Executive Compensation Plans: How to Attract, Motivate, and Retain the Employees You Want

Recruiting the right executives requires companies to develop the right compensation plans. In fact, the task can be daunting, especially in a tight employment market. However difficult it may seem, it just takes a little analysis and thought to create executive compensation plans that attract, motivate, and retain key employees.



Designing an Executive Compensation Plan that Attracts and Motivates

A properly-developed plan should meet both the executive’s needs and the corporation’s goals. Executive compensation plans are not a one-size-fits-all strategy, though. In fact, compensation strategies generally must:

  • Consider organizational needs and goals;
  • Consider the future employee’s needs;
  • Meet market demands; and
  • Offer a clear advantage from other companies.

An executive compensation plan might be simple or complex. In addition to base salary and benefits, the plan might contain some or all of the following:

  • Equity incentive plans
  • Top hat plan filings
  • Stock award agreements
  • 280G golden parachute payments
  • Employment agreements
  • Section 162 executive bonus plan agreements

Companies should also look toward another goal when designing an executive compensation plan: developing loyalty.

Retaining Employees Through Executive Compensation Plans

Some components of a plan may reward a key employees for staying on at the company. There are several ways to create an environment that encourages loyalty and retention:

  • Deferred Compensation plans allow companies to reward executives on a tax-favored basis. For example, the company may pledge to pay an executive a lump sum at retirement.
  • Stock Options may also entice key employees to stay with the company. The plan typically contains a schedule that provide an opportunity to buy stock at measured intervals. Executives that leave early lose out.
  • Stock Awards include restricted stock units or RSU which are given to employees through a vesting and distribution schedule. For example, a new employee might be given 300 RSUs to be distributed 100 per year. The employee must stay at the company through the end of the distribution schedule to receive all the RSUs.

In addition, creating a culture that promotes employee engagement can go a long way toward retaining key personnel.

Code Section 409A

While executive compensation programs can be an optimal attraction and retention tool, most of these programs are subject to Code Section 409A rules and requirements. Section 409A governs the timing and form of payment of deferred compensation by a service recipient to a service provider. Service recipients include public companies, private companies and nonprofits and service providers include employees, directors and independent contractors. Code Section 409A stipulates that plans be in writing and impose distribution, election, funding and reporting requirements.


Failure to comply with Code Section 409A requirements results in a 20 percent excise tax plus interest and penalties on affected individuals (in addition to regular federal income tax and state tax). Employers may be subject to potential penalties for failure to properly report and income and withhold taxes.


Potential penalties for failure to report
income and withhold taxes

Executive Compensation Plans Are Complicated. We Can Help.

Companies in search of the optimizing their executive compensation strategy must look beyond what the market demands. It’s also important that compensation and benefit plans meet a myriad of government regulations.

At Hall Benefits Law, we can help employers develop plans that attract, motivate, and retain the brightest and best. Please call 678-439-6236 to discuss your concerns with an experienced attorney. Our website contains more information about our firm, a Contact Form, and free resources for your review. From our home office in Georgia, we assist clients throughout the United States, from coast to coast.

The following two tabs change content below.

Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

Latest posts by Hall Benefits Law, LLC (see all)

%d bloggers like this: