Senior executive compensation packages - how to structure them effectively

Understanding and structuring executive compensation packages are critical in attracting, motivating, and retaining top talent, especially in roles that require global mobility and diverse capabilities. 

This guide will explore the key elements of executive compensation, encompassing base salary, bonuses, stock options, benefits, and additional perks. It will also offer strategic insights on how to structure these components to accurately reflect your employees' value and expected contributions.

In this discussion, an executive is someone with more experience than the average employee who holds a mid- to senior-level management position. This includes the responsibility of managing people and overseeing team metrics and KPIs.

This framework aims to assist senior leaders and hiring managers in creating comprehensive compensation packages that are competitive and in line with strategic business goals.

• Key components of executive compensation
• Why should an executive have a different compensation package?
• Market trends for executive compensation
• Building compensation packages for executives of global mobility teams
• Get the best compensation assistance with Airswift

Key components of executive compensation packages

Executive compensation packages are structured to attract, motivate, and retain top executives, reflecting the complexity and responsibility that their roles entail.  These packages typically consist of a mix of fixed and variable components that comprise a thorough remuneration scheme. Here’s what you need to know to structure them effectively:

1. Base salary: This fixed component of compensation ensures a steady income unaffected by the individual's or the company's performance. It is established based on the employee's role, experience, and the company's geographic location. If you are preparing to negotiate a salary for yourself, we have a blog on how to do that here.
   
   
2. Bonuses and incentives: Often performance-related, bonuses are designed to incentivise executives to achieve specific organisational goals. These can be annual or multi-year and are usually tied to metrics such as profit targets, revenue growth, or other key performance indicators. Bonuses are more likely to be negotiated, but they come with a metric attached.
   
   
3. Long-term incentives: Typically involving shares or stock options, these incentives are meant to align the interests of executives with those of shareholders and encourage a long-term commitment to the company. Stock options or restricted stock units (RSUs) allow executives to benefit from increases in share price over time.
   
   
4. Pension plans: Executive pension plans are often more generous than those available to other employees and can be a significant part of the compensation package. These may include defined benefits or contribution plans, depending on the company's policy.
   
   
5. Perks: Perks such as company cars, private medical insurance, and club memberships are designed to enhance the lifestyles of executives, reflecting their status within the organisation. These benefits are increasingly in the spotlight. For instance, the ability to work remotely from anywhere in the world is a significant advantage for executives with families overseas or those who travel frequently.
   
   
6. Severance packages: These agreements provide compensation in the event of an executive's early termination, not due to misconduct. Severance packages can help mitigate the risk associated with high-level positions, providing security to the executive.

Understanding these components is crucial for any executive entering into compensation negotiations or looking to better understand their remuneration package. Each element plays a strategic role in the overall compensation philosophy of a company, aimed at fostering a committed and motivated executive team.

Why should an executive have a different compensation and benefits package?

Executives often have unique compensation and benefits packages, reflecting their significant responsibilities. They are tasked with managing teams and divisions, as well as setting strategic direction and making decisions that affect the organisation's success. Moreover, executive positions require a rare combination of expertise, experience, and leadership, making these skills highly sought after in the job market.

“In general. someone in a leadership position can be trickier to replace. And the reason for that is good leaders are foundational to teams, so recruiting them, training them, and retaining them demand extra effort,” says Steve Jenkins, Sales Director of Global Employment & Mobility at Airswift.

Given the significant impact of their decisions and the substantial risks involved, including financial losses, regulatory breaches, or reputational damage, executives are held to a higher standard of accountability. Their higher compensation, bonus schemes and more act as a reward and an incentive to manage these risks effectively. 

As a leader, your role is to build the team underneath you in a way that they can flourish. So it’s a very impactful role to a lot of people, the staff reports to their leader and their decisions can make a direct change in their work.

Moreover, the market for top executive talent is intensely competitive. Organisations must often benchmark their compensation packages against those offered by their competitors to remain attractive to top leaders. Losing an executive to another company in the same segment can be a true hit to the business, not only strategically but could also affect the institution’s morale.

This competition drives the complexity and generosity of executive compensation packages, which reflect the demanding nature of the role and the necessity to navigate a company through various challenges like market fluctuations, regulatory environments, and competitive landscapes.

Market trends for executive compensation

Recent shifts in the workplace landscape have significantly influenced trends in executive compensation and benefits for all employees. Particularly regarding flexibility and work-life balance, as more organisations embrace hybrid and remote work models, workers increasingly value compensation packages that offer the freedom to blend their professional and personal lives effectively.

This trend towards flexible working arrangements is not just about where work gets done but also when. Executives are looking for roles that allow them to design their schedules, highlighting autonomy's importance over time management.

As a result, companies are restructuring benefits to include flexible working hours and the opportunity for remote work as standard components of executive compensation packages.

“Having that flexibility is obviously huge. Work-life balance is hard to achieve, but companies can give employees autonomy to do their things in their own time and manner. I think that’s a given for any role these days.” says Jenkins.

Building a compensation package for expatriate employees

Crafting a compensation package for senior executives who are based overseas involves a keen understanding of the unique challenges these roles entail and your organisation's strategic goals.

Executives based outside their home country must navigate complex logistics, cultural transitions, and varied legal landscapes, requiring a compensation strategy that's both comprehensive and adaptable.

A competitive base salary, performance bonuses specifically tailored to recognise the global scope of the executive’s responsibilities, relocation and regular travel support and tax equalisation benefits, accounting for currency fluctuations and cost of living differences are all keen here.

It’s essential to complement this with location-specific allowances that cover the disparities in living expenses across different countries, ensuring these are regularly updated to mirror economic conditions.

But that’s not all, according to Jenkins:

There are many reasons for someone to take a bigger role in another country: personal growth, quality of life, opportunities for their families and of course, money. But the main one is always career growth. Having a clearly defined career path for this professional is crucial. What this person has to achieve, goals, metrics and all that has to be tailored specially for that professional

Meaning that compensation, allowances, bonuses and other perks are not the only things in factor here, but also having a plan for the future of these professionals will certainly make a difference.

At this stage, career advancement isn't limited to promotions or salary increases. Equally crucial are authority, autonomy, and resources. Top executives seek the freedom to make decisions, expand teams, pursue innovation and access a reasonable budget to facilitate these changes.

Essentially, give your leaders the freedom to lead. 

By carefully crafting each element of the compensation package, you can not only attract top talent but also ensure their success and well-being in their global roles, aligning their performance with your company's broader strategic objectives.

Get the best executive compensation assistance with Airswift

If you need assistance in developing effective executive compensation packages, Airswift can help.

With our global workforce and HR Consulting, we cover all aspects of HR management, including the crafting of comprehensive executive compensation strategies

We have successfully assisted many clients in designing and implementing compensation packages for thousands of executives. Our expertly tailored strategies ensure businesses can optimise their compensation expenditure while attracting and retaining high-calibre leaders.

Contact us today to learn more about how we can assist with executive compensation and other workforce and HR-related services.