2022’s huge increase in C-suite compensation means that protection levels need to be re-examined

By: The Westport Group, LLC

Published: 12/6/2022

After Lean Pandemic Years, Executive Compensation is Being Modernized. While CEOs saw salary cuts and adjustments to bonuses during the pandemic, many of those cuts have been restored and CEO pay is up significantly. According to a recent article from Harvard Law School’s Forum on Corporate Governance, CEO compensation was up 20% in comparison to 2020. However, the components of today’s compensation are different.

Compensation is Concentrated in Salary and Stock Awards

It’s important to note that the components of executive compensation have changed. In a competitive job market, especially at the executive level, compensation is more complex than ever. A modern executive compensation package means salary, annual incentives, long-term incentives, benefits, equity and more. Recently, a rise in compensation has been evident in two areas: salary and stock awards.

Many companies looked to reward executives who steered them through tough times. This was evident in stock awards in the past year. The value of stock awards increased by 12.3% in 2021. In the tech sector, compensation jumped significantly with the highest median stock awards, valued at $11.2 million.

“Historically, executives in corporations’ salaries were primarily made-up salary and some cash bonus with a few stock awards. Fast forward to recent years, we have seen a major shift in compensation structure for corporate executives. We have seen corporate executives’ compensation makeup reach up to 80% stock awards,” according to Gary Terry of The Westport Group.

More Complexity Means More Compensation Needs Protection

“The problem for executives today is that none of those are protected by Group Long-term Disability (GLTD). On top of that, a disabled executive isn’t receiving anymore future grants. So, until they are back to work, if they ever get back to work, that portion of their income is gone. A lot of executives are not aware of that,” Terry said.

Through TWG’s high-limit LTD group coverage, it’s possible to build onto the Disability Insurance (DI) a company currently has in place to provide C-suite executives more coverage to replace more income in the case of disability.

“Our corporate product protects the lost value of future grants of stock awards (RSU’s & PSU’s). Traditional GLTD will cover base salary and maybe some cash bonus (probably not) to 60% with an annual benefit cap that usually will not exceed $180,000. We cover base salary, cash bonus, and future grants of stock awards up to 60% of annual compensation. We stack on top whatever GTLD & IDI you may have and fit their definitions as well,” according to Terry.

Find Out More

For more information on protecting executive compensation, please connect with The Westport Group via LinkedIn, or via email at gterry@westportgp.com.