New Pay Strategies Needed to Incentivize a New Generation of Executives

In the upper reaches of corporate America, the largest generation on record is retiring—and a new generation is getting set to take over. And Gen Xers aren’t looking for the same things, compensation-wise, their Baby Boomer predecessors were.

The war for talent is taking on a new face, says Laura Fries, managing director and executive vice president at Baker Tilly, and leadership is undergoing a shift. The generational differences in terms of how executives view their work and their lives, not to mention which attributes they seek as they decide on a job or a career, are significant.

For example, the Baby Boomers see the employer/employee relationship in fairly black-and-white terms; they expect to pay their dues through working long hours and earning their promotions. They feel loyalty to the company, and they expect loyalty in return. Generation Xers (Gen Xers), on the other hand, don’t feel compelled to color within the lines the Boomers have drawn. They want a life and a job, and they expect to enjoy a balance between them.

What does all this have to do with executive pay? Fries says she is beginning to hear the rumblings of change coming from the upper reaches of corporate America, where the largest generation on record is retiring—and a new generation is getting set to take over.

“The issue is very closely tied to succession planning,” she says. “As the Baby Boomers get closer to retirement, companies are realizing that they may need different strategies to incentivize the next generation of executives than they needed for the last. They are trying to figure out how to hand over the reins at the highest levels, as one generation leaves and another moves up.”

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Survey Reveals What’s Important to Each Generation

Baker Tilly recently conducted a survey of senior executives, half of whom represent the Baby Boomer generation (b. 1946–1962) and half from Generation X (b. 1963–1981). They asked the executives about pay structures and gathered some interesting results, some of which suggest a practical (if not somewhat radical) approach that could meet the needs of both generations.

Fries reports, “There is a question in the survey that makes the statement: ‘People are staying in the workforce longer. Compensation should peak earlier and then decline steadily until retirement if responsibility and working hours become reduced as one gets closer to retirement.’ It asked respondents to indicate their level of agreement with that statement. Amazingly, Generation X agreed more, but the two generations were pretty well-aligned on the question.”

In fact, 63% of Gen Xers and 55% of Baby Boomers are either in agreement with the statement or somewhat in agreement. So, perhaps altering the pay structure to allow fewer hours and correspondingly lower pay to the retiring executive, who can then pass along his or her collected wisdom to the incumbent, would benefit everyone.

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A Controversial Approach to Succession Planning

“This is a probably controversial and a new idea, “Fries says. “All throughout their careers the Baby Boomers have paid their dues and worked very hard, putting in many long hours. That was the hallmark of the Baby Boomer generation.

“Now, as they get closer to retirement, they’re walking that fine line between still wanting to work because they want to be relevant and have a legacy, but also wanting time for themselves—time to travel, or be involved in hobbies, or whatever it is.

“Then we have the Gen Xers coming up. As they move into leadership roles, oftentimes they are doing it before the person is really fully ready to take on the role.

So relying on a Baby Boomer executive who still wants to be involved but doesn’t want to work as many hours, and who can work through the ego to hand off the reins, being in the background as a mentor or coach could be a great answer.”

Tomorrow, we’ll look at Fries’s take on short-term versus long-term pay for Boomers and Gen Xers, plus an introduction to the webinar Merit Increases: How to Accurately Budget for Performance-Based Salary Increases.