Staying competitive, especially in a male-dominated profession, can seem like a daunting task for many women.
In your discussions with your current or future employer, it is crucial to know when to approach and ask for extra benefits. These benefits go beyond standard taxable compensation. The timing and type of benefits are very fact-specific and will depend on your role and company: do your research. Understanding a company's goals and business concerns as they relate to long-term retention allows you to shape your proposition. It is also helpful when it comes to understanding your employment and compensation goals, offering a mutual benefit to both yourself and your employer.
Types of Compensation & Benefits Plans
Benefits are more than just taxable compensation. While women want to be compensated fairly for the work they perform in comparison to their male counterparts, there are additional benefits that are also important to achieving goals and creating longevity at a company. In general, there are four main types of benefits: taxable compensation, tax-free welfare benefits, qualified plan (e.g., 401(k) and profit sharing plans), and non-qualified plans. It is imperative to take the time to fully learn the risks and benefits of each.
- Taxable Compensation. While taxable compensation is the most common type of remuneration, most employees usually think beyond actual dollar signs, as there are other attractive benefit options.
- Tax-free Welfare Benefits. Tax-free welfare benefits include lucrative health insurance, adoption or surrogacy assistance, tuition reimbursement, and even retiree medical benefit plans. Asking for these options gives the employee the ability to customize a plan that fits her needs and goals and may also provide mutual benefit to the company and other employees. Some employers may never have even thought of some of the numerous fringe benefits options that are out there. By including these in your package negotiation, you are opening the employer up to new ways to retain other employees long-term.
- Qualified Plans. 401(k) and profit-sharing plans are your traditional retirement packages for a for-profit business. With these types of benefits, however, there are restrictions and limitations imposed by ERISA and the IRS. There is maximum annual deferral amount, limited vesting schedules, and trust requirements to ensure benefits are paid when due. These plans also impose strict requirements on employers for non-discrimination tests to ensure that highly compensated employees are not treated more favorably than their rank and file employees. Under traditional 401K plans, individuals under the age of 50 can only differ up to $20,500 (2022 limit) each year, and employer contributions can only be based on an employee compensation up to $305,000, so any compensation over and about cannot be compensated through profit-sharing contribution in the 401(k) plan. Total contributions made to a 401(k) plan (employee and employer contributions) cannot exceed $61,000 per year.
- Non-qualified Plans. Non-qualified plans provide benefits to a select group of management or highly compensated employees and are focused on the long-term retention of this pool of top-hat employees. They can be more profitable than other potential benefit plans. These plans do not have the same types of rules and restrictions as 401(k) plans, particularly with regard to annual contribution limits, and can be more lucrative. They can also serve as a vehicle to “make whole” an employee for benefits that she missed out on under the company’s 401(k) plan because of IRS restrictions.
However, non-qualified plans don’t offer the same protections as traditional 401(k) plans either. Many non-qualified programs have strong non-compete or non-solicitation clauses built into them meant to deter employees from wandering to greener pastures (providing added security for the company). Additionally, these plans remain subject to a company’s creditors, so if the company goes bankrupt, the benefits might not be paid. There may also be certain tax implications where the employee may be taxed before the benefit is paid out, so there needs to be consideration so that there are sufficient funds to cover those taxes.
There are a few different options when it comes to the structure of a non-qualified plan. For starters, there are excess benefit plans, which are those that make the employee whole for the 401k contributions they would not be able to receive because of IRS limits. Then there are supplemental retirement plans, which provide a cash benefit at the time of retirement. These plans have various provisions that relate to the vesting of the benefit and when and how much is due. The primary goals for the employer are to retain the employee up through retirement and provide a lucrative tax-deferred benefit at that time.
Additional types of non-qualified plan include phantom stock plans or stock appreciation rights plans. These equity-based plan tie future benefits to the success or value of the company. Thus, an employee’s benefits can appreciate from year to year. Such appreciation is not only tied to the success of the employee but the company as a whole. Further, there are short-term or long-term incentive plans, which are plans that typically provide an earlier payment based on the employee’s achievement of certain performance goals. Benefits provided under these plans are not delayed until retirement and are usually based on performance during a specified period.
There are certain key questions that an employee should consider before determining what benefits are the most beneficial for her. First, what are her goals? Is she looking for a long or short-term benefit? Second, what level of risk is she willing to accept? Certain benefits are riskier than others. Third, what options are most attractive in light of her goals? It is crucial to do the research on what programs and incentives are out there, to learn what other competitors are offering, to understand the goals of the business, and to gain insight on the employer's financial capabilities and goals.
Ultimately, an employee should develop a proposal before starting any negotiations with a company. She should clearly understand what she wants and the value that she provides to the company. She may consult with other female business leaders in similar situations to find out consistent and comparable benefit packages. She may also consider engaging outside resources to gauge her proposal and vet alternative options. Overall, however, the key action item is to ASK!