By DeLynn Senna, Senior District President, Executive Search Global Operations, Robert Half, and Johnny Martinez, Director, People and Change, Protiviti*
The concept of “total rewards” is not new, but it is evolving—just as it has since it first emerged in the 1990s. That is when many businesses started moving away from focusing on traditional forms of employee compensation, like salary and bonuses, and standard benefits such as healthcare and retirement plans, to provide more comprehensive benefits, like paid time off and flexible work schedules.
A motivating factor for this shift toward offering a blend of financial and nonfinancial rewards was the need to compete more effectively for skilled talent. Sound familiar? Much like today’s labor market, the 1990s saw a shortage of skilled job candidates across industries due to factors such as globalization and technological change, historically low unemployment levels, and new expectations about work from younger generations entering the workforce.
Forward-thinking businesses responded by moving swiftly to rethink their human resources (HR) and compensation and benefits strategies to align more with employees’ priorities, values and career goals. These firms realized that providing a compelling combination of financial and nonfinancial rewards would be crucial to their immediate and ongoing efforts to attract, retain, motivate and engage talent.
Fast-forward to today, and companies of all sizes are expanding this strategy, taking an even more holistic approach when considering all aspects of compensation—especially for senior executives.
Following is an overview of several trends we’re seeing with total rewards packages offered at the executive level and some of the dynamics shaping new strategies. We offer recommendations for small and midsize businesses that want to craft compelling offerings for their leadership hires and compete more effectively against larger firms. We also explain how working with a retained executive search firm can be beneficial when assembling and negotiating total rewards.
Let’s start with a quick rundown of the offerings many organizations include today in the total rewards packages they design for top executives.
Total rewards for C-suite executives have a purpose that transcends compensation. They are designed to incentivize leaders to focus on excellence and help the organization achieve its goals, including driving growth, innovation and profitability.
Today’s total rewards packages are often highly personalized, but you will find that most major companies offer their executive leadership hires a mix of:
Monetary components
These components include a competitive base salary; performance bonuses tied to the company’s near- and long-term objectives; equity-based compensation like stock options; and long-term incentives such as deferred compensation plans and retention bonuses that help promote leadership continuity and a focus on value creation.
Many organizations are reevaluating their executive pay structures to address concerns about equity and fairness. Top factors for this trend include:
The CEO pay ratio disclosure, which focuses on the gap between the CEO’s compensation and the median employee’s pay. Publicly traded companies in the U.S. are required by the Securities and Exchange Commission (SEC) to disclose this ratio under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Pay transparency, which promotes openness about employee compensation, including salaries and benefits. This practice aims to reduce pay inequity and help employees understand how employers determine compensation. States that have enacted laws requiring employers to disclose pay ranges or salary information to employees or job applicants include California, Colorado, New York and Nevada.
Comprehensive benefits
The trend toward equitable offerings has resulted in many organizations providing similar core benefits to employees across their workforce to help promote fairness and inclusion. What a company’s top executives typically enjoy that other employees do not is more choice and customization in the variety and number of benefits they can take advantage of, including supplemental benefits tailored to their individual needs like deferred compensation and unlimited time off.
Non-monetary rewards
When designing total rewards packages for executives, companies need to consider the unique expectations and pressures senior leaders can face. Those dynamics help shape executives’ priorities, which often include the desire to:
Be influential and make a strategic impact
Continue learning and growing professionally
Maintain a healthy level of work-life integration
This is where highly personalized, non-monetary rewards aligned with a leader’s needs and interests come into play in total rewards.
The ability to engage in strategic decision making for the business autonomously, spearhead major innovation projects, enjoy membership in professional organizations or exclusive networks, or take advantage of flexible work arrangements and personalized wellness programs that include mental health benefits, are just some examples of the non-monetary rewards that can make all the difference in attracting talented executives to your firm and keeping them productive, satisfied and willing to stay with the organization for the long term.
That brings us to another trend: the rise of purpose-driven rewards as an aspect of total rewards.
Purpose-driven rewards, when combined with non-monetary rewards, are the next big step in taking a holistic approach to designing a total rewards package. Purpose-driven rewards are intended to appeal to whatever it is that helps an employee feel like their work is fulfilling and makes a positive impact.
These rewards can help create a deeper connection between employees and the business by aligning the company’s mission and values with an individual’s sense of purpose. For executives, these rewards might include the following:
Opportunities to lead or help shape the company’s sustainability initiatives
Public acknowledgment or rewards for contributions that positively impact society
Positions on nonprofit boards or advisory panels that reflect the executive’s values and interests
The ability to mentor future leaders inside or outside the firm, or participate in educational programs focused on ethical leadership
Company support for an executive’s personal charitable projects or foundations
Why Purpose-Driven Rewards Matter
Purpose-driven rewards help attract and retain executive talent motivated by more than just financial compensation. They appeal to professionals who seek fulfillment and alignment between their roles and personal values.
Including purpose-driven rewards as part of a holistic approach to total rewards can help boost executives’ job satisfaction, motivation and engagement, ultimately benefiting the company with increased productivity and reduced turnover in critical leadership positions.
For decades, large enterprises with significant budgets and HR capabilities have had an edge over small and midsize companies in offering compelling total rewards packages for executives. However, with the increased focus on offering holistic packages, many smaller employers are finding they can be more successful at competing for in-demand leadership talent.
These companies often have more flexibility than larger firms to prioritize non-monetary benefits and purpose-driven rewards, even if they can’t match the same level of salary, perks and benefits that larger businesses can provide. Some ways that small and midsize businesses can modify current trends in total rewards for executives to suit their size and scale include:
Innovating equity plans by offering simplified options like profit-sharing agreements or phantom shares to align executive priorities with company success.
Providing a menu of benefit options, from childcare support to sabbaticals, to allow leaders to select their total rewards packages to best suit their needs.
Small and midsize firms will also want to make sure what they offer to executives isn’t excessive compared with industry benchmarks for compensation. Hiring decision makers should also consider the company’s plans when crafting holistic total rewards packages. For example, if the firm aims to go public or engage in a major transaction with a public company like a merger or acquisition, how (and how much) the business is compensating executives will be scrutinized and become public knowledge.
Plus, given the trend toward pay transparency, and the growing number of laws requiring it, it’s wise to adhere to best practices when structuring compensation for all employees, even if your business is not yet subject to these mandates.
Technology can help here: Many companies, including small and midsize firms, use HR analytics platforms and other tools and resources to help them create data-driven total rewards strategies and structures that are transparent, but also tailored to the specific needs, interests and goals of their top executives.
A reputable retained executive search firm is another resource that can play a vital role in assisting a business with designing total rewards packages for C-suite and senior leadership hires in a way that aligns with the company’s mission and values and reflects the organization’s culture.
Retained executive search consultants are skilled at helping companies negotiate compensation packages that will appeal to high-level candidates while maintaining budgetary constraints and adhering to relevant regulatory standards and industry best practices. They can also advise on structuring total rewards to support long-term company goals and succession planning.
By leveraging their experience and market knowledge, leading retained executive search firms can help companies of all sizes understand the latest trends in total rewards so they can create and refine packages that can attract, motivate and retain top executive talent while supporting business objectives.
Contact Robert Half’s award-winning retained executive search practice today to discuss your specific situation. Our highly experienced retained consultants can provide valuable guidance and insight, including how to design compelling total rewards packages for executives, and help you find the C-suite and senior management professionals to lead your business forward.
*Protiviti is a global consulting firm and Robert Half subsidiary.
