How We Work
We believe an informed decision starts with a strong relationship and a disciplined process.
Relationship
The success of any executive benefit arrangement starts with a complete understanding of the goals and objectives of the organization and the participating executive(s).
Data Gathering
Assumptions matter
Leadership Interviews
Understand the perspectives of all parties
Benefit Philosophy
Establish the corporate benefits philosophy, create a roadmap for future leaders
Process
Objectivity
Analysis
Deliberation
A decision is only as good as the alternatives considered
Deferred Compensation (DC) Plans are a promise by an employer to pay specific benefits to an executive in the future. DC Plans commonly involve vesting provisions and must be subject to a substantial risk of forfeiture (SRF) to avoid current income inclusion if the employer is a non-profit organization.
| Income Statement | Benefit expenses are accrued periodically |
| Balance Sheet | A liability is recorded until the benefits are paid |
| Taxation | The benefits are taxed when constructively received |
| Stakeholder Perception | Because these balances can accrue over a long period, the resulting large payments can be viewed negatively |
| Reference | IRC §457(f) |
| Cost | In most cases, deferred compensation plans result in the largest benefit expenses |
| Capital Requirements | Moderate relative to other alternatives |
| Retention Value | The need for long-term vesting arrangements tends to encourage retention |
Executive Bonus Plans involve an employer making a bonus payment to an executive to pay the premiums on a cash-value-oriented life insurance policy. These payments are includable in the executive's taxable income and are rarely subject to vesting requirements. However, depending on the employer's objectives, access to policy values can be restricted as a retention mechanism.
| Income Statement | Compensation expenses as payments are made |
| Balance Sheet | Cash is reduced as payments are made |
| Taxation | The payments are includible in income when paid |
| Stakeholder Perception | Neutral unless additional compensation is viewed negatively |
| Reference | IRC §162 |
| Cost | Additional compensation expenses |
| Capital Requirements | Lower relative to other alternatives |
| Retention Value | More suitable for short to mid-term retention objectives |
Split-Dollar Plans are not a type of insurance but a method for two parties to share the benefits of one or more life insurance policies. These arrangements have been used for decades as a way for employers to retain and reward executives. The "loan regime" form of split-dollar, if appropriately designed, is non-compensatory and used when the employer wants to provide a retirement benefit.
| Income Statement | Other interest income |
| Balance Sheet | Other asset that could be accretive |
| Taxation | So long as sufficient interest is returned to employer, there is no income inclusion |
| Stakeholder Perception | Improved due to capital recovery feature |
| Reference | IRC §7872 |
| Cost | Depending upon plan structure and employer specifics, there could be opportunity and other costs |
| Capital Requirements | Can be capital intensive |
| Retention Value | Vesting is flexible and can be structures to accommodate various retention objectives |
Decision
Making good decisions starts with due diligence and ends with a road map for future leadership
Analysis and Deliberation
Is your decision consistent with your objectives?
Decide and Document
Memorialize the decision, including the corporate philosophy for future leadership.
Take Action
How do you lead an effective implementation process?