Mar 24 2010
Faced with a choice between offers of employment, some on the executive level might give a high salary more weight during the decision-making process, but long-term incentives can be a truer value proposition, particularly in a shifting economic landscape.
For example, deferral plans are fast becoming a popular executive benefit, since they allow for pre-tax contributions that mirror 401(k) contributions lost under limitation rules. A deferral plan is the bonus that keeps on giving year-round as it allows you to reduce your current income tax liability and watch funds grow tax-deferred. In addition, your employer can make matching contributions to cover those not allowed under a 401(k) plan, making the deferral plan a genuine incentive for longevity within a company.
Phantom stock, which can be tied exclusively to performance, is another valuable long-term incentive. Defined as a promise to pay a bonus in the form of the equivalent of either the value of company shares or the increase in that value over a period of time, the most essential element of this incentive approach is its durable understanding. Also, phantom stock plans are not tax-qualified, and as such not subject to the same tax rules as 401(k) plans.
Another form of executive bonus is the performance unit – an offer to pay an executive a sum of cash at the end of a long-term performance period. The amount of a performance unit is based on attainment of certain pre-established financial objectives of the company. Some may define this brand of incentive as the ultimate performance carrot, as it consistently encourages an executive employee to tie his or her individual success into that of the company.
A classic long-term incentive lies in company stock options. The amount of equity can be tied to the number of years in service, translating into potentially high returns for employee longevity.
Long-term incentives provide a substantive reason to join and stay with a company.
If properly motivated, executive level employees can focus on performance for the long run, leading to a pattern of continued achievement – a win-win for both you and your employer.
- Strategies for Successful Contract Negotiation
- Trends in Executive Compensation: Base Salaries Reinstated, Performance Targets Adjusted
Guest Writer - James E. Moniz
James E. (Jim) Moniz is CEO of Northeast VisionLink, a company that specializes in the field of executive compensation and works with businesses to structure compensation plans. Moniz is a national speaker on the topic of wealth management and executive compensation. He holds a Master of Science in Financial Services (MSFS), and Graduate Certificates for specialized study in: Pensions and Executive Compensation, Estate Planning and Financial Asset Management. Moniz is a Chartered Financial Consultant (ChFC) and Chartered Life Underwriter (CLU).
Moniz is also President/CEO of Northeast Wealth Management, a company that focuses on the needs of high net-worth individuals and professionals and tailors financial programs to help clients determine and progress toward their objectives.
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