Starting out, you may have been a company of one, but now you have a team, and your company is growing. How will you recruit and retain that top talent? Putting together an Executive Benefits Package is just one of the many services Innovative Financial Group Atlanta provides. In this blog, we will discuss the options for executive bonuses; if you want to learn more about the different services we provide, we are more than happy to have a free consultation with you.
What is an Executive Bonus?
An executive bonus is a fringe benefit that is a vital part of any company’s compensation plan. The executive bonus has several key features that make it a preferred option for many businesses. It is not a company-wide bonus; it allows the company to discriminate based on performance, and it lets the company compensate their executives on a highly individualized and discrete basis. As of January 2020, the unemployment rate is at 3.5%, and retaining top talent is going to be difficult for companies; This is where an executive bonus can prove useful.
REBA: Restricted Endorsement Bonus Arrangement or REBA for short is a type of executive bonus that acts as a permanent life insurance policy for the executive who receives it. It is tax-exempt and is a great way to encourage top talent to stay with the firm. There are two ways a REBA can be paid for, the firm can either pay the premium on it out of pocket, or it can boost the salary of the executive in line with the cost of the premium on the insurance policy. The policy itself is a win-win for both the firm and the executive receiving it as the firm gets a tax benefit for paying for the plan, and the executive gets a highly versatile and tax-deferred cash growth mechanism. The executive has the right to put in place a death benefit for their family, withdraw the cash as a sort of supplemental income, and attach riders to the policy in order to enhance its value.
SERP: The Supplemental Executive Retirement Plan, also known as SERP, is yet another tool that we can provide you as a way to reward your best workers. SERP is a great way to encourage a top-level executive to stay with your company. A SERP is funded by the company, if the executive meets specific requirements, through a cash-value life insurance policy that can then be accessed when the executive is ready to retire. As the benefits of the plan accrue, they are tax-deferred until the cash is withdrawn from the account.
SERP does have a few downsides compared to a REBA. For one, the SERP does not provide an immediate tax benefit for the company that is providing it; the company has to wait until the benefits are drawn before they can count it as an expense. It is also not protected from creditor claims, so if a company is facing insolvency, the executives who have a SERP account may lose it to the creditors. That being said, there is some value in that the policy is more effectively controlled by the company and can be tailored to the specific needs of the executive who is receiving it. Lastly, since it is a retirement benefit, it pays for the executive to stay with the company in order to keep growing the policy for as long as possible. As such, it acts as one of the stronger incentives to retain top talent around.
Given its benefits and ease to implement, it is no wonder that executive bonuses have become one of the top ways that companies now reward their best and brightest talent. It will likely be even more common in the future as the labor market continues to remain tight.