Page 261 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 6. Employee Benefits and Perquisites 247

importance. Executives may also be provided with a coach to help them with interpersonal
relationships. Assisting them in a smooth transition when joining the company would be an
excellent use of a coach. But it is critical that the coach be a trained psychologist; otherwise,
the experience may be more harmful than helpful.

Financial Services
This is an umbrella category covering a wide variety of services companies make available.
This includes auto and homeowners, insurance, credit unions and loans, financial planning,
legal insurance, liability insurance, preretirement planning, and tax assistance.
Auto and Homeowners’ Insurance. For mass-merchandised insurance programs such as
for automobiles and homeowners, the company often provides little more than a payroll
deduction (and perhaps some office space for the administrator); in return, the employee
receives a reduced rate. While this could result in an annual savings of a couple of hundred
dollars, it is only of moderate interest to executives. In addition, the executive must be
sure the protection is adequate. For years, most auto insurance protection was based on deter-
mining negligence (namely, the negligent party and the insurance company should pay the
injured innocent party). Now no-fault protection is more the norm than the exception. This
has eliminated a number of lawsuits where negligence was contested.
Initially, only protection against loss resulting from fire was insurable under homeowners’
insurance. Then protection against loss caused by snow, ice, hail, and windstorm became
available along with human-related events (e.g., vandalism, malicious mischief, riots, civil
commotion) and man-created objects (e.g., falling aircraft and damage from other vehicles).
Essentially, the homeowners’ policy has become an all-risk coverage for property. However,
even an apparent all-risk policy has exclusions and it is important to know what they are and
whether to accept the risk of such loss or seek additional insurance to cover it. For example,
if the policy value for personal property is determined inadequate, an additional personal
property floater is purchased, listing additional major items (e.g., mink coat, diamond ring,
or original artwork) along with insured values. Alternatively, a type of loss (e.g., flood)
may be excluded and, therefore, a special add or floater purchased. Like auto insurance,
homeowners’ insurance is of moderate interest to executives.

Credit Unions and Loans. In some companies, credit unions are available to cover employee
needs for loans; in other instances, the company will establish a loan policy to cover such items
as relocation (initiated by the company) and education of dependents. In addition, loans
from savings and investment plans are sometimes adopted. Since it is difficult to rationalize
charging less in interest than the fund managers are able to realize through investment, the
interest paid may be creditable directly to the borrower’s account. Depending on the amount
of loan available, this may be of interest to the executive.
No-interest or low-interest loans to executives became more common as companies
required them to buy and hold significant amounts of company stock. These multimillion-
dollar arrangements were often specified in the employment agreement. In some instances,
they were used for other purposes, such as a new home, especially where relocation
was required. Carried on the company books as an asset, under some circumstances (e.g.,
company meeting certain financial goals) they were forgiven. However, if the executive left
the company, repayment was required. That all changed with the Sarbanes-Oxley Act of 2002
for insiders, who are prohibited to receive company loans.