Total Rewards
Public companies historically have relied on compensation consultants to advise the Compensation Committee of the Board of Directors on the appropriate levels of base salary, short term incentive, long term incentive, and equity compensation. Valuable data regarding compensation is typically derived by benchmarking a comparator group of companies selected by the Board, often with guidance by the compensation consultant or specialized database resources.
Missing from this benchmarking data are the projected values of company contributions to the comparator group executive benefit programs (401k and deferred compensation plan contributions, supplemental retirement plans, restoration plans, etc). (See below for an expanded discussion of Benefit Benchmarking).
Corporate abuses, such as the Enron, MCI and the NYSE/Grasso severance controversy, heightened the scrutiny and legislative action aimed at Executive pay practices. Specifically, Sarbanes-Oxley, IRS Code Section 409A, and other regulatory developments shed light not only on cash and equity compensation, but also benefits in general, and deferred compensation in particular. These changes result in greater transparency and disclosure, and lead to the logical inclusion of benefits and perquisites in the calculus of a “Total Rewards Strategy”. Fulcrum Partners has been on the forefront with its focus on the strategic integration of Compensation and Benefits. We believe a cross disciplinary approach across all pay elements, current and deferred, best serves our clients.
Executive Benefits Plans
To attract, retain and reward executive talent, companies sponsor nonqualified executive benefit programs such as Deferred Compensation Plans (DCPs), Supplemental Executive Retirement Plans (SERPs), Pension Restoration Plans, 401(k) excess plans, and Executive Bonus Plans. These types of plans allow sponsoring corporations great flexibility in designing plans to meet their Total Rewards goals and objectives. For executives, tax-deferred savings and earnings are an effective strategy to accumulate wealth.
As an initial step of our plan due diligence, we review and evaluate existing executive benefit structures. We will advise sponsors on strategies to better integrate the executive benefit plans with the overall Compensation objectives. On request, Fulcrum will also benchmark the sponsor’s plans against their internal comparator group and best practices. (See Benefits Benchmarking for more information.) As a result of this due diligence, benchmarking, and analysis, Fulcrum Partners will assist, upon the sponsor’s request, with design and implementation. Fulcrum will facilitate a formal RFP for plan administration and record keeping services, or coordinate directly with our best-in-class service providers. Fulcrum maintains close relationships with all major national providers (see Open Architecture Business Model) and remains up to date on all technology and other resource advances available in the marketplace.
Executive Compensation
When plan sponsors seek to integrate Executive Benefit Plans into their comprehensive Total Rewards Strategy, the executive compensation structure often requires updating. For example, if a portion of current compensation is redirected to a performance based, longer term approach, or if the sponsor elects to integrate the stock plan with their deferred compensation plan (for post-vesting tax deferral), the plan sponsor is best served when their compensation and benefits consultants work in harmony. Fulcrum Partners maintains close relationships with many leading executive compensation consulting firms, and will coordinate as necessary at the sponsor’s request. (See Open Architecture Business Model).
Executive Benefits Benchmarking
Most publicly traded and larger privately held companies rely on executive compensation firms or independent data vendors to provide compensation comparative information. This data allows management and board members to align their executive's compensation with the company's industry peer group, geographical competitors, or other comparative criteria. Typically, compensation benchmarking compares base salary, annual incentive, other cash incentive, and equity compensation.
Missing from this cash and equity benchmarking data is the relative and absolute value of the executive benefit plans. Fulcrum Partners has found that while cash and equity values within a peer group tend to be closely related to one another, there are broad disparities in the value of company paid benefit plans (company match, performance based supplemental contributions to deferred compensation, defined benefit SERPs, etc.). These values are often overlooked or not considered by Compensation Committees, because the data was not readily accessible.
Fulcrum Partners will assist plan sponsors and Compensation Committees in identifying those executive benefit costs disparities, and measure the long term values in terms of income replacement ratios and absolute dollar retirement benefits. This deliverable can shed new light on the value of the Total Rewards Strategy and can have a material impact on competitive positioning. Fulcrum will incorporate a benefits benchmarking study on either a stand alone or comprehensive executive benefits project. We consider executive benefits benchmarking to be the most impactful enhancement to a client’s understanding of Total Rewards in recent history. This information is critical in decision making to both management and boards alike. (See Knowledge Center for example of Executive Benefits Benchmarking report.)
