Are you looking for ways to reward and incentivize your top performers? Houghton Financial Partners has years of experience building executive benefit plans that target and incentivize critical objectives for both employers and employees. Depending on your company goals and how you want to incentivize a specific employee, some plans may work better than others. We have developed both cash plans, including insurance options, profit sharing, and vacation plans, as well as balance sheet plans such as supplemental retirement plans, deferred comp plans, and various stock plans (even for private companies). Fortunately, there are many options, and Houghton can create a plan that will help you and your key players reach and celebrate milestones in your business.
Tying executive compensation to performance inspires buy-in from that employee and helps you retain top performers who will drive the success of your company.
Section 162 Bonus Plans
A 162 Executive Bonus plan lets companies provide life insurance or disability income insurance to essential executives using tax-deductible dollars. Normally, insurance policies are owned by the executives and are paid for through cash bonuses. The executive has all of the ownership rights of the policy, including the right to name his or her own beneficiary(ies) and to access the policy cash values (except when a Restricted Executive Bonus Arrangement is used).
Bonused amounts are tax-deductible to the business if the bonuses are considered reasonable compensation. Generally, the executive will pay tax on the benefit, unless the employer chooses to structure the benefit so that the executive receives an additional cash bonus to cover the cost of tax for the plan. As an added benefit to the executive, beneficiaries (when the death benefit is triggered) can often receive the income tax-free.
This type of plan is attractive to employers because it requires no administration costs, IRS approval, or complicated government reporting. Additionally, a Section 162 Bonus Plan may be provided on a selective basis, allowing the employer to choose specific employees to participate and benefit amounts may be varied among participants.
A Split-Dollar Plan is a strategic approach that can ordinarily be applied to any permanent life insurance policy that has cash value. This type of plan allows you to offer life insurance as an executive perk, but it is set up with an agreement on how the premiums, cash value, and death benefit of the policy will be split between relevant parties. This benefit provides the employee with the benefit of life insurance, and typically gives them access to the cash value associated with it, and supplemental retirement income, after a predetermined period. It is also a benefit to the employer as it protects the well-being of the company in the event of an untimely death of a key business contributor.
Split-Dollar Plans include many variables, such as amount, division of death benefits between parties, and how and when the executive can access the cash value (i.e., only after meeting specific business metrics, after retirement). When setting up this benefit program, you can select the structure that is right for your business and employees.
Phantom Stock Plans
To promote key employee performance, companies can use a phantom stock program, which ties pay to performance. A business grants phantom stock units to select participants. These units fluctuate in value based on the growth of the business, but they don’t represent actual shares in the company. This lets the employee share in the success of the company without capital investment or shareholder liability. It also benefits business owners by letting them reward employees for positive performance by the company without diluting current shareholder interests or relinquishing business control and decision-making powers associated with ownership.
Phantom Stock Plans are typically structured as a nonqualified deferred compensation (NQDC). Any business can set up and implement a phantom stock plan, including sole proprietorships, partnerships, limited liability companies, subchapter S corporations, and subchapter C corporations. A subchapter S corporation must ensure a second class of stock is not being created, because doing so can cause the corporation can lose its S status, with the potential for significant tax consequences.
High Limit Disability Insurance
A disability could be devastating to the financial, professional, and lifestyle goals of any integral executive. Disability insurance can both help support the executive if they are unable to work and help protect the company from any losses associated with the executive’s absence. We provide individual disability for key executives, group carve-out, and short- and long-term group disability plans. For individuals, Houghton Financial Partners offers Disability Income protection plans that help to recover a portion of income in the event that you become disabled and cannot work. Many employer-sponsored plans are designed to replace only 50% to 70% of income, so we analyze what your employer offers and create a policy that addresses a possible gap in coverage.
High Limit Long-Term Care Insurance
Americans are now living significantly longer lives, and this increased longevity brings additional challenges around long-term care. Even if people plan carefully, they can still face the risk of losing control of their lives and their finances when they become elderly and unable to live independently. Long-Term Care insurance provides the necessary funds for housing and care later in life.
With Social Security no longer a given for future generations, a Long-Term Care policy can be an attractive benefit option for key executives in your company. For individuals, this can be critical for providing assistance when a serious illness or disability renders you physically or cognitively unable to perform activities of daily life.