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The 2024 State of Executive Benefit Plans
An inside look at the prevalence of executive benefits across Fortune 500 companies and why benchmarking offerings to industry standards is critical to mitigate talent loss
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WHAT ARE EXECUTIVE BENEFITS?
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WHAT ARE EXECUTIVE BENEFITS?
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About This Report
Executive benefits are becoming increasingly important in today’s corporate world. Beyond cash and diverse performance-based compensation packages, benefits are essential for attracting and retaining top executive talent. In 2023, a record number of CEOs departed their posts, many of whom left for better total compensation, underscoring the importance of competitive benefits in executive retention.
Many companies face challenges offering competitive executive benefits, primarily due to the lack of industry benchmarks and visibility of competitor offerings. This gap makes it difficult for organizations to assess and improve what they offer. Our 2024 report addresses this issue by providing detailed data and analysis on current trends in executive compensation and benefits.
This report serves as a valuable tool for companies to benchmark their executive benefits against industry standards. With our research, we aim to give organizations insights into where they stand and how to enhance their benefits packages to attract and retain high-caliber executive talent.
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WHAT ARE EXECUTIVE BENEFITS?
WHAT ARE EXECUTIVE BENEFITS?
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The Big Picture
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STATS AT A GLANCE
Most companies offer some form of executive benefits. But with executives largely being paid in performance-based incentives and a record number of CEOs leaving their roles in 2023, perhaps executive benefits deserve a second look.
78%
of median CEO compensation in the americas is made up of long term incentives
1,914
CEOs left their posts in 2023, the highest number on record
87%
of public fortune 500 companies offered deferred compensation plans in 2023
36%
of public fortune 500 companies PROVIDE EXECUTIVE LIFE AND DISABILITY IN 2023
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Executive Compensation
An overwhelmingly large portion of executive compensation consists of long-term incentives, such as stock options, performance awards, and executive benefits. Cash and bonuses are merely the tip of the iceberg.
These long-term incentives serve to closely align the interests of executives with the long-term performance and health of the company, ensuring that their focus extends beyond short-term gains.
When breaking down the pay structure, it becomes evident how significant these incentives are:
Notably, the reliance on long-term incentives has been on an upward trajectory, now representing a larger fraction of executive pay than in previous years. Executive benefits, in particular, play a pivotal role in this structure.
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WHAT ARE EXECUTIVE BENEFITS?
WHAT ARE EXECUTIVE BENEFITS?
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EXECUTIVE COMPENSATION MIX
C-SUITE PAY
CEO
CFO
ANNUAL BONUS
LONG-TERM INCENTIVES
BASE SALARY
BASE SALARY
ANNUAL BONUS
LONG-TERM INCENTIVES
BASE SALARY
ANNUAL BONUS
LONG-TERM INCENTIVES
8%
13%
15%
14%
71%
78%
CEO
CTO
COO
CFO
CMO
GENERAL
COUNSEL
$9.7
$3.8
$3.8
$3.4
$2.6
$2.5
EXECUTIVE COMPENSATION MIX
C-SUITE PAY
For Chief Executive Officers (CEOs), long-term incentives constitute a remarkable 78% of their total direct compensation.
Similarly, for Chief Financial Officers (CFOs), these incentives form 71% of their total compensation package.
The median of total direct compensation between base salary, annual bonus and long-term incentives among CEOs and CFOs of top companies in the Americas, 2022
Average total compensation (salary, bonuses, stock awards, options) in millions by executive role among U.S. companies, 2023
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Executive Benefits
Executive benefits are crucial for attracting and retaining top talent, aligning executives with corporate objectives, and mitigating financial risks. These benefits also offer tax advantages and contribute to a company's reputation as an employer of choice.
Company-sponsored benefit plans and qualified retirement plan laws are subject to dollar maximums. These limitations prevent highly compensated employees (typically executives) from replacing the same percentage of income as all other employees in the event of death, disability or retirement.
Executive benefits remove these boundaries and have become a strategic tool for attracting and retaining top talent by enhancing retirement income security for highly compensated individuals.
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WHAT ARE EXECUTIVE BENEFITS?
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Consider Current 401(k) Contribution Limits
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In 2024, contribution limits will increase to $23,000, up from $22,500 in 2023. For highly compensated executives, this limit is quite small.
An individual earning $70,000/year can contribute up to one-third of their income to a 401(k) plan on a pre-tax basis, while someone earning $700,000/year can only contribute approximately 3% of pay. Similar comparisons can be drawn with both group life and disability contracts.
Executive Benefit plans “remove the caps” to effectively restore replacement ratios for highly compensated employees.
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The Cost of Losing Executive Talent
Nearly 2,000 CEOs left their posts in 2023, marking a 55% increase from the previous year and setting a record for the most departures in a single year. The financial impact of these departures is substantial.
According to the Society of Human Resource Management (SHRM) and the Center for American Progress, the cost to replace a highly compensated executive can range from 200% to 400% of their annual salary. This figure underscores the importance of aligning executive compensation, heavily weighted towards long-term incentives and benefits, with their expectations.
Benchmarking executive benefits against industry standards becomes not just a best practice but a critical strategy to avoid costly turnovers. If your executives are considering offers from competitors, it's essential to know what they are being offered.
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WHAT ARE EXECUTIVE BENEFITS?
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Executive
Benefits Plans
In the following sections, we’ve collected data from Fortune 500 companies in 2023 and 2021 to give you a comprehensive view of which executive benefits companies are currently offering.
Benefit Restoration Plans
Deferred Compensation
Salary
Incentive Compensation
Equity Compensation
401(k) Restoration/Defined Contribution SERP
Defined Benefit SERP
Number of Fortune 500 Companies
0
50
100
150
200
250
300
350
400
450
93%
68%
73%
8%
78%
5%
DEFERRED COMPENSATION PLAN PREVALENCE FOR EXECUTIVES
Benefit Restoration Plan Prevelance
Executive Life Insurance
Executive
Disability Insurance
Benefit Restoration Plan Prevelance
Offer Deferred Compensation Plans
Include Cash Deferral for Directors
Include Equity Deferral for Directors
Number of Fortune 500 Companies
0
50
100
150
200
250
300
350
400
450
65%
47%
29%
DEFERRED COMPENSATION PLAN PREVALENCE FOR BOARD MEMBERS
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WHAT ARE EXECUTIVE BENEFITS?
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How does your company stack up?
Employer-provided group life and long-term disability plans are contractually limited to a maximum dollar amount. On average, 5-10% of the employee population, typically executives and other highly compensated individuals, exceed these limits and, therefore, do not receive the same replacement ratio as all other employees.
Additionally, most group life and long-term disability contracts cover base salary only, not total cash compensation. This unfavorably impacts executives, whose compensation is largely made up of long-term incentives.
Benefit restoration plans are commonly structured as separate guaranteed issue and fully portable contracts for each executive to restore the replacement rate of their total compensation.
KEY INSIGHTS
Benefit Restoration Plans in 2023
of Fortune 500 public companies offered benefit restoration plans in 2023, an increase of 9 percentage points from 2021
of companies offered executive life insurance. This was the most common plan offered to executives in 2023.
of companies offered executive disability insurance.
36%
29%
18%
36%
27%
29%
22%
18%
16%
2023
2021
Percentage of Fortune 500 companies offering benefit restoration plans, by type, 2023 vs. 2021
The Need for Benefit Restoration Plans
Nonqualified Deferred Compensation (NQDC) Plans for Executives
Why needed: 401(k) plans are often insufficient for high earners to adequately meet their financial planning goals due to contribution limits.
NQDC solution: Nonqualified deferred compensation (NQDC) plans allow executives to defer cash and equity compensation pre-tax until retirement or a specified date. Participants achieve this by legally agreeing to delay compensation becoming a general creditor of the company.
In addition to employee deferrals, companies can also contribute to these plans on behalf of the executive. The most common form of employer contribution is a restorative match above the covered compensation limits of $345,000 in 2024 (IRC Section 401(a)(17)).
This effectively means that executives will receive the same matching contributions on their 401(k) plans as all other employees, and any income not matched above the covered compensation limit will be matched in the Deferred Compensation Plan. Company contributions can be offered at the discretion of the company and subject to vesting restrictions that align executive actions with the long-term objectives of the organization.
The Need for NQDC Plans
Deferred
Compensation
Salary
Incentive Compensation
87%
93%
74%
68%
72%
73%
Deferred Compensation Plans for Executives
2023
2021
Percentage of Fortune 500 companies offering deferred compensation plans for executives, by type, 2023 vs. 2021
401(k) Restoration
Equity Compensation
66%
78%
12%
8%
The most common plans were: deferred salary plans (74%), deferred incentive plans (72%), deferred 401(k) plans (66%), and deferred equity plans (12%)
In 2023
fewer companies offered 401(k) restoration plans than in 2021
In 2023
of Fortune 500 companies offered any type of deferred compensation in 2023, down from 93% in 2021
87%
Deferred Compensation Plans for Executives in 2023
KEY INSIGHTS
of companies offering equity deferrals in 2023 versus only 45% offering them in 2021
63%
of companies reporting they offered cash deferrals in 2023
90%
of Fortune 500 companies offered deferred compensation plans for board members in 2023, down from 63% in 2023
61%
Deferred Compensation Plans for Board Members in 2023
KEY INSIGHTS
Deferred
Compensation
Cash Deferral
Equity Deferral
61%
63%
90%
90%
63%
43%
NQDC plans play a pivotal role among board members as well. Although board members do not receive employee benefits for their service, they do receive both cash and equity retainers. Increasingly, public companies’ stock ownership guidelines require corporate directors to own a minimum amount of equity, forcing directors to use their cash retainers to pay tax on equity grants they cannot sell.
As such, companies offer NQDC plans to enable directors the ability to defer both cash and/or equity retainers to control the timing and taxation of this income source.
NQDC Plans for Board Members
(Corporate Directors)
Deferred Compensation Plans for Board Members
2023
2021
Percentage of Fortune 500 companies offering deferred compensation plans for board members, by type, 2023 vs. 2021
NQDC plans play a pivotal role among board members as well
See plans below
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About Lockton
Lockton helps clients evaluate and design executive benefit programs including tax planning optimization, benefits restoration and strategies designed to protect their business.
To learn more about this study or better understand how to improve your executive benefit programs to recruit and retain leading talent, please call or email Jason Maples.
Jason Maples
Executive Vice President
Producer
303.414.6101
jason.maples@lockton.com
CONTACTS
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WHAT ARE EXECUTIVE BENEFITS?
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© 2024 Lockton Companies. All rights reserved.
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Joe Palermo
Senior Vice President
Director of Executive Benefits
303.414.6366
joe.palermo@lockton.com
Alex Watson
Client Advocate
303.728.8019
alex.watson@lockton.com
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