Lecture 30 Executive Benefits and Nonqualified Deferred Compensation

1. Lecture 30Executive 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

2. 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

3. 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

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

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

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