Michael Joyce, CFA, CFP, Agili President
Agili President, Michael Joyce, CFA, CFP®, recently shared his recommendations for negotiating the best compensation and executive perks package with Lehigh Valley Business (LVB). Those with a subscription to LVB can read the article here.
Michael’s thoughts are shared below in italics:
Low Unemployment Rate
The unemployment rate in the United States has remained below four percent since January 2022, according to the Bureau of Labor Statistics. Competition for workers is high across many sectors. Anecdotally, demand for executives at various levels in the Lehigh Valley is consistently strong. This market dynamic is one reason that compensation and perks are key components of any executive’s decision to join a new company or remain with their current employer.
Perks Are a Key Decision-Making Factor For Executives
Company perks and compensation packages should be a key decision-making factor for any executive because those packages can have a huge impact on their financial future. A 2021 report from Harvard Business Review analyzed compensation of top executives at all Russell 3000 companies and found that only 18 percent of their compensation was base salary; the remaining 82 percent was variable. Those variables, such as stock options, are precisely what’s laid out in compensation and perks packages.
Typical Executive Perks
Companies, both public and private, typically design compensation packages and corporate perks for specific classes or tiers of executives. The executive’s current or pending position within a company will dictate the extent of corporate perks available. Generally speaking, executive corporate perks can include a wide array of both financial and lifestyle considerations. Among the most common perks that executives in the Lehigh Valley and elsewhere across the country have access to include:
- Financial counseling
- Moving expenses
- Stock options
- Restricted stock or restricted stock units
- Transportation expenses
- Non-qualified deferred compensation
- Targeted bonuses
- Performance-based incentives
- Virtual or hybrid work
- Vacation time and other paid time off
For many years, signing bonuses were a common perk for executives at various levels. Companies have moved away from signing bonuses for executives. Rather, they focus on targeted bonuses connected to an executive’s base salary and performance incentives linked to individual, team, or overall company performance. Targeted and performance-based bonuses are often negotiable and key features of broader compensation discussions.
Everything is Negotiable
The adage that everything is negotiable certainly applies to corporate perks and compensation packages. Many companies have standard packages for executives at various levels, but those packages should be considered a starting point. In general, when corporate employers make an offer to an executive candidate, they likely anticipate that the candidate will want to negotiate that offer. There is no harm in negotiating with a corporate employer and candidates can take comfort that their peers negotiate more often than not.
Negotiations built on mutual respect and understanding can make a substantial difference in the ultimate perk and compensation package that a candidate receives. Take bonuses and performance incentives. Target bonuses are highly variable and can range from 35% to 100% of one’s base salary, so candidates are well advised to negotiate for more. Performance based incentives can be negotiated to include a profits interest plan – which conveys an ownership share of future profits – or performance shares of company stock. Likewise, if a company offers both stock options and restricted stock, a candidate can negotiate their preferred perk or a combination of perks.
Depending on a candidate’s specific needs and situation, some perks will offer better potential upside and long-term benefits. That’s why negotiating is so important. Candidates want to ensure that a compensation and perks package is tailored to their needs.
Focus on Retirement
Although executive candidates will have unique circumstances in their lives, they all should carefully consider retirement goals and needs when negotiating a compensation package and perks.
Similar to every other future retiree, executives should consider their optimal timeline for retirement, projected tax bracket upon retiring, sufficient income needed in retirement to last the remainder of their life, and when to begin taking Social Security. How a candidate approaches each of these issues will influence the type of perks and compensation they should request.
Corporate executives often have highly complicated retirement scenarios tied to their compensation plans. This challenge is a “good problem” to have but requires a detailed strategy. For example, a common retirement scenario for corporate executives relates to how they handle unrealized appreciation of company stock in a 401(k) plan or whether they should take a deferred compensation payout as a lump sum or in monthly installments.
Executives would be wise to build a team of trusted partners, including an attorney, accountant, and financial advisor — with the financial advisor acting as the quarterback to help navigate these complex questions and develop a personalized plan based on their goals and their specific company’s retirement rules. This ensures that the team does not operate in silos.
Transparency at Public Companies
Finally, it’s important to note that compensation details of the top five highest paid executives at publicly traded companies are public information. Public companies are required to disclose the total compensation packages of their highest paid executives in proxy statements filed with the U.S. Securities and Exchange Commission. This information includes stock options, restricted stock, the cost of financial counseling and tax preparation, and aircraft mileage. Corporate executives who are particularly concerned about privacy should keep these requirements in mind when negotiating executive perks. Certainly, all executives should be mindful of the optics of a significant compensation package.
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Michael Joyce, CFA, CFP®, founder and president of Agili in Bethlehem and Richmond, VA is responsible for overall investment strategy, management of investment portfolios and financial planning services. He can be reached at MJoyce@AgiliPersonalCFO.com.