-1818 or [email protected].
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