NEW YORK - For a growing number of senior executives, it's work now and get paid later.
A recent survey by Buck Consultants, New York, found that more than 71% of employers offer at least one nonqualified compensation program to senior executives.
SERPS, or supplemental executive retirement plans, are the most popular, with about 44% of respondents offering them to senior executives.
More than 350 companies participated in Buck's first survey to focus on deferred compensation. The survey examined voluntary deferred compensation arrangements, benefit restoration plans - both defined benefit and defined contribution - and SERPs.
The survey found that 44% of companies currently offer SERPs, and an additional 6% are planning on adding one in the next fiscal year.
Such plans are offered by most utilities and almost half of the manufacturing and industrial companies in the survey; retail and health care companies were the least likely to offer SERPs.
About 53% of the companies with more than 1,000 employees offer a SERP to executives.
"It comes as no surprise, especially after recent tax changes, that more than 70% of the companies have a nonqualified plan," said Janet Soderberg, author of the study and a principal at Buck. "The increased movement of employees and the subsequent larger number of employers they will have makes non-qualified plans, such as SERPs, much more important as a recruitment device.
"After all, nobody's spending 30 years with an employer."
Ms. Soderberg added that, as many firms terminated their defined benefit plans in the 1980s, they had to find substitutes to aid in recruimentt senior executives.
"If a company has any strategy or philosophy as to retirement benefits, it has to be through the SERP for their senior people," she explained.
"You can't recruit a senior executive these days unless you have a SERP on the table. Longevity is not going to produce the result in the 401(k) because there is no longevity."
The survey found that the overwhelming majority of SERPs are in the form of defined benefit plans; approximately 81% of respondents had their SERPs structured as DB plans, while only 11% were defined contribution plans.
About 92% of the respondents described their SERPs as a final average pay plans. Most used the final five years for computing the size of the benefit.
But the survey also found that SERPs are showing a "more liberal tendency" in the definition of final average pay than qualified defined benefits plans. Approximately 18% of SERPs used an average of the final three years of eligible compensation to define final average pay; by contrast, only 8% of defined benefit plans use the same yardstick.
According to the survey, 79% of respondents' SERP benefits are offset by benefits received from other sources; an overwhelming 90% of companies offset SERP benefits from the qualified defined benefit plan. The survey also found that 55% of respondents pay their SERP benefits from corporate assets.
The survey's revelation of the growing use of SERPs comes as no surprise to Nicholas Crispi, president of the executive search firm Crispi, Wagner & Co., New York. "When it comes to executive compensation, everything is driven by taxes, and SERPs and 401(k) programs have become very important," explained Mr. Crispi. "These people make a lot of money and they are very powerfully tuned to taxes and tax benefit payments. If a person is making $250,000, what he can put away is of as great importance to him as the money he takes home on a weekly basis."
Mr. Crispi added that the use of SERPs is far more prevalent today than five or 10 years ago. "First of all, people are making more money today," he explained. "Also, you have an older constituency today in the executive market than you did 10 years ago. A decade ago, people who held these senior positions were younger, and it doesn't matter as much to a younger person how much he is saving. But when someone is 55 as opposed to 45, it makes a real difference."
Ms. Soderberg described the use of non-qualified defined contribution plans as "a great idea" given the rapid shifts in employment patterns. "These days, when there's so much downsizing and moving from one company to another, people are trying to better plan their future resources," she said. "For example, if you're planning for your children's education, non-qualified deferred compensation plans such as SERPs offer more flexibility. You don't have to wait until you terminate your employment to get that money back. If you defer compensation today until your child reaches 18, you can let it grow and then use it when you need it for tuition.
"Simply put, non-qualified programs better address employees' needs as they arise, and I believe you will continue to see a proliferation of them as time goes on."
