Business owners are always looking for ways to attract, retain, and incentivize top executives to stay with their company. One way to achieve this is by offering non-qualified executive bonus plans. These plans are designed to reward top executives for meeting certain performance metrics and goals that are aligned with overall company objectives.
Designing the Plan
The first step to creating a non-qualified executive bonus plan is to determine the performance metrics and goals that will drive the payout of the bonus. This can include financial metrics such as revenue growth, profitability, and market share, or non-financial metrics such as customer satisfaction, employee engagement, and innovation.
Once the metrics and goals are established, the plan can be structured to provide bonuses that are either fixed or variable based on achieving different levels of performance. The plan can also include a vesting schedule that ensures the executives stay with the company for a certain period of time before receiving the full bonus payout.
Funding the Plan
Non-qualified executive bonus plans are typically funded using either cash or life insurance policies owned by the company on the lives of the executives. Life insurance is often preferred as it provides tax advantages and can be used to offset the cost of the plan. With a life insurance policy, the company pays premiums on behalf of the executive, and the death benefit is used to fund the bonus payout when the executive passes away.
Implementing the Plan
Implementing a non-qualified executive bonus plan requires careful consideration of legal and tax implications. The plan must comply with IRS regulations, including rules around constructive receipt, salary deferral, and non-discrimination. It is important to work with an experienced financial professional to ensure the plan design meets legal requirements and is aligned with business goals.
Non-qualified executive bonus plans can be an effective way to incentivize top executives to stay with a company and achieve important business goals. The plan design, funding, and implementation must be carefully considered to ensure it is both legally compliant and beneficial to the business. Contact our team to learn more about how we can help you design and implement a non-qualified executive bonus plan for your business.