With employees spanning multiple generations — from baby bs to Gen Z — banks, like many organizations, face the ongoing challenge of managing a multigenerational workforce. Understanding the varying needs and desires of key demographic groups is essential when designing nonqualified deferred compensation (NQDC) plans to retain key personnel and attract outside talent.
The Multigenerational Workforce: A Complex Landscape
Each generation brings its values, work preferences and financial priorities to the table, which can significantly influence their behavior and perception of their financial future.
Baby Boomers
Boomers are often nearing retirement and are typically focused on securing their financial future. They value stability and are likely to appreciate benefits that offer long-term security, such as the ability to defer up to 100% of their salary or bonus to catch up on retirement savings. The ability to choose different distribution dates and durations independent of other sources of retirement income such as 401ks or Social Security provide a valuable planning tool.
With their focus being primarily on retirement, banks can best retain baby boomers by offering plans that align with that focus. Defined benefit salary continuation plans have been by far the most popular plans historically, promising to pay specified amounts or percentages of final salary for a period of time. Currently, a trend towards defined contribution plans for more control over cost has been occurring while also allowing executives the ability to defer their income as well. Offering a matching contribution on deferrals of income with vesting schedules is a great way to encourage participation and retain individuals at the end of their working years. Including financial planning resources that help them coordinate these benefits for retirement can complete a great offering.
Generation X
Gen X employees, the current successors to many retiring boomers, tend to prioritize flexibility and control when it comes to their financial well-being. They’re also a smaller generation than the baby boomers or millennials, which means that there is a potential for a talent gap as they retire or move into different roles.
This generation is often balancing career advancement with family responsibilities and financial commitments. NQDC plans can be appealing if they offer flexibility in terms of payout options, allowing Gen X employees to access funds while still working, such as for college tuition or other significant expenses. Banks must recognize that many Gen X participants in NQDCs that allow for the deferral of income may not be in a position to do so for a myriad of reasons.
With less of a focus on retirement, banks can best retain Gen X by offering plans that allow for the most flexibility and the potential for in-service payments. Employer contributions to the plan are vital for retention. With the oldest Gen Xers still being five to 10 years away from historical retirement ages, the potential for mid-term rewards is a key component.
Millennials and Generation Z
The youngest members of the workforce, who are still building their careers, are typically more focused on immediate financial and other benefits, such as competitive salaries and bonuses, remote work policies, generous time off and student loan repayment assistance. However, as this generation matures, their interest in deferred compensation and other benefits grow, particularly if these plans are presented as part of a holistic financial wellness program.
Banks can attract and retain these leaders by focusing on their immediate financial concerns, such as student loan repayment assistance or the purchase of a home — think short and mid-term. Promising a retirement benefitif a millennial continues to perform and stays with the bank for another 35 years is not retention plan. Defined contribution plans with payouts every three or five years upon vesting are popular plans for younger executives. The idea is to focus on the short and mid-term until longer term retirement benefits become attractive to them. As with most Gen X, employer contributions are vital.
A Tailored Approach to Deferred Compensation
In a multigenerational workplace, one-size-fits-all executive benefits are no longer sufficient. By offering tailored benefits that meet the unique needs of each participant, banks can effectively retain their current leaders and recruit the next wave of talent.
Insurance services provided through NFP Executive Benefits, LLC. (NFP EB), a subsidiary of NFP Corp. (NFP). Doing business in California as NFP Executive Benefits & Insurance Agency, LLC. (License #OH86767). Securities offered through Kestra Investment Services, LLC, member FINRA/SIPC. Kestra Investment Services, LLC is not affiliated with NFP or NFP EB. Investor Disclosures: kestrafinancial.com/disclosures
