Page 357 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)
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Chapter 6. Employee Benefits and Perquisites 343
certain goals. Retirement plans can also be structured to reinforce retention objectives.
However, overall the move toward improving employee benefits and adding new ones has
not only slowed but also in some industries has reversed because of financial difficulties.
More and more companies have been shifting health-care costs to employees and especially
retirees. Defined-contribution pension plans have been added or improved, while defined-
benefit plans have been frozen. This has put more emphasis on executive perks.
In deciding the extent of perquisite coverage, a number of issues need to be considered,
given that perks are pay for position (not for performance) and establish a favored classification.
• Should there not only be a good reason for any perk but should not that reason be
disclosed in the proxy?
• Should not those perks which have little if any business rationale be avoided?
• Should not each perk pass a fairness test? Examples might include the following: com-
pany cars if they are available during the day for others; financial planning and tax
preparation to maximize time available for company business; and restoring pension
benefits limited by IRC Section 415 but using the same definition of earnings as the
qualified pension plan.
• Should perks be discontinued after retirement, since the executive no longer works for
the company?
• Should not all perks be taxed as ordinary income of a fair cost, rather than on an
incremental cost basis?
• Should the company not do a tax gross-up on any perk? The company certainly does
not do it on salary or incentive pay.
• Should not the company disclose all perks and their costs in the proxy statement, not
simply those required by the SEC?
Treating top executives as royalty may have them thinking they are above the law. Kings do
not have to abide by laws—they make the laws. Consider those CEOs who ran into legal dif-
ficulty. Did they not think they were above the law? Extending perks needs to be carefully
thought out.
Table 6-38 summarizes the major considerations when designing the executive benefit
plan. Within the framework of the design considerations listed in Table 6-38, Table 6-39 lists
the action steps.
1. Company culture
2. Executive needs/wants
3. All-employee benefit plans
• Time off with pay
• Sevice programs
• Health care
• Survivor protection
• Retirement
4. Coverage gaps
5. Accounting, tax, and SEC issues
Table 6-38. Executive benefit plan design considerations