Worksite Planning

Non-Qualified Plans: A Powerful Tool For Recruitment and Retention

Managing the ‘new mobility’ of key employees

by Nate Schelhaas

Mr. Schelhaas is senior vice president and head of life protection solutions at Principal Financial Group®, Des Moines, Iowa. Visit principal.com/businesses.

Labor has been incredibly mobile this year, as employees have changed jobs or career paths in search of better pay, benefits, and growth opportunities. Recruiting and retaining key talent is important to the stability and growth of any business.

Consider your clients most valuable asset, their employees. How much would it cost them to replace a highly skilled, highly-valuable employee? According to the Workforce Institute, in 2021, the costs of turnover to employers exceeded $700 billion, more than double since 2009.[1] Experts estimate the cost is about one-third an annual salary, to replace experienced or highly specialized workers.[2]

Competitive pay always serves as a draw but keeping pace with larger employers’ salary and wage options may not be doable. Employees change jobs for better pay, improved benefits, opportunities for growth, or a different career altogether.[3] What many small and midsize businesses (SMBs) don’t realize is the lever they can pull to help gain an edge: employee benefit packages that are in tune with market demands and what employees want. As employers look for ways to attract and retain key talent, smaller businesses must demonstrate why their companies stand out and the unique opportunities they can offer via career growth and competitive benefits.[4]

Improve Retention And Productivity

Non-qualified deferred compensation (NQDC) plans – employer-sponsored plans that enable key employees to save more of their earnings for retirement – remain valuable in helping employers recruit and retain key talent, and crucial in helping participants reach retirement savings goals.

In a recent business 2022 pulse survey released by Principal®, 70% of business owners agree employee benefits help to improve recruitment efforts, while 71% said offering more employee benefits helps improve retention.[5] Additionally, two-thirds say employee benefits improve productivity – this percentage has consistently increased in each survey conducted since 2015 (42%).[6]

As recessionary pressures rise, businesses are opting to reduce operational expenses or raise prices on goods and services over instituting layoffs or reducing salaries and benefits.[7] In 2023, a greater focus on employee retention will be critical as the economic landscape changes and having a customizable and competitive employee benefits package is pivotal to addressing this challenge.

For key employee retention, there’s a clear indication that a NQDC plan serves as a valuable benefit. Business owners are offering key employee benefits at record levels as they look for ways to attract and retain top talent. Eighty-four percent of SMBs offer key employee benefits and 55% want to offer more. The number of key employees continues to increase; 40% say they have four or more key employees compared to 35% in 2021.[8]

Key employee benefits are growing in their importance as it becomes more challenging to lock in top talent in in high-demand jobs. Offering an executive bonus plan or a non-qualified deferred compensation plan can help meet the needs of employees critical to the long-term success of the business.

Helping Business Owners Understand What Employees Need

Competitive pay always serves as a draw but keeping pace with larger employers’ salary and wage options may not be doable. Employees change jobs for better pay, improved benefits, opportunities for growth, or a different career altogether...

There’s no shortage of openings for employees to consider as there are now 1.9 job openings for every unemployed worker.[9] In fact, employers (88%) and employees (91%) agree that most key employees are actively looking for a new job.[10] While employers say they’re increasing pay to help retain existing key talent, employees state employers could do more.

Provide guidance for clients on what benefits they should consider. Having one-on-one conversations with clients to address their questions and discover where there may be gaps is a critical step in building a comprehensive benefits package. Keeping a pulse on current workforce trends will help determine what benefits to consider adding for both current staff, and to help attract new talent.

For plan participants, NQDC plan availability plays an important role in the decision to stay with an employer (53%) or take a new job (60%).[11] Employers recognize this need, as the top reason plan sponsors provide NQDC plans is to provide a competitive benefits package (89%).[12]

A NQDC plan is especially beneficial by giving key employees more control over the timing of their income, taxes, retirement planning, and investments. Eight in ten participants say a NQDC plan is important in reaching their retirement goals.[13]

NQDC plans can be complex as only a select group of employees are involved compared to qualified retirement plans. However, NQDC can be an essential part of a comprehensive employee benefits and retirement package. NQDC is a way for your clients to more competitively reward and retain key talent and senior leaders.

 

 

 

[1] 2022 Retention Report: How Employers Caused the Great Resignation. Workforce Institute, 2022.
[2] 2022 Retention Report: How Employers Caused the Great Resignation. Workforce Institute, 2022.
[3] According to the November 1, 2022 jobs report by the U.S. Bureau of Labor Statistics
[4] Non-qualified Plan Participant and Plan Sponsor Satisfaction Survey, Principal.
[5] Business Owner Check-in, Principal.
[6] Business Owner Check-in, Principal.
[7] Principal Financial Well-Being IndexSM, Principal.
[8] Business Owner Check-in, Principal.
[9] According to the November 1, 2022 jobs report by the U.S. Bureau of Labor Statistics
[10] Non-qualified Plan Participant and Plan Sponsor Satisfaction Survey, Principal.
[11] Non-qualified Plan Participant and Plan Sponsor Satisfaction Survey, Principal.
[12] Non-qualified Plan Participant and Plan Sponsor Satisfaction Survey, Principal.
[13] Non-qualified Plan Participant and Plan Sponsor Satisfaction Survey, Principal.

 

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