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Beyond Cash Compensation

A new way to think about executive benefit programs
By Eric Gordon, Ayco, a Goldman Sachs Company



Protect Your Investment

Your executives represent one of your company’s greatest investments, both in compensation and corporate reputation. Yet, they also present a significant risk in terms of lack of time to focus on the business, attrition, and regulatory and reputational issues.

Additionally, financial and tax landscapes have become increasingly complicated and the need for companies to mitigate risk has never been greater. With this in mind, the return on investment of a high-impact executive counseling program aligned to shareholder interests becomes readily apparent.

Shareholder Expectations

Shareholders expect companies to effectively manage risk on behalf of the firm—this includes business, reputational, tax compliance and regulatory risk. And yet, around the country, companies are continually failing to adequately respond to these risks. For example, the SEC reports that 42% of their standalone enforcement actions are related to issuer reporting/audit and accounting, and securities offerings.

There are three important reasons why companies should consider offering a program that helps their executives navigate life’s financial complexities:

  1. Enhance executive focus and preserve time with a provider serving as a single source for their executives’ financial lives, offering planning and efficiencies, leaving more time to focus on the business.

  2. Optimize compensation and benefits through a provider serving as an extension of the benefits team to help build understanding and maximize utilization, leading to increased retention.

  3. Navigate risk by providing a rigorous approach to regulatory and reputational risk management for the company, as opposed to serving merely as a “perk.”

However, offering a financial counseling program alone won’t move the needle. Our experience with hundreds of executive counseling programs across the country revealed that program design and implementation are also critical factors in the success of any benefit program.

Benefit Success: Program Design

When making the investment in any executive benefit program, your company and the provider have a shared interest in its success. Success may be defined in many ways ranging from an increase in overall benefit participation rates to meeting company-specific objectives. Several critical factors can influence the outcome of any executive program. These may include:

Positioning

Properly positioning an executive benefit program to the board and employee population is critical. To the executives, this means effectively and clearly communicating the program benefits are in alignment with shareholder interests and strategic in nature. For your board, stress the benefits of providing time to the executive so they can focus on growing the business, as well as risk mitigation for the company. Again, this is more than just a “perk” for the executive.

Access

Providing access to executives is another critical factor. Providers often have well-thought-out engagement plans. To build credibility, provide direct access to your executives. Doing so can foster the opportunity for a personal, candid and confidential conversation. This access helps your executives better understand the benefit and get the most out of a program. Lastly, providers can take the lead on communications and engagement to ease the burden on your Human Resources team.

Partnership

Finally, establish a strong partnership between your provider and your company. Give your provider the opportunity to reinforce the purpose and value of the program. For your Human Resources team in the implementation of the program, this means fostering an active and collaborative dialogue with the provider, including ongoing feedback and opportunities to partner in messaging to the executive team. In an open architecture arrangement, or a program with a multitude of choices, the benefits of a strong single provider are diluted and quality control is impeded. For the participating executive, avoiding too many choices of providers and making it easy for them to participate is a best practice. For example, you may see better participation for company-paid programs versus reimbursement structures simply by removing the administrative barrier. Additionally, a strong partnership approach helps scale your benefit team to execute the plan—especially during times of change.

Measuring Outcomes

When a program is communicated and executed well, in close partnership with your Human Resources team, you should see results.

One survey Ayco conducted with two corporate companies offering executive financial counseling showed marked improvement in personal financial and organizational risk mitigation. All findings are based on executives who were offered and engaged in the Ayco Executive Financial Counseling service for at least one year (see Figure 1).

  • 48 percentage point increase in executives who filed nonresident taxes (from 36% to 84%)

  • 19 percentage point increase in executives who utilized deferred compensation plans (from 64% to 83%)

  • 27 percentage point increase in executives who utilized group excess liability insurance (37% to 64%)

  • 39 percentage point increase in executives who had an HSA (from 5% to 44%)

There are a number of different factors that can also impact program success, including the size of a company, industry and a company’s culture. The example above is meant to be illustrative of benefit plan usage and results may vary. Other corporate programs may not show the same results. However, the success of any executive financial counseling program is a direct result of thoughtful planning, robust implementation and access to the executives.

Getting the Most Out of a Provider—Whether you Have One Today or Not

Is your tax and financial benefit delivering? Do your executives recognize the value of their benefit plans? Ask your current or potential provider to help you design an effective plan that’s beneficial to your executives, your company and your board.

References

  1. U.S. Securities and Exchange Commission Division of Enforcement Annual Report 2017, ©2017 U.S. Securities and Exchange Commission.

  2. Percentage point increases. Analysis includes the combined data of 75 clients from two companies where Ayco services were provided for at least one year. Where a service offering was not applicable to a client, that client was not included in the analysis and less than 75 clients were utilized.

Eric Gordon is senior vice president, Corporate Development at Ayco, where he is a member of the Senior Account Manager Committee and serves as co-chair of the Ayco Diversity Network.

Over the past 30 years, he has guided countless clients with financial planning as a counselor and has been involved in the strategic development of Ayco’s business as a leader within Financial Counseling.

Issue 29: Outlook 2019


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