Trends in Executive Benefits

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Snapshot of executive benefit trends for businesses.

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  • Trends in Executive Benefits

    1. 1. Lorrie Baldevia November 12, 2008 Trends in Executive Benefits
    2. 2. Important Disclaimer <ul><li>This material has been prepared by MCM and is designed to provide general information in regard to the subject matter covered. </li></ul><ul><li>It should be noted that the information provided is given with the understanding that MCM does not engage in the practice of law, or give legal, accounting, or tax advice. You are advised to seek counsel in these areas from your appropriate advisors. </li></ul>
    3. 3. Agenda <ul><li>Executive Compensation & Benefits Overview </li></ul><ul><ul><li>Executive Compensation Strategy </li></ul></ul><ul><ul><li>Nonqualified Plans Overview </li></ul></ul><ul><li>Trends in Executive Benefit Programs </li></ul><ul><ul><li>Trends in Cash & Incentive Compensation </li></ul></ul><ul><ul><li>Trends in Executive Retirement Plans </li></ul></ul><ul><ul><li>Trends in Equity Programs </li></ul></ul><ul><ul><li>Trends in Protection Benefits </li></ul></ul><ul><ul><li>Trends in Executive Perquisites </li></ul></ul><ul><li>Sample Client Strategies: </li></ul><ul><ul><li>Sample Executive Compensation & Benefit Packages </li></ul></ul><ul><li>Questions??? </li></ul>
    4. 4. <ul><li>Executive Compensation & Benefits Overview </li></ul>9
    5. 5. Executive Compensation & Benefit Overview What makes up Executive Compensation? Salary Annual Incentive/ Bonus Long Term Incentives Benefits Executive Benefits Executive Compensation
    6. 6. <ul><li>Issues to consider: </li></ul><ul><li>How the compensation strategy will support the business strategy. </li></ul><ul><li>Which positions should have each pay component (i.e., salary, annual incentives, long-term incentives, etc.) </li></ul><ul><li>How to design each component to link executive pay with business objectives. </li></ul><ul><li>Every compensation package can be designed to: </li></ul><ul><li>Reward ongoing, day-to-day responsibilities, experience and expertise with salary. </li></ul><ul><li>Reward results with variable pay: </li></ul><ul><ul><li>Use short-term incentives for short-term results. </li></ul></ul><ul><ul><li>Use long-term incentives for long-term results. </li></ul></ul><ul><li>Align executive interests with shareholder interests. </li></ul>Executive Compensation Strategy Evaluating Compensation
    7. 7. <ul><li>Nonqualified deferred compensation plan : </li></ul><ul><ul><li>A plan, agreement, arrangement or promise </li></ul></ul><ul><ul><li>By an employer to its employee </li></ul></ul><ul><ul><li>To pay compensation to the employee at some future date </li></ul></ul><ul><li>The plan must be : </li></ul><ul><ul><li>Limited to a group of management or highly compensated employees </li></ul></ul><ul><li>Not subject to qualified plan limitations: </li></ul><ul><ul><li>Not required to comply with contribution limits or testing requirements of qualified plans </li></ul></ul><ul><ul><li>Can be used to correct “reverse discrimination” of qualified plans </li></ul></ul><ul><li>The promise to pay is unsecured: </li></ul><ul><ul><li>Funds may be set aside to meet future payment obligations </li></ul></ul>Executive Compensation & Benefits Overview What is a nonqualified plan?
    8. 8. <ul><li>Qualified Plans have specific rules in design, administration, and funding </li></ul><ul><ul><li>Examples: 401k Plans, Defined Benefit Pension Plans </li></ul></ul><ul><ul><li>Governed by ERISA </li></ul></ul><ul><ul><li>Constraints on participation and deferral amounts </li></ul></ul><ul><li>Non-Qualified Plans provide significant flexibility </li></ul><ul><ul><li>No limitations on the amounts that can be deferred </li></ul></ul><ul><ul><li>Provides option for broader benefits to highly compensated employee groups due to qualified plan restrictions </li></ul></ul><ul><li>Key Difference : </li></ul><ul><li>Qualified Plans are formally funded. Non-Qualified Plans are not formally funded . </li></ul><ul><ul><li>The promise to pay is unsecured, although funds may be set aside to meet future payment obligations. </li></ul></ul>Executive Compensation & Benefits Overview Non-Qualified vs. Qualified Plans
    9. 9. <ul><ul><li>Attract talented key employees to the organization </li></ul></ul><ul><ul><li>Retain key value-creators in the corporation for the long term </li></ul></ul><ul><ul><li>Align interests of the executive, the company, and its shareholders </li></ul></ul><ul><ul><li>Reward key employees for value creation </li></ul></ul><ul><ul><li>Tie compensation to performance </li></ul></ul><ul><ul><li>Provide incentives to obtain or surpass corporate objectives </li></ul></ul><ul><ul><li>Create a competitive total compensation and benefits package </li></ul></ul><ul><ul><li>Replace lost benefits due to qualified plan limitations </li></ul></ul><ul><ul><li>Provide executives with an opportunity to defer current income tax on compensation </li></ul></ul><ul><ul><li>Provide executives with wealth building opportunities & financial planning flexibility </li></ul></ul>Executive Compensation & Benefit Overview Why employers create executive compensation & benefit plans?
    10. 10. 9 Trends in Executive Benefit Programs
    11. 11. Trends in Executive Benefit Programs Benefit Focus Cash Incentives Retirement Equity Protection Perquisites
    12. 12. 9 Trend #1: Cash & Incentive Compensation
    13. 13. <ul><ul><li>Plan Types Available: </li></ul></ul><ul><ul><li>Executive Cash Plans </li></ul></ul><ul><ul><ul><li>Cash Bonus Plans </li></ul></ul></ul><ul><ul><ul><li>Executive Choice Plans </li></ul></ul></ul><ul><ul><li>Long Term Incentive Plans </li></ul></ul><ul><ul><ul><li>Nonqualified Plans </li></ul></ul></ul><ul><ul><ul><li>Plan design can allow for deferred income with tax-deferred earnings and growth </li></ul></ul></ul>Trend #1: Cash & Incentive Compensation
    14. 14. <ul><li>Plan Description: Executive Cash Plans </li></ul><ul><li>Plan Design #1: Cash Bonus Plans </li></ul><ul><ul><li>Designated cash bonus promised to executive </li></ul></ul><ul><ul><li>Specified delivery date – typically short term </li></ul></ul><ul><ul><ul><li>Signing bonus </li></ul></ul></ul><ul><ul><ul><li>Annual bonus </li></ul></ul></ul><ul><ul><ul><li>Minimum guarantee </li></ul></ul></ul><ul><ul><li>Can be based on performance or service achievements </li></ul></ul><ul><li>Plan Design #2: Executive Choice Plans </li></ul><ul><ul><li>Allocated cash amount to executive </li></ul></ul><ul><ul><ul><li>To be used as individually desired in choice of benefit options </li></ul></ul></ul><ul><ul><li>Plans usually offer menu of benefit choice options </li></ul></ul><ul><ul><li>Must use or lose </li></ul></ul><ul><ul><li>Cannot convert to cash </li></ul></ul>Trend #1: Cash & Incentive Compensation
    15. 15. <ul><li>Plan Description: Long Term Incentive Plan </li></ul><ul><li>Contractual Agreement to provide deferred benefits for the executive </li></ul><ul><li>Type of nonqualified deferred compensation plan </li></ul><ul><ul><li>May be designed to provide increased benefit based upon performance </li></ul></ul><ul><li>Typically an incentive paid over longer term </li></ul><ul><ul><li>1 – 3 years: Short term incentive </li></ul></ul><ul><ul><li>3 years of more: Long term incentive </li></ul></ul><ul><ul><ul><li>May be as long as retirement </li></ul></ul></ul><ul><ul><li>Flexibility in payout design </li></ul></ul><ul><ul><ul><li>Lump sum or installment payments </li></ul></ul></ul><ul><ul><ul><li>In-service or retirement </li></ul></ul></ul>Trend #1: Cash & Incentive Compensation
    16. 16. <ul><li>Plan Type: Executive Cash Plans </li></ul>Trend #1: Cash & Incentive Compensation Advantages & Disadvantages <ul><li>Disadvantages: </li></ul><ul><li>EMPLOYER </li></ul><ul><ul><li>Must be paid no later than 2 ½ months after calendar year in which earned </li></ul></ul><ul><ul><li>100% vested to the executive </li></ul></ul><ul><ul><li>Little value as a retention tool </li></ul></ul><ul><li>EXECUTIVE </li></ul><ul><ul><li>May put in higher tax bracket </li></ul></ul><ul><ul><li>If designed as a benefit choice, may lose benefits not used in a given calendar year </li></ul></ul><ul><ul><li>Benefit choice plans cannot be converted to cash </li></ul></ul><ul><li>Advantages: </li></ul><ul><li>EMPLOYER </li></ul><ul><ul><li>Easy to establish </li></ul></ul><ul><ul><li>Deducted as compensation expense </li></ul></ul><ul><ul><li>Provides incentives that retain executives </li></ul></ul><ul><li>EXECUTIVE </li></ul><ul><ul><li>Provides supplemental income </li></ul></ul><ul><ul><li>Creates increased benefit options </li></ul></ul><ul><ul><li>Provides benefit choices that are meaningful to the individual </li></ul></ul>
    17. 17. <ul><li>Plan Type: Long Term Incentive Plan </li></ul>Trend #1: Cash & Incentive Compensation Advantages & Disadvantages <ul><li>Disadvantages: </li></ul><ul><li>EMPLOYER </li></ul><ul><ul><li>Tax deduction delayed until benefits are paid out </li></ul></ul><ul><li>EXECUTIVE </li></ul><ul><ul><li>Cash payout for performance is not immediate </li></ul></ul><ul><ul><li>Risk of forfeiture </li></ul></ul><ul><ul><li>Payments are taxable to employee when received </li></ul></ul><ul><li>Advantages: </li></ul><ul><li>EMPLOYER </li></ul><ul><ul><li>Employers can select participants </li></ul></ul><ul><ul><li>Performance metrics can be aligned with company objectives </li></ul></ul><ul><ul><li>Employers have “handcuffs” to retain key employees </li></ul></ul><ul><li>EXECUTIVE </li></ul><ul><ul><li>Supplemental income </li></ul></ul><ul><ul><li>Savings accumulation vehicle </li></ul></ul><ul><ul><li>Tax deferred earnings & growth </li></ul></ul><ul><ul><li>Distributions pre-elected </li></ul></ul>
    18. 18. 9 Trend #2: Retirement
    19. 19. <ul><ul><li>Plan Types Available: </li></ul></ul><ul><ul><li>Non-qualified Deferred Compensation Plans </li></ul></ul><ul><ul><ul><li>Elective Deferral Design: </li></ul></ul></ul><ul><ul><ul><ul><li>Executive Deferred Compensation Plan </li></ul></ul></ul></ul><ul><ul><ul><ul><li>401(k) Mirror Plan </li></ul></ul></ul></ul><ul><ul><ul><li>Excess Benefit Design: </li></ul></ul></ul><ul><ul><ul><ul><li>Supplemental Executive Retirement Plans (“SERP”) </li></ul></ul></ul></ul><ul><ul><ul><li>Hybrid Plan Design: </li></ul></ul></ul><ul><ul><ul><ul><li>Voluntary Deferral + Defined Contribution SERP </li></ul></ul></ul></ul><ul><ul><li>Executive Bonus Plans </li></ul></ul><ul><ul><ul><li>Restricted Executive Bonus </li></ul></ul></ul>Trend #2: Retirement
    20. 20. <ul><li>Plan Description: Non-Qualified Deferred Compensation Plan </li></ul><ul><li>Contractual Agreement to provide deferred benefits for the executive </li></ul><ul><li>Plan allows voluntary compensation deferral opportunities for executive </li></ul><ul><ul><li>Salary </li></ul></ul><ul><ul><li>Bonus </li></ul></ul><ul><ul><li>Other forms of compensation </li></ul></ul><ul><li>Plan can allow employer contributions with vesting </li></ul><ul><ul><li>Match </li></ul></ul><ul><ul><li>Discretionary contributions </li></ul></ul><ul><ul><li>Scheduled contributions </li></ul></ul><ul><ul><li>Target retirement benefit </li></ul></ul><ul><li>Contributions and earnings grow tax-deferred </li></ul><ul><ul><li>Can provide investment options for executive deferral accounts </li></ul></ul><ul><li>Payout options elected at time of deferral </li></ul><ul><ul><li>Designated event or payout date </li></ul></ul><ul><ul><li>Elected payout form </li></ul></ul>Trend #2: Retirement
    21. 21. <ul><li>Plan Description: Executive Bonus Plan </li></ul><ul><li>Contractual Agreement to provide supplemental life insurance to executive </li></ul><ul><li>Design also provides retirement income source to executive </li></ul><ul><ul><li>Combination retirement & protection benefit </li></ul></ul><ul><ul><li>Life insurance policy has both death benefit and cash value components </li></ul></ul><ul><li>Plan designed to retain key employees by providing employer contributions to an insurance contract </li></ul><ul><ul><li>Both employer and employee make annual premium contributions </li></ul></ul><ul><ul><li>Premium allocation to employee typically limited to cost of life insurance protection only </li></ul></ul><ul><li>Plan design creates golden handcuff as employer controls policy </li></ul><ul><li>Cash value in policy can provide source of retirement income to executive </li></ul><ul><li>Insurance contract has tax-favored accumulation and income-tax-free proceeds to executive’s beneficiary </li></ul>Trend #2: Retirement
    22. 22. <ul><li>Plan Type: Nonqualified Deferred Compensation Plans </li></ul>Trend #2: Retirement Advantages & Disadvantages <ul><li>Disadvantages: </li></ul><ul><li>EMPLOYER </li></ul><ul><ul><li>Tax deduction is delayed until benefits are received </li></ul></ul><ul><ul><li>IRS rules must be strictly followed to avoid penalties </li></ul></ul><ul><li>EXECUTIVE </li></ul><ul><ul><li>Payments are taxable to employee when received </li></ul></ul><ul><ul><li>No rollover to qualified plan </li></ul></ul><ul><ul><li>Risk of forfeiture </li></ul></ul><ul><ul><li>Amounts deferred cannot be taken out ahead of selected payment date except under limited circumstances </li></ul></ul><ul><li>Advantages: </li></ul><ul><li>EMPLOYER </li></ul><ul><ul><li>Employer can select participants </li></ul></ul><ul><ul><li>Broad flexibility in plan design </li></ul></ul><ul><ul><li>Useful employee attraction tool </li></ul></ul><ul><ul><li>ER contributions serve to reward and retain </li></ul></ul><ul><li>EXECUTIVE </li></ul><ul><ul><li>Supplemental retirement income </li></ul></ul><ul><ul><li>Tax deferred earnings & growth </li></ul></ul><ul><ul><li>Vehicle for employer contributions </li></ul></ul><ul><ul><li>Distribution options </li></ul></ul>
    23. 23. <ul><li>Plan Type: Executive Bonus Plans </li></ul>Trend #2: Retirement Advantages & Disadvantages <ul><li>Disadvantages: </li></ul><ul><li>EMPLOYER </li></ul><ul><ul><li>Plan may require medical underwriting for executives which can limit participation </li></ul></ul><ul><ul><li>Requires contributions from employee for death benefit protection (can be grossed up) </li></ul></ul><ul><li>EXECUTIVE </li></ul><ul><ul><li>Bonus to pay premium may put employee in higher tax bracket </li></ul></ul><ul><ul><li>Benefit may be perceived by employee as imperfect due to paying taxes now but having restricted use of the asset </li></ul></ul><ul><li>Advantages: </li></ul><ul><li>EMPLOYER </li></ul><ul><ul><li>Easy to establish </li></ul></ul><ul><ul><li>Employer can select participants </li></ul></ul><ul><ul><li>Premium payments deducted as compensation expense </li></ul></ul><ul><ul><li>Golden handcuffs </li></ul></ul><ul><li>EXECUTIVE </li></ul><ul><ul><li>Supplemental life insurance protection above group policy </li></ul></ul><ul><ul><li>Lower out-of-pocket cost than if obtained individually </li></ul></ul><ul><ul><li>Tax-deferred earnings </li></ul></ul><ul><ul><li>Insurance cash value can be accessed to supplement income </li></ul></ul>
    24. 24. 9 Trend #3: Equity
    25. 25. <ul><ul><li>Plan Types Available: </li></ul></ul><ul><ul><li>Stock Based Plans </li></ul></ul><ul><ul><ul><li>Stock Grants </li></ul></ul></ul><ul><ul><ul><li>Stock Options </li></ul></ul></ul><ul><ul><ul><li>Restricted Stock </li></ul></ul></ul><ul><ul><ul><li>Stock Appreciation Rights (“SAR”) </li></ul></ul></ul><ul><ul><ul><li>Incentive Stock Options (“ISO”) </li></ul></ul></ul><ul><ul><li>Phantom Stock Option Plan </li></ul></ul><ul><ul><ul><li>Nonqualified Plan with “Phantom Stock” </li></ul></ul></ul>Trend #3: Equity
    26. 26. <ul><li>Plan Description: Stock Based Plans </li></ul><ul><li>Type of nonqualified deferred compensation plan with an equity based design </li></ul><ul><li>Contractual agreement to provide equity to executive </li></ul><ul><ul><li>Actual equity results in shareholder dilution </li></ul></ul><ul><li>Award design flexibility </li></ul><ul><ul><li>Initial grant + share growth </li></ul></ul><ul><ul><li>Share growth from date of grant to date of award only </li></ul></ul><ul><li>Equity awarded to executive based upon pre-determined criteria </li></ul><ul><ul><li>ROA </li></ul></ul><ul><ul><li>Stock appreciation </li></ul></ul><ul><ul><li>Other corporate &/or individual goals & objectives </li></ul></ul><ul><li>Design features have changed significantly since implementation of IRC 409A rules </li></ul><ul><ul><li>Discounts </li></ul></ul><ul><ul><li>Deferral of income </li></ul></ul><ul><ul><li>Stock valuations & re-valuations </li></ul></ul>Trend #3: Equity
    27. 27. <ul><li>Plan Description: Phantom Stock Plan </li></ul><ul><li>Type of nonqualified deferred compensation plan with an equity-based design </li></ul><ul><li>Provides phantom shares to executives with valued based on actual company stock appreciation </li></ul><ul><li>Contractual Agreement to provide deferred benefits to the executive based upon increase in equity value </li></ul><ul><ul><li>Phantom equity provides upside potential without share dilution </li></ul></ul><ul><li>Equity awarded to executive based upon pre-determined criteria </li></ul><ul><ul><li>ROA </li></ul></ul><ul><ul><li>Stock appreciation </li></ul></ul><ul><ul><li>Other corporate &/or individual goals & objectives </li></ul></ul><ul><li>Design features have changed significantly since implementation of IRC 409A rules </li></ul><ul><ul><li>Discounts </li></ul></ul><ul><ul><li>Deferral of income </li></ul></ul><ul><ul><li>Stock valuations & re-valuations </li></ul></ul>Trend #3: Equity
    28. 28. <ul><li>Plan Type: Stock Based Plans </li></ul>Trend #3: Equity Advantages & Disadvantages <ul><li>Disadvantages: </li></ul><ul><li>EMPLOYER </li></ul><ul><ul><li>Dilutes share value </li></ul></ul><ul><ul><li>Company must undergo annual corporation valuation </li></ul></ul><ul><ul><li>More expensive to administer than other plan options </li></ul></ul><ul><ul><li>Strict compliance requirements </li></ul></ul><ul><li>EXECUTIVE </li></ul><ul><ul><li>Payments are taxable to employee when received </li></ul></ul><ul><ul><li>Risk of forfeiture </li></ul></ul><ul><ul><li>Usually have non-competes and other restrictions to obtain benefit </li></ul></ul><ul><li>Advantages: </li></ul><ul><li>EMPLOYER </li></ul><ul><ul><li>Employer can select participants </li></ul></ul><ul><ul><li>Aligns executive and shareholder interests </li></ul></ul><ul><ul><li>Units granted only upon specific performance metric </li></ul></ul><ul><li>EXECUTIVE </li></ul><ul><ul><li>Tax deferred earnings & growth </li></ul></ul><ul><ul><li>Units grow in value based on corporate valuations </li></ul></ul><ul><ul><li>Executives become shareholders in company </li></ul></ul><ul><ul><li>Executives paid for value creation </li></ul></ul>
    29. 29. <ul><li>Plan Type: Phantom Stock Plan </li></ul>Trend #3: Equity Advantages & Disadvantages <ul><li>Disadvantages: </li></ul><ul><li>EMPLOYER </li></ul><ul><ul><li>Company must undergo annual corporation valuation </li></ul></ul><ul><ul><li>More expensive to administer than other plan options </li></ul></ul><ul><ul><li>Strict compliance requirements </li></ul></ul><ul><li>EXECUTIVE </li></ul><ul><ul><li>Payments are taxable to employee when received </li></ul></ul><ul><ul><li>Risk of forfeiture </li></ul></ul><ul><ul><li>Usually have non-competes and other restrictions to obtain benefit </li></ul></ul><ul><li>Advantages: </li></ul><ul><li>EMPLOYER </li></ul><ul><ul><li>Employer can select participants </li></ul></ul><ul><ul><li>Aligns executive and shareholder interests </li></ul></ul><ul><ul><li>No shareholder dilution </li></ul></ul><ul><ul><li>Units granted upon specific performance metric </li></ul></ul><ul><li>EXECUTIVE </li></ul><ul><ul><li>Tax deferred earnings & growth </li></ul></ul><ul><ul><li>Units grow in value based on corporate valuations </li></ul></ul><ul><ul><li>Executives paid for value they create </li></ul></ul>
    30. 30. 9 Trend #4: Protection
    31. 31. <ul><ul><li>Plan Types Available: </li></ul></ul><ul><ul><li>Executive Life Insurance </li></ul></ul><ul><ul><ul><li>Executive Bonus Plans </li></ul></ul></ul><ul><ul><ul><li>Split Dollar Plans </li></ul></ul></ul><ul><ul><ul><li>Key Man Coverage </li></ul></ul></ul><ul><ul><li>Executive Disability </li></ul></ul><ul><ul><ul><li>LTD </li></ul></ul></ul><ul><ul><li>Executive Long Term Care </li></ul></ul><ul><ul><ul><li>LTC </li></ul></ul></ul>Trend #4: Protection
    32. 32. <ul><li>Plan Description: </li></ul><ul><li>Executive Life Insurance </li></ul><ul><ul><li>Provides life insurance benefit to executives </li></ul></ul><ul><ul><ul><li>May also have a retirement income component </li></ul></ul></ul><ul><ul><li>Benefits can be for executive’s heirs and/or the corporation </li></ul></ul><ul><li>Executive Disability </li></ul><ul><ul><li>Provides disability insurance benefit to executives </li></ul></ul><ul><ul><li>Company can modify existing plan or can implement individual plans </li></ul></ul><ul><ul><ul><li>If plan already in place, additional executive plan increases benefits provided under standard plan </li></ul></ul></ul><ul><li>Executive Long Term Care </li></ul><ul><ul><li>Provides source of funds to cover costs associated with care of an executive who can no longer perform activities of daily living (ADL) </li></ul></ul><ul><ul><li>Protection of assets against liabilities associated with long term care costs </li></ul></ul><ul><ul><li>Plan designs vary widely </li></ul></ul><ul><ul><ul><li>Reimbursement programs </li></ul></ul></ul><ul><ul><ul><li>Pre-established periodic benefit </li></ul></ul></ul><ul><ul><ul><li>In-facility vs. at-home care </li></ul></ul></ul>Trend #4: Protection
    33. 33. <ul><li>Plan Type: Executive Life Insurance </li></ul>Trend #4: Protection Advantages & Disadvantages <ul><li>Disadvantages: </li></ul><ul><li>EMPLOYER </li></ul><ul><ul><li>Premiums primarily borne by employer </li></ul></ul><ul><ul><li>Premium costs will differ based on executive health </li></ul></ul><ul><ul><li>Premium payments must be allocated to employee as income </li></ul></ul><ul><li>EXECUTIVE </li></ul><ul><ul><li>Benefit can be designed to end upon executive termination </li></ul></ul><ul><ul><li>Eligibility for executives may depend on medical underwriting </li></ul></ul><ul><ul><li>Taxable income attributed to premium paid by employer </li></ul></ul><ul><li>Advantages: </li></ul><ul><li>EMPLOYER </li></ul><ul><ul><li>Provides tax free proceeds to protect assets of corporation at death of key employee </li></ul></ul><ul><ul><li>Provides tax free benefits to executive’s heirs </li></ul></ul><ul><ul><li>Valuable recruiting & retention tool </li></ul></ul><ul><li>EXECUTIVE </li></ul><ul><ul><li>Company pays premiums, executive cost is minimal </li></ul></ul><ul><ul><li>Benefits are income tax-free </li></ul></ul><ul><ul><li>Death proceeds provide salary continuation to heirs </li></ul></ul>
    34. 34. <ul><li>Plan Type: Executive Disability </li></ul>Trend #4: Protection Advantages & Disadvantages <ul><li>Disadvantages: </li></ul><ul><li>EMPLOYER </li></ul><ul><ul><li>May require additional administration if multiple executives are insured </li></ul></ul><ul><li>EXECUTIVE </li></ul><ul><ul><li>Tax free benefits will require some employee costs </li></ul></ul><ul><li>Advantages: </li></ul><ul><li>EMPLOYER </li></ul><ul><ul><li>Easy to establish </li></ul></ul><ul><ul><li>Can be provided to a select group </li></ul></ul><ul><ul><li>Cost increases are low/moderate </li></ul></ul><ul><li>EXECUTIVE </li></ul><ul><ul><li>Company pays premiums, executive cost is minimal </li></ul></ul><ul><ul><li>Disability benefits can be tax free </li></ul></ul>
    35. 35. <ul><li>Plan Type: Executive Long Term Care </li></ul>Trend #4: Protection Advantages & Disadvantages <ul><li>Disadvantages: </li></ul><ul><li>EMPLOYER </li></ul><ul><ul><li>Benefits must be clearly explained to executives </li></ul></ul><ul><li>EXECUTIVE </li></ul><ul><ul><li>Premiums paid by the corporation are taxable to executive </li></ul></ul><ul><ul><li>Benefits may not be utilized during working years </li></ul></ul><ul><li>Advantages: </li></ul><ul><li>EMPLOYER </li></ul><ul><ul><li>Easy to establish </li></ul></ul><ul><ul><li>Can be provided to a select group </li></ul></ul><ul><ul><li>Premiums are stable </li></ul></ul><ul><ul><li>Valuable attraction & retention tool </li></ul></ul><ul><li>EXECUTIVE </li></ul><ul><ul><li>No medical underwriting </li></ul></ul><ul><ul><li>LTC benefits can be tax free </li></ul></ul><ul><ul><li>Becoming highly desirable benefit as baby boomers age </li></ul></ul>
    36. 36. 9 Trend #5: Executive Perquisites
    37. 37. <ul><ul><li>Plan Types Available: </li></ul></ul><ul><ul><li>Cash-based programs: </li></ul></ul><ul><ul><ul><li>Signing bonus </li></ul></ul></ul><ul><ul><ul><li>Annual incentive / Guarantees </li></ul></ul></ul><ul><ul><ul><li>Executive Loans (for stock, life insurance, taxes, home purchase, etc.) / Loan forgiveness </li></ul></ul></ul><ul><ul><ul><li>Tuition reminbursement for advanced education &/or college tuition for children </li></ul></ul></ul><ul><ul><ul><li>Tax gross-ups for taxable benefits </li></ul></ul></ul><ul><ul><ul><li>Paid sabbatical leave </li></ul></ul></ul><ul><ul><li>Services: </li></ul></ul><ul><ul><ul><li>Financial / Tax / Estate planning services </li></ul></ul></ul><ul><ul><ul><li>Access to investment brokerage services </li></ul></ul></ul><ul><ul><ul><li>Legal planning services </li></ul></ul></ul><ul><ul><li>Protection programs: </li></ul></ul><ul><ul><ul><li>Supplemental executive medical insurance </li></ul></ul></ul><ul><ul><ul><li>Golden parachute provisions </li></ul></ul></ul><ul><ul><ul><li>Termination/Severance provisions </li></ul></ul></ul><ul><ul><li>Other: </li></ul></ul><ul><ul><ul><li>First-class air travel </li></ul></ul></ul><ul><ul><ul><li>Expanded insurance program for family members </li></ul></ul></ul><ul><ul><ul><li>Health / Golf / Professional club membership </li></ul></ul></ul><ul><ul><ul><li>Use of company plane </li></ul></ul></ul><ul><ul><ul><li>Company car </li></ul></ul></ul>Trend #5: Executive Perquisites
    38. 38. <ul><li>Plan Type: Perquisites </li></ul>Trend #5: Executive Perquisites Advantages & Disadvantages <ul><li>Disadvantages: </li></ul><ul><li>EMPLOYER </li></ul><ul><ul><li>Once established, difficult to eliminate </li></ul></ul><ul><ul><li>Can create a culture of “haves and have nots” </li></ul></ul><ul><li>EXECUTIVE </li></ul><ul><ul><li>May be income imputed to value of benefit for which taxes will be due </li></ul></ul><ul><ul><li>Typically not all offerings provided to all executives </li></ul></ul><ul><li>Advantages: </li></ul><ul><li>EMPLOYER </li></ul><ul><ul><li>Easy to establish </li></ul></ul><ul><ul><li>Can be provided to select group </li></ul></ul><ul><ul><li>Can be customized to individual executive </li></ul></ul><ul><ul><li>Costs are relatively small </li></ul></ul><ul><li>EXECUTIVE </li></ul><ul><ul><li>Allows executive to feel a part of a select group </li></ul></ul><ul><ul><li>Provides benefits that can be enjoyed by family members as well </li></ul></ul><ul><ul><li>Allows executive to stay focused on the job </li></ul></ul>
    39. 39. 9 Questions ???? <ul><ul><li>Contact Us! </li></ul></ul><ul><ul><li>Lorrie Baldevia, VP </li></ul></ul><ul><ul><li>Toll Free: (800) 347-2303 </li></ul></ul><ul><ul><li>Email: [email_address] </li></ul></ul>
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