Every business owner knows the importance of employee retention, but it’s particularly important to make sure executives stay with the company for a reasonable amount of time. Rapid turnover introduces a host of problems that can diminish a company’s overall efficiency and profitability. Unfortunately, it’s difficult to identify the specific elements that will encourage executives to stick around for the long haul.
Improved benefits packages are one way to ensure executives remain at a company for several years. Because consumers are more responsible for their own retirement savings today than in the past, any benefits that improve a person’s retirement savings are a massive perk that provides dramatically improved peace of mind for an executive. That can lead to increased loyalty, so improved benefits packages that incorporate insurance products are a worthwhile investment for any organization.
The problems caused by low retention
Turnover at any level of the company can have a negative effect on a firm, but executive turnover is an especially important issue. That’s because these individuals are seen as leaders and figureheads. When they leave, lower-level employees may feel as though the departure represents the executive’s loss of confidence in the company overall.
Research group Headlight International looked at CEO turnover at various companies and discovered that it had increased in recent years. A higher level of CEO turnover was linked to a number of problematic effects. Company performance suffered for between 2 and 3 years after a CEO’s departure, and stock performance suffered for a full year. While there are cases where CEO turnover was good for a company, the departure of a high level executive is negative in most situations.
The decline in employee performance and morale brought on by an executive departure is extremely problematic, but there are other issues created by high level turnover. Costs associated with replacing an executive can be extremely high. According to the Center for American Progress, it can cost up to 213 percent of the position’s salary to replace a very high level executive. The elevated replacement costs for these individuals are linked to their increased level of education and the difficulty in finding truly qualified candidates. That leads to a lengthy recruitment process that leaves the company without an executive for a substantial amount of time.
Benefits strategies to improve retention
Nearly everyone is worried about their retirement savings, and that includes people who have substantial money set aside already. According to a recent TIAA-CREF survey, the biggest concern for investors with more than $250,000 is having enough money to comfortably retire. That implies businesses that can provide increased retirement confidence for their executives will have a strong chance of retaining those individuals.
Financial professionals can highlight the risks associated with employee turnover and note possibilities provided by non-qualified executive benefit plans. With these plans, a business agrees to provide a supplemental benefit to the executive that they otherwise might not offer. The type of plan that an organization should use will depend on their goals and the size of the firm.
Generally speaking, smaller organizations should consider providing bonus plans that utilize life insurance for executives. Under these types of arrangements, the company pays the premium on the plan, but the executive owns the policy. To boost retention, the company can introduce limitations that require the executive to stay at the company for a set amount of time before they can take ownership of the plan.
Larger organizations may be more inclined to use deferred compensation plans or supplemental executive retirement plans. In either case, the employer will make contributions that boost the employee’s retirement savings. This type of benefit becomes more worthwhile the longer the employee stays with the company, so it offers another way for businesses to retain important employees.
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