With staff turnover being both costly and disruptive, especially at senior levels, businesses increasingly are relying on nonqualified deferred compensation (NQDC) plans as a means of driving retention.
Findings from NFP’s inaugural Executive Benefits Trends Study reveal that nearly all respondents (92%) said offering a NQDC plan helps them retain their top executive talent, with 93% ranking executive retention as “important” or “critical” to their company's success.
The survey also revealed, however, that employers have opportunities to improve their NQDC plans—including driving higher usage and better long-term outcomes. In this case, respondents reported that their NQDC plan eligibility rates have increased by 45% since 2020, but have only seen a 32% increase in participation rates over the same period.
Status Quo?
NFP further observes that most respondents seem content with the status quo of their NQDC plans, as only one in four (25%) intend to make adjustments in the near-term that could increase their appeal.
“Nonqualified deferred compensation is an essential lever in creating executive benefits programs that enhance retention of top talent, but the plans are being underutilized,” says Joe Carpenter, NFP’s head of Executive Benefits. “Companies need to tailor their plans to the unique needs of their executives and untangle the complicated plan details for eligible participants.”
Carpenter adds that continuous plan communication and knowledge-sharing also matters, as it helps drive how executives perceive the value of the benefit.
Partnering with consultants is one way to help “untangle” complicated plan details for eligible executives who are considering participating in these types of benefits. When asked about executive understanding of NQDC benefits, 23% of respondents indicated they understand the benefits completely, while 61% said they understand, but still have a few questions; another 15% said they understand but find the elements confusing.
Perhaps somewhat surprisingly, the survey found that—even with a demanding marketplace and focus on retention—companies continue to rely on standard benefits that can seem homogeneous and unchanged. NFP notes, for example, that 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,” Carpenter notes, adding that, “Benefits like these can enhance the attractiveness of compensation packages for current and prospective executives.
The survey coincides with retirement behaviors of executives evolving in a polarizing way. Nearly a third (31%) of respondents said they intend to retire later than expected, while a quarter anticipate retiring sooner than they had originally planned. Regardless of where executives are on their workplace journey, most feel behind in preparation, the study notes.
Why are effective executive retention strategies so important? The study points to data from the Society for Human Resource Management (SHRM) and Center for American Progress showing that the costs to replace a highly compensated executive is estimated to be from 200% – 400% of the annual salary associated with that position.
“With retirement trends shifting in two different directions, companies need to develop benefits plans that fit the varying needs of executives,” concludes Carpenter. “There's no question employers understand talent drives success and top tier executive benefits packages attract and retain top talent. Their challenge is keeping them within budget in the face of rising costs and an unsettled economy.”
The findings cited in the report were sourced from NFP's database, as well as an online survey of nearly 100 executive benefits decisionmakers conducted from Nov. 14, 2022, to March 8, 2023.
