Page 273 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 6. Employee Benefits and Perquisites 259

company. For example, an executive who sends a check for $5,000 to his or her alma mater
knows the company will send a matching $5,000 check. Thus, the executive gets recognition
for a $10,000 contribution at a $2,500 cost (assuming a 50 percent marginal tax bracket). The
company’s $5,000 contribution is also tax deductible. While typically such programs are open
to all employees, executives use them most because of their visibility to solicitors and their
higher tax bracket. Many plans will place an annual limit per person per calendar year on the
amount (e.g., $20,000) that a company will match; nonetheless, many would consider this a
high-importance perk since the match is not taxable income to the executive.

Personal Safety
A bodyguard trained in personal protection and licensed to carry a concealed weapon may
also be appropriate. Such protection ranges from around-the-clock to during travel. The
latter may be provided by the driver or an additional person. This might be of high interest
to an executive for real or ego reasons.
Pet Insurance

An elective benefit popular for workers without children but with pets is health insurance for
the pet. The premium cost is a function of the type and age of the pet, geographic location,
and type of services covered, ranging from cuts to heart surgery. This is of low interest to
executive.

Holiday Gifts

These programs, where they exist, may range from a Thanksgiving turkey and Christmas
ham to employee selection from an extensive gift catalog. These are of low interest to
executives.
Scholarships

Children of employees have the opportunity to further their education at company expense
through scholarships provided by the company. Although such programs are usually open to
all employees, a high percentage of executives’ children usually win. Since selection is made
on the basis of competitive test scores monitored by an independent agency, this in no way
implies any hanky-panky. Rather, for whatever reason or combination of reasons, executive
offspring rank high among the intellectually able. When such programs are based on eligi-
bility, the company receives a tax deduction, and neither the executive nor the child incurs
income tax consequences if they meet the requirement of Section 117 of the IRC.
Setting up scholarships exclusively for executives’ children initially looked good for the tax
benefit but has since lost a significant part of its appeal. The program called for the company
to make a payment to an Educational Benefit Trust (EBT). The trust in turn bestowed
scholarships upon children of eligible executives. The idea was that the company could take a
tax deduction, and the executive and child would escape tax consequences since scholarships
are not taxable. At worst, the monies would be taxable to the child and, thereby, at much lower
rates than to the executive. However, the IRS in Revenue Ruling 76-448 stated that tuition
fees paid on behalf of key employees are considered income (for purposes of FICA, FUTA,
and income tax) under a nonqualified, deferred compensation plan. In other words, the com-
pany could not take a tax deduction until (a) the executive had received the “scholarship,” or