Perks, Severance & Retirement: The Essential Role of Non-Core Pay Elements

While compensation committees are ultra focused on getting the major components of executive pay right, they should not overlook the “non-core” elements. A new Meridian piece explores how perquisites, severance. and retirement benefits support retention and motivation—and what committees should keep in mind to ensure these elements are well-designed.

Perquisites: Targeted Benefits to Support Executive Performance

From private jet usage to executive physicals, perks help leaders stay focused, keep operations running smoothly, and manage personal risk. But they also invite scrutiny from investors, proxy advisors, and employees. Before approving a perk, committees should ask:

• What’s the business purpose?
• How does it compare to market norms?
• Is it consistent with our compensation philosophy?
• Could it cause internal friction?
• What will our proxy disclosure look like?

Severance: Balancing Security with Shareholder Expectations

Severance provides a safety net for executives during transitions or turbulence, especially in M&A scenarios. While widely accepted, overly generous packages and tax gross-ups can draw heat. Smart committees probe:

• The key terms and triggers of current arrangements.
• How do they compare to the market.
• Whether there’s a strong case for being above or below standard.
• How they align with other severance benefits.

Retirement: Evolving Approaches to Long-Term Benefits

Executive retirement programs have shifted from pensions and supplemental retirement plans to defined contribution plans, with equity compensation now playing a substantial role in retirement planning. The challenge is to balance loyalty to long-tenured leaders with the need to entice mid-career talent. Committees should consider:

• Executive age demographics and turnover trends.
• Market definitions and practices for retirement.
• Whether mid-career hires can realistically meet eligibility rules.
• If a hybrid early/normal retirement definition makes sense.

The Takeaway: While they may receive less attention than incentive programs, perquisites, severance, and retirement provisions are critical tools for sustaining executive engagement, retention, and long-term strategic goals. Applying the same rigor to these elements as to core pay can strengthen both leadership stability and overall organizational performance.