Page 243 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 6. Employee Benefits and Perquisites 229

Employee Company

1. Not taxable A. No expense
2. Taxable but 100% tax deductible B. 100% tax deductible

3. Taxable but deductible if above C. Partially tax deductible
allowances or taxable above
certain allowances

4. Taxed as long-term capital gains D. Not tax deductible

5. Taxed as ordinary income or
short-term capital gains
Table 6-3. Taxation and tax deductions

Plan Types
Benefit programs can usually be classified under one of five categories: time off with
pay, service programs, health care, survivor protection, and retirement. How important a
specific benefit is to an executive depends on category and program limits, but benefits could
be generally classified as of low, moderate, or high importance.

TIME OFF WITH PAY

As the phrase implies, this is payment for time not worked. It ranges from coffee breaks
and meal periods on one extreme to sabbaticals and termination pay on the other. Programs
covering paid time off are the opposite of pay for performance. They are pay for non-
performance! Some employers avoid overlaps in coverage of this benefit either through
managed time-loss programs and/or flexible employee benefit programs, as will be discussed
later in this chapter.
Paid time off often takes rather subtle forms. For example, executives who are members
of a board of directors of another company rarely take a vacation day to attend the board
meeting. Rather, they charge it off as a business day. Even for those who do use vacation time,
how many use company time to read reports and recommendations preparatory to attending
the board meeting? How often are business meetings scheduled at resort facilities with half-
day business agendas? Who really watches late arrivals and early departures? Because most
executives put in 60- to 70-hour workweeks, such paid time off may be a phantom benefit—
available but rarely used. This is probably true for the hard-driving, results-oriented indi-
viduals but not so for those who no longer reenact the Charge of the Light Brigade. Perhaps
the most accurate conclusion is that the use of this benefit is in proportion to the lack of
effectiveness of the executive. With few exceptions, this benefit is taxed as ordinary income
to the executive and, therefore, 100 percent tax deductible to the company.

Holidays
The executive, like everyone else in the company, is eligible to take a specified number of paid
holidays. For most companies, these holidays are equivalent to two to three weeks (i.e., 10 to