According to MIT-Sloan’s Management Review, more than 40% of all employees were thinking about leaving their jobs at the beginning of 2021.[1] As the year went on, over 38 million workers quit, accounting for over 20% of the workforce. Lagging compensation and benefit programs were a leading motive for employees leaving.
For employers, there are direct and indirect costs associated with employee turnover. Gallup reports the direct monetary cost of losing a key employee can range from one-half to two times the employee's annual salary -- and that's a conservative estimate.[2] Indirect costs can be even greater and include the poaching of other talent, declining customer service and increased workloads (and decreases in job satisfaction) from remaining personnel. Increasingly, employers are turning to compensation strategies backed by life insurance and supplemental benefit offerings to recruit, retain and reward employees and to turn the Great Resignation into a Great Opportunity.
Here are three compensation strategies employers are implementing to recruit, retain and reward key employees.
Restricted Executive Bonus Arrangements (REBA) allow an employer to use a portion, or all of the funds earmarked for a bonus to fund a life insurance policy designed to maximize its cash value. The policy is owned by the employee who may later access it for income tax-free supplemental income. Restrictions placed by the employer can dictate how long an employee must be employed before having access to the policy’s cash values, creating a golden handcuff.
Nonqualified Deferred Compensation Plans (NQDC) permit a key employee to defer a portion of their compensation to a later date. Similar to a deferral into a qualified plan, the deferral into a NQDC plan will grow tax-deferred and, at the employer’s choosing, the growth rate could be linked to a fixed rate, tied to a market index, tied to company performance, or be based on any number of formulas. Most employers choose to fund their NQDC plans with cash value life insurance due to the tax benefits, ability to have liquidity for a lump-sum payment in the case of a death of the plan participant, and the ability to re-coup a portion of or all of the costs of a plan via a policy’s death benefit.
Split Dollar is a method of sharing the benefits of a cash value life insurance policy between an employer and a key employee. In addition to providing key employees with a source of future income, they also receive death benefit protection for their families. A split dollar plan is simple to administer, involves no long-term employer costs and the plan’s control resides with the employer.
Cedar Point FinancialLLC can assist in helping design and implement compensation strategies that can mitigate the Great Resignation.
Here are three supplemental benefit offerings employers are implementing to recruit, retain and reward key employees.
Life Insurance can be offered above and beyond any group life insurance benefit program where the maximum coverage is typically only one- or two-times salary. Supplemental life insurance can provide an amount of death benefit 10x salary or higher and coverage can be extended to spouses and children. Where group coverage may not be portable, supplemental life insurance usually is, allowing a participant to incorporate the coverage into their long-term financial plans. It can also be guaranteed standard issue—no medical exams or labs required.
Disability Insurance can cover the difference between what the employee will receive from the employer’s group long-term disability policy and what the employee might need to maintain their current lifestyle and continue to save toward retirement if they are unable to work due to injury or illness. Supplemental disability insurance can offer a benefit of up to $250,000 a month and replace all lost income for highly compensated employees. Better still, most supplemental disability policies are portable and may not even require medical underwriting.
Long Term Care (LTC) is being recognized as a statistical probability for employees by employers who are stepping up to help fund either traditional, standalone LTC policies or hybrid LTC policies. With a standalone LTC policy, an employer can customize the policy, choosing from a multitude of benefit periods, elimination periods and inflation protection option. A hybrid LTC policy combines LTC benefits with a cash value life insurance policy and provides the ability to elect the long-term care insurance benefits at the outset. The appeal of the hybrid policies is the guarantee of return of premium should there never be a need to receive long term care.
Cedar Point FinancialLLC can assist in helping design and implement supplemental benefit strategies that can be Great Solutions for the Great Resignation.
Employees are Looking for Something Better
The last year has shown that employees are willing to quit to get what they want. Study after study makes it clear – employees want to feel appreciated and be recognized through attractive compensation and supplemental benefit plans. Cedar Point Financial LLC knows how to help corporate clients select and implement plans that will attract new hires, keep talent engaged, and boost productively.
[1] Sull, D., Sull, C. and Zweig, B., 2022. Toxic Culture Is Driving the Great Resignation. [online] MIT Sloan Management Review. Available at: <https://sloanreview.mit.edu/article/toxic-culture-is-driving-the-great-resignation/> [Accessed 16 February 2022].
[2] McFeely, S. and Wigert, B., 2019. This Fixable Problem Costs U.S. Businesses $1 Trillion. [online] Gallup.com. Available at: <https://www.gallup.com/workplace/247391/fixable-problem-costs-businesses-trillion.aspx> [Accessed 17 February 2022].