A list of common mistakes corporations make and how to avoid them
Putting together a benefits package, particularly for top executives, can be a tricky business.
Recent high-profile events, such as Enron’s bankruptcy and accounting fraud at Worldcom, have brought about heightened interest in benefit packages for top executives.
Despite these new concerns, many companies continue to make a number of common errors when putting together benefits packages, and in particular, non-qualified benefit packages. The outcome could harm the executive, the company, or both.
With that in mind, here is a list of common errors made in handling executive benefits.
•Overemphasis on industry peer group. Companies too often look to peer groups within their industry in designing competitive packages for top executives. This was fine a decade ago. Today, top executives are making more lateral moves from companies outside their industry. It’s no longer good enough to just compete with companies inside your own industry for executive talent and plans must be competitive with those offered around the globe.
•Over-reliance on stock options. Stock options created significant wealth in the ‘90s, but have lost their luster in the last 18 months. Companies need to better balance their packages, educate themselves to other alternatives and create improved strategies to reduce risk.
•Ceding plan control to a single executive. Once a plan design is in place, companies often allow executives to take control of plan provisions, with management sometimes becoming slaves to whatever a top executive wants to do with the assets inside the plan. This lack of central control can harm the overall company plan.
•Lack of communication. Companies often experience value perception problems when they allot too little time and effort to communicate their executive benefit package fully to executives. This results in executives being unsure of its real value, and a plan that is unsuccessful because of the lack of buy-in from all eligible executives.
•Under-communicating the risk. Many companies have not done a good job in explaining the risks of non-qualified benefit plans to their employees. The outcome of this is often an employee not handling the tax withholding correctly or fully understanding the plan’s provisions in the event of separation.
•Creating a “social security syndrome” plan. Often, when management sets down provisions for funding a plan, the plan gets designed to pay out handsomely for current top executives but pushes down the plan’s financial burdens to future employees and shareholders, for future generations to pay.
Source: Mullin Consulting Inc.
Recent high-profile events, such as Enron’s bankruptcy and accounting fraud at Worldcom, have brought about heightened interest in benefit packages for top executives.
Despite these new concerns, many companies continue to make a number of common errors when putting together benefits packages, and in particular, non-qualified benefit packages. The outcome could harm the executive, the company, or both.
With that in mind, here is a list of common errors made in handling executive benefits.
•Overemphasis on industry peer group. Companies too often look to peer groups within their industry in designing competitive packages for top executives. This was fine a decade ago. Today, top executives are making more lateral moves from companies outside their industry. It’s no longer good enough to just compete with companies inside your own industry for executive talent and plans must be competitive with those offered around the globe.
•Over-reliance on stock options. Stock options created significant wealth in the ‘90s, but have lost their luster in the last 18 months. Companies need to better balance their packages, educate themselves to other alternatives and create improved strategies to reduce risk.
•Ceding plan control to a single executive. Once a plan design is in place, companies often allow executives to take control of plan provisions, with management sometimes becoming slaves to whatever a top executive wants to do with the assets inside the plan. This lack of central control can harm the overall company plan.
•Lack of communication. Companies often experience value perception problems when they allot too little time and effort to communicate their executive benefit package fully to executives. This results in executives being unsure of its real value, and a plan that is unsuccessful because of the lack of buy-in from all eligible executives.
•Under-communicating the risk. Many companies have not done a good job in explaining the risks of non-qualified benefit plans to their employees. The outcome of this is often an employee not handling the tax withholding correctly or fully understanding the plan’s provisions in the event of separation.
•Creating a “social security syndrome” plan. Often, when management sets down provisions for funding a plan, the plan gets designed to pay out handsomely for current top executives but pushes down the plan’s financial burdens to future employees and shareholders, for future generations to pay.
Source: Mullin Consulting Inc.
