What are some typical examples of executive perks?
There exist a myriad of different incentive arrangements. Keep in mind, though, that several employers will use golden handcuffs to ensure that they (as well as you) derive maximum benefit from incentive packages. Briefly, golden handcuffs refer to the combination of rewards and penalties given to key employees that compensates them so generously for staying with the company (and punishes them so severely for leaving) that it would be undesirable for the employees to leave the company.
The following are examples of typical incentive packages.
Nonqualified retirement plans allow businesses to offer tax advantages and increased savings potential for a select tier of executives--without the burden of IRS testing requirements and contribution limits. A nonqualified deferred compensation is a contratual commitment by an employer to an employee to pay currently earned compensation in a future year. it is often possible for an executive to increase retirement benefits with these plans.
Executive Disability Insurance
Most employers provide Group Long Term Disability (GLTD) insurance to their employees. GLTD typically provides a taxable benefit equal to 60% of the employee's pre-disability income with a monthly cap of $5,000 or $10,000/month. This plan design is appropriate for most rank and file employees, but falls short for the executive class. Executive Disability Insurance (EDI) coverage provides an added layer of protection to fill the gap left by most GLTD plans. Executive Disability is typically provided through an individual contract, with premium and underwriting concessions. These plans can be paid for by the employer or offered as a voluntary plan.
Executive Life Insurance
Typical company-sponsored life insurance benefits provide a term benefit that ends when the executive leaves or retires from the company. Executive Life Insurance Plans can also provide owners or executives with significantly larger face amounts than offered through a group plan, death benefit protection that continues after retirement, portability (e.g. not tied to a group plan) and a cash value component.
Golden parachutes are severance agreements that protect key employees from the effects of a corporate takeover or change in control. They provide key employees who are terminated (or who have resigned) as a result of a takeover or change in control with either continued compensation for a specified period following their departure or a lump-sum payment.
An incentive stock options a right or option granted by the sponsoring corporation to its employees to purchase shares of the corporation's stock at a certain price for a specified period of time, notwithstanding an increase in the value of the stock after the option is granted. Incentive stock options received must satisfy certain requirements imposed by the Internal Revenue Code. However, if they meet these requirements, they offer advantageous tax treatment to the employee.
Nonqualified stock options are similar to incentive stock options, but they offer more flexibility and fewer tax advantages.
Phantom stock arrangements are based on hypothetical investments in company stock. More specifically, phantom stock is the right to receive a cash or a property bonus at a specified date in the future based upon the performance of phantom (rather than real) shares of a corporation's common stock over a specified period of time.
Fringe benefits may be defined as noncash compensation benefits provided by employers. They may take a variety of forms, including employee discounts, free parking, meals and lodging, and athletic facilities.
A nonqualified deferred compensation is a contractual commitment by an employer to an employee to pay currently earned compensation in a future year. It is often possible for an executive to increase retirement benefits with these plans.
Split dollar life insurance is an arrangement between an employer and an employee in which there is a sharing of the costs and benefits of the life insurance policy. It can provide current life insurance protection to an employee in an amount he or she might not otherwise be able to afford.
Below-market executive loans are loans a nonpublicly held company makes available to its executives as a supplement to their regular compensation. Typically, such loans are interest free or made at favorable interest rates.
Caution: Loans made by publicly held companies to executive officers and directors are prohibited under the Sarbanes-Oxley Act of 2002.
Executives often incur business-related expenses when furthering the company's interests off-premises. For instance, an executive might be required to take a client out for lunch. Companies will often reimburse executives subsequently for these business expenses.
An executive bonus plan (also known as a Section 162 plan) involves an addition to regular salary or compensation that is provided, usually near the end of the year, to enable employees to share in profits resulting from a successful year.
Article created by Forefield Inc. for use, with permission, by Veracor Consulting Group.