Good morning. The talent wars are heating up and that has led to an uptick in companies seeking to poach their rival's top executives—and, in turn, those executives are demanding more from their current employer's compensation and benefit plans, according to a new report.
The 2024 U.S. Executive Compensation and Benefits Trends Report was released this morning by property and casualty broker and benefits consultant, NFP, an Aon company. Eighty-seven percent of survey respondents say they cannot afford to lose key executives, according to the findings .
A big reason why is these highly compensated executives drive the strategic vision for the organization, Tony Greene, president of the executive benefits division of NFP, told me. Companies are recognizing a link between well-designed executive compensation packages and overall organizational performance, Greene said.
And key executives are very expensive to replace, he added. NFP estimates that it costs between 200% and 400% for each hundred thousand dollars of compensation to replace a highly compensated employee, Greene said. “For example, if you lose one of these executives that makes $200,000 a year, organizationally, you’re looking at a $400,000 to $800,000 impact on your company while you’re trying to replace that person,” he said.
The research also found that nearly half (44%) of executives are demanding more from their benefits plans and offerings, according to NFP’s database and a survey of 209 executive benefits decision-makers.
I’ve been reporting on CFO turnover and how companies are vying for finance chiefs. “The baby boomers are retiring,” Greene said. “That's one of the reasons there's a scarcity of CFOs.” And post-pandemic, especially at senior levels, there are more remote opportunities across geographies, which has increased the number of opportunities for top performers. Some executives are telling prospective companies, “I had this benefit, or this type of package, from my prior company, I want it here,” Greene said. “People know that there's more out there that they can get,” he said.
Starbucks is an example of how luring a top chief executive from another company can be expensive. Last month, the company announced it would offer new CEO Brian Niccol about $113 million in total compensation including a $10 million sign-on bonus and a $75 million equity grant, Fortune ’s Amanda Gerut reported . And that’s on top of Niccol’s annual $1.6 million salary and an annual cash bonus that could range from $3.6 million to $7.2 million, depending on Niccol’s performance. Niccol also won’t be required to relocate to the company’s headquarters in Seattle.
A private company Greene has worked with for a few years said their key executives are getting poached. This year, the company said to him, “What can we do to hang on to them?” he said.
Mechanisms like performance-based incentives (90%), supplemental executive life insurance (59%), and fringe benefits like first-class air travel (51%) have shown to have a positive impact on executive benefit plan success, according to the report. And 82% of companies stated that offering nonqualified deferred compensation plans, typically targeting employees earning $150,000 and above, has had a positive impact as well, Greene said. Most Fortune 500 companies are likely to offer this option, with mid-market companies increasingly doing so, he said.
Sheryl Estrada
sheryl.estrada@fortune.com
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