Lecture 30 Executive Benefits and Nonqualified Deferred Compensation Nonqualified Deferred Compensation Stock for Executives –Restricted Stock –Stock Options –Incentive Stock Options Life Insurance Other Special Benefits Other Fringe Benefits

Nonqualified Deferred Compensation Objectives of the plan –Employer-instituted plan Inducement for hiring and retaining key employees Forfeiture provisions Non-compete provisions Availability post-termination for consulting –Employee-option nonqualified deferred compensation Additional form of compensation Tax deferral Full vesting Funded and unfunded plans –If funded, employee is taxed currently –If unfunded, employee at risk –Informal funding Life insurance on employee owned by employer Rabbi trust

Stock for Executives Restricted stock –Stock paid as part of compensation –Must have substantial risk of forfeiture –Nontransferability provisions –Employee is not taxed until substantially vested Nonqualified stock option plans for executives –Fair market value options Can run for a number of years Price equal to the market value when options are issued Taxed when exercised –Immediate value options Employee taxed in the year option granted Not taxed when exercised Incentive Stock Options (ISO) –Special restrictions –Employee not taxed until stock is sold

Life Insurance for Executives Split-Dollar Plans Death Benefit Only Plans (DBO) Group Term Life Insurance Plan

Other Special Benefits for Executives Severance Pay Cash Bonus and Incentive Plans Additional Medical Expense Benefits Disability Income Plans Loans

Other Fringe Benefits Executive dining rooms Expense account provisions Financial counseling Additional moving expenses Professional dues Trips to professional meetings