How To Retain A Key Employee?

One of the most stressful moments for any business owner is the loss of a key employee. Among the many reasons one might lose a valued employee are illness, disability, death, and leaving your company on their own accord. While you can financially protect your business with  key person disability and key person life insurance should the unexpected happen, how do you minimize and ensure an employee does not leave for one of your competitors, or even worse, start their own competing business?

While any form of benefits package can help to keep employees in your employ by showing that you care about them as an individual as well as a worker, the competitive nature of your field may mean that the top employees are often highly sought after, and therefore, you may need to differentiate company by going above and beyond in the types of compensation advantages you offer.

“Provide your key employees with a well-crafted executive compensation plan,” is a mantra of business advisor’s who continually encourage and promote the importance of maintaining a feeling of being part of the company not just at the company.

What Is An Executive Compensation Benefit Plan?

Executive compensation plans serve multiple purposes, for both the employee and employer. For an employee and prospective hire, a quality plan supplements retirement goals, lessens the need for key people to look elsewhere, a reward for your work effort, loyalty and performance. As well as, attracting higher performing quality, who are incentivized to join to your firm when the opportunity presents itself. Executive compensation does not mean all you employees qualify for this level of benefits. For those within the organization who make a contribution to the company that stands above others, these kinds of benefits are extremely valuable. 

And by providing benefits, you, the employer, are more likely to avoid the uncomfortable feeling and concern throughout the company of dreaded departures often cause. The pressure placed upon the remaining leaders is a distraction that may affect performance goals.

How Do They Work?

An executive compensation plan can take many forms and be either a qualified or non-qualified plan. Qualified plans include 401(k) plans, IRAs, and profit-sharing plans benefit all employees equally. Non-qualified plans work as a supplementary benefit for certain employees and are offered in addition to a company’s already supplied retirement options.

While there are five conventional non-qualified plans: executive bonus arrangement (Section 162 bonus), golden executive bonus arrangement ; golden executive match; split dollar, and non-qualified deferred compensation. We list the three (3) that of this writing are income tax deductible:

  1. Executive Bonus Arrangement 

This package is arranged to provide additional benefits to employees via a compensation bonus. This bonus is tax-deductible for you, the employer, and counts as income for the employee. The employee then uses the bonus to pay the premium of a life insurance policy, and functions as its owner as well as the insured. 

  1. Golden Bonus Executive Arrangement (GEBA)

Similar to the executive bonus arrangement, this plan differs in two distinct ways, namely, the employee must agree to work a certain number of years in order to receive the benefits, and the employee committing to maintaining the policy until it is fully vested. If the employee does not meet the years of service criteria, the employee contractually must pay the employer back a stipulated amount.

  1. Golden Executive Match ( GEM)

This type of plan is designed for the employee to contribute with a tax-matched bonus made by the employer. As with the other plans, the employee pays into a life insurance policy, while the employer pays the income taxes on those premiums in the form of a tax-matched bonus, which allows the employee to contribute more funds than they would have been able to if they were paying their own premium taxes. As with the GBEA plan, the employee must not “surrender, access, or pledge” the policy before it is 100% vested, and if the employee departs service early, the employer is able to recover their contributions. 

Life insurance is often a key component in making these deferred plans work by allowing the employee to gain benefits without the need to provide all of the necessary funds from the start. Since the 1950s, the use of life insurance as an accumulation vehicle has been widely used due to the distinct benefits it offers in terms of taxes and its flexible nature.

Studies show that 48% of Americans fear that retirement will lead to outliving their savings, while 40% worry they will be unable to provide for their families once they are no longer working. Only 18% of workers are “very confident” that they can retire comfortably, and 28% expect their standard of living to decrease with retirement. In addition, 52% of workers hope to transition into retirement with their current employer.

Do your employees feel this way? Help them achieve a sense of security. With an executive compensation plan, you’re helping them to both prepare for retirement and receive life insurance coverage.

Here’s Something To Know

Business advisor’s urge business owners to make use of the benefits that executive compensation plans offer when it comes to maintaining key person employees. Attracting valuable employees, and remunerating excellent service to your company or business. Contact an experienced agent to discuss your business making use of this excellent retention method. The right package is out there for you. With guidance, you will be able to find an affordably meaningful compensation benefit plan for a key employee(s) that they will provide additional comfort and security.

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