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Key Employees —  Compensation Issues <ul><li>Prepared for:  Business Owners </li></ul><ul><li>Presented by:  Jack Benke </...
Key Employees — Compensation Issues <ul><li>Overview </li></ul><ul><ul><li>Key employee retention </li></ul></ul><ul><ul><...
Key Employee Retention <ul><li>Employment Trends </li></ul><ul><ul><li>A changing employer/employee relationship (Consulta...
Key Employee Retention <ul><li>Key Employee Needs </li></ul><ul><ul><li>Accumulation </li></ul></ul><ul><ul><li>Protection...
Compensation Strategy <ul><li>Developing a Compensation Strategy </li></ul><ul><ul><li>Build a team of compensation profes...
Compensation Strategy <ul><li>Compensation </li></ul><ul><li>Professionals </li></ul><ul><ul><li>Benefit Consultants </li>...
Compensation and Benefit Options <ul><li>Salary & Bonus Plans </li></ul><ul><ul><li>Competitive base salaries/raises </li>...
Compensation and Benefit Options <ul><li>Qualified Plans </li></ul><ul><ul><li>The importance of retirement income </li></...
Stock-Based Compensation <ul><li>Stock Ownership Plans </li></ul><ul><ul><li>Value (perceived/real) </li></ul></ul><ul><ul...
Stock-Based Compensation <ul><li>Phantom Stock Plans </li></ul><ul><ul><li>Form of Nonqualified Deferred Compensation </li...
Nonqualified Plans <ul><ul><li>Provide accumulation and/or protection benefit </li></ul></ul><ul><ul><li>Supplement group ...
Nonqualified Plans <ul><li>Bonus Plans </li></ul><ul><ul><li>Employer funds all or part of the cost. </li></ul></ul><ul><u...
Nonqualified Plans <ul><li>Pros & Cons of Bonus Plans - Employer </li></ul><ul><li>PROs </li></ul><ul><ul><li>Totally sele...
Nonqualified Plans <ul><li>Pros & Cons of Bonus Plans - Employee </li></ul><ul><li>PROs </li></ul><ul><ul><li>Employee own...
Nonqualified Plans <ul><li>Split Dollar Life Insurance </li></ul><ul><ul><li>Life insurance plan </li></ul></ul><ul><ul><l...
Nonqualified Plans <ul><li>Pros and Cons of Split Dollar Plans - Employer </li></ul><ul><li>PROs </li></ul><ul><ul><li>Tot...
Nonqualified Plans <ul><li>Deferred Compensation Plans </li></ul><ul><ul><li>Retirement income </li></ul></ul><ul><ul><li>...
Nonqualified Plans   <ul><li>Pros & Cons of Deferred Compensation Plans -Employer </li></ul><ul><li>PROs </li></ul><ul><ul...
Nonqualified Plans <ul><li>Pros & Cons of Deferred Compensation Plans-Employee </li></ul><ul><li>PROs </li></ul><ul><ul><l...
Employment Agreements <ul><li>Employment Agreements </li></ul><ul><ul><li>Key employees </li></ul></ul><ul><ul><li>Term of...
Tips <ul><li>Acquisition </li></ul><ul><ul><li>Consult your compensation professionals before the acquisition. </li></ul><...
Tips <ul><li>Initial Public Offering </li></ul><ul><ul><li>Consult your compensation professionals before the initial publ...
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Key Employee Compensation Plans

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How to develop a Key Employee Compensation Strategy

Published in: Business, Economy & Finance
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Key Employee Compensation Plans

  1. 1. Key Employees — Compensation Issues <ul><li>Prepared for: Business Owners </li></ul><ul><li>Presented by: Jack Benke </li></ul><ul><li>The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Workman Securities Corporation, its employees and representatives are not authorized give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel. </li></ul>
  2. 2. Key Employees — Compensation Issues <ul><li>Overview </li></ul><ul><ul><li>Key employee retention </li></ul></ul><ul><ul><li>Compensation strategy </li></ul></ul><ul><ul><li>Compensation & benefit options </li></ul></ul><ul><ul><li>Stock-based compensation </li></ul></ul><ul><ul><li>Nonqualified plans </li></ul></ul><ul><ul><li>Employment agreements </li></ul></ul><ul><ul><li>Tips & strategies for acquisitions & initial public offerings </li></ul></ul>
  3. 3. Key Employee Retention <ul><li>Employment Trends </li></ul><ul><ul><li>A changing employer/employee relationship (Consultants) </li></ul></ul><ul><ul><li>Multiple jobs/careers </li></ul></ul><ul><ul><li>Less benefit & retirement security </li></ul></ul><ul><li>The Importance of Retention </li></ul><ul><ul><li>Turnover is expensive </li></ul></ul><ul><ul><li>Profitability & growth </li></ul></ul><ul><ul><li>Key employees are critical to succession planning. </li></ul></ul>
  4. 4. Key Employee Retention <ul><li>Key Employee Needs </li></ul><ul><ul><li>Accumulation </li></ul></ul><ul><ul><li>Protection </li></ul></ul>
  5. 5. Compensation Strategy <ul><li>Developing a Compensation Strategy </li></ul><ul><ul><li>Build a team of compensation professionals </li></ul></ul><ul><ul><li>Determine/anticipate business needs </li></ul></ul><ul><ul><li>Tailor plans suited to key employee needs </li></ul></ul><ul><ul><li>Review your program on a periodic basis </li></ul></ul>
  6. 6. Compensation Strategy <ul><li>Compensation </li></ul><ul><li>Professionals </li></ul><ul><ul><li>Benefit Consultants </li></ul></ul><ul><ul><li>Accounting firms </li></ul></ul><ul><ul><li>Law firms </li></ul></ul><ul><ul><li>Insurance & investment professionals </li></ul></ul>Attorney Accountant Life Insurance Agent
  7. 7. Compensation and Benefit Options <ul><li>Salary & Bonus Plans </li></ul><ul><ul><li>Competitive base salaries/raises </li></ul></ul><ul><ul><li>Bonus programs </li></ul></ul><ul><ul><li>Fixed/variable compensation </li></ul></ul><ul><ul><li>Current/Deferred Compensation </li></ul></ul><ul><li>Group Insurance Programs </li></ul><ul><ul><li>Disability Income Insurance </li></ul></ul><ul><ul><li>Life Insurance </li></ul></ul><ul><ul><li>Carve-Out programs </li></ul></ul>
  8. 8. Compensation and Benefit Options <ul><li>Qualified Plans </li></ul><ul><ul><li>The importance of retirement income </li></ul></ul><ul><ul><li>Defined contribution plans </li></ul></ul><ul><ul><li>Defined benefit plans </li></ul></ul><ul><ul><li>Nonqualified plans </li></ul></ul>
  9. 9. Stock-Based Compensation <ul><li>Stock Ownership Plans </li></ul><ul><ul><li>Value (perceived/real) </li></ul></ul><ul><ul><li>Sales (corporate/shareholder) </li></ul></ul><ul><ul><li>Stock awards (restricted stock) </li></ul></ul><ul><ul><li>Dilution </li></ul></ul><ul><ul><li>Buy back provisions </li></ul></ul><ul><li>Stock Option Plans </li></ul><ul><ul><li>Nonqualified options </li></ul></ul><ul><ul><li>Incentive stock options </li></ul></ul>
  10. 10. Stock-Based Compensation <ul><li>Phantom Stock Plans </li></ul><ul><ul><li>Form of Nonqualified Deferred Compensation </li></ul></ul><ul><ul><li>Key employees allocated “hypothetical shares” </li></ul></ul><ul><ul><li>Taxation/accounting treatment </li></ul></ul><ul><ul><li>Funding options </li></ul></ul><ul><li>Stock Appreciation Rights </li></ul><ul><ul><li>Form of deferred compensation </li></ul></ul><ul><ul><li>Compensation driven by future appreciation </li></ul></ul><ul><ul><li>Taxation/accounting treatment </li></ul></ul><ul><ul><li>Funding options </li></ul></ul>
  11. 11. Nonqualified Plans <ul><ul><li>Provide accumulation and/or protection benefit </li></ul></ul><ul><ul><li>Supplement group benefit and/or qualified pension plan benefits </li></ul></ul><ul><ul><li>Reward and retain key employees </li></ul></ul><ul><ul><li>Bonus plans </li></ul></ul><ul><ul><li>Split Dollar plans </li></ul></ul><ul><ul><li>Deferred Compensation plans </li></ul></ul>
  12. 12. Nonqualified Plans <ul><li>Bonus Plans </li></ul><ul><ul><li>Employer funds all or part of the cost. </li></ul></ul><ul><ul><li>Life insurance or other financial vehicles </li></ul></ul><ul><ul><li>Owned by a key employee </li></ul></ul><ul><li>How are Bonus Plans used? </li></ul><ul><ul><li>Accumulation and/or protection needs </li></ul></ul><ul><ul><li>Retirement supplement </li></ul></ul><ul><ul><li>Supplement group life & disability coverage </li></ul></ul><ul><ul><li>Fund buy-sell plans </li></ul></ul>
  13. 13. Nonqualified Plans <ul><li>Pros & Cons of Bonus Plans - Employer </li></ul><ul><li>PROs </li></ul><ul><ul><li>Totally selective </li></ul></ul><ul><ul><li>Current tax deduction </li></ul></ul><ul><ul><li>Easy to set up and terminate </li></ul></ul><ul><li>CONs </li></ul><ul><ul><li>Limited “Golden Handcuff” potential </li></ul></ul><ul><ul><li>No cost recovery potential </li></ul></ul>
  14. 14. Nonqualified Plans <ul><li>Pros & Cons of Bonus Plans - Employee </li></ul><ul><li>PROs </li></ul><ul><ul><li>Employee owns and controls benefit </li></ul></ul><ul><ul><li>Benefits are portable </li></ul></ul><ul><li>CONs </li></ul><ul><ul><li>Bonus not received in cash </li></ul></ul><ul><ul><li>Employer premium payments are taxable income </li></ul></ul>
  15. 15. Nonqualified Plans <ul><li>Split Dollar Life Insurance </li></ul><ul><ul><li>Life insurance plan </li></ul></ul><ul><ul><li>Splits the benefits of permanent life insurance between employer and employee </li></ul></ul><ul><li>How Split Dollar Plans are used? </li></ul><ul><ul><li>Increase life insurance benefits </li></ul></ul><ul><ul><li>Supplement group term insurance coverage </li></ul></ul><ul><ul><li>Fund estate tax or buy-sell needs </li></ul></ul>
  16. 16. Nonqualified Plans <ul><li>Pros and Cons of Split Dollar Plans - Employer </li></ul><ul><li>PROs </li></ul><ul><ul><li>Totally selective </li></ul></ul><ul><ul><li>Cash values provide cost recovery options </li></ul></ul><ul><ul><li>Easy to set up and terminate </li></ul></ul><ul><li>CONs </li></ul><ul><ul><li>Premiums are non-deductible </li></ul></ul><ul><ul><li>Requires an attorney to draft a Split Dollar agreement and corporate solution </li></ul></ul>
  17. 17. Nonqualified Plans <ul><li>Deferred Compensation Plans </li></ul><ul><ul><li>Retirement income </li></ul></ul><ul><ul><li>Pre-retirement benefits </li></ul></ul><ul><ul><li>Supplemental plans </li></ul></ul><ul><ul><li>Deferral plans </li></ul></ul>
  18. 18. Nonqualified Plans <ul><li>Pros & Cons of Deferred Compensation Plans -Employer </li></ul><ul><li>PROs </li></ul><ul><ul><li>Totally selective </li></ul></ul><ul><ul><li>“ Golden Handcuffs” potential </li></ul></ul><ul><ul><li>Life Insurance offers tax-advantaged opportunities for cost recovery. </li></ul></ul><ul><li>CONs </li></ul><ul><ul><li>Deferred Compensation requires accrual of plan liabilities. </li></ul></ul><ul><ul><li>Unfunded or “inadequately funded” plans may create future cash flow problems. </li></ul></ul>
  19. 19. Nonqualified Plans <ul><li>Pros & Cons of Deferred Compensation Plans-Employee </li></ul><ul><li>PROs </li></ul><ul><ul><li>Supplemental retirement income </li></ul></ul><ul><ul><li>Many Deferred Compensation plans offer significant pre-retirement death benefits. </li></ul></ul><ul><li>CONs </li></ul><ul><ul><li>Employee is a general creditor of the corporation. </li></ul></ul><ul><ul><li>Supplemental benefits which are tied to risks of forfeiture may never be paid if employee terminates early. </li></ul></ul>
  20. 20. Employment Agreements <ul><li>Employment Agreements </li></ul><ul><ul><li>Key employees </li></ul></ul><ul><ul><li>Term of years (indefinite) </li></ul></ul><ul><ul><li>Compensation & benefit provisions </li></ul></ul><ul><ul><li>Severance benefits </li></ul></ul><ul><ul><li>Arbitration & assignment </li></ul></ul><ul><ul><li>Confidential information </li></ul></ul><ul><ul><li>Non-compete clauses </li></ul></ul><ul><ul><li>Exclusivity of services </li></ul></ul>
  21. 21. Tips <ul><li>Acquisition </li></ul><ul><ul><li>Consult your compensation professionals before the acquisition. </li></ul></ul><ul><ul><li>Review and benchmark your entire benefits program. </li></ul></ul><ul><ul><li>Consider the needs of your business and its key employees. </li></ul></ul>
  22. 22. Tips <ul><li>Initial Public Offering </li></ul><ul><ul><li>Consult your compensation professionals before the initial public offering </li></ul></ul><ul><ul><li>Review and benchmark your entire benefits program </li></ul></ul><ul><ul><li>Consider the needs of your business and its key employees </li></ul></ul>

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