EXECUTIVE BONUS PLANS
One of the concerns that business owners often have concerning benefit plans is that they are complicated and burdensome to administer. Unquestionably, in the case of certain benefits, that concern is justified — just consider the job of administering a defined benefit pension plan.
In this Module, we will consider a benefit plan that, in simplicity and ease of administration, is about as far from a qualified plan as possible. Despite that simplicity, however, this benefit plan meets a number of important executive and business objectives.
Upon completion of this Module, you should understand:
executive bonus plans and the reasons companies provide them to executives;
the criteria to be used in setting goals for the achievement of a bonus;
how a board of directors authorizes an executive bonus plan;
why life insurance is a suitable financial vehicle for funding executive bonus plans;
the advantages and disadvantages of executive bonus plans to employers and executives;
who can and should participate in an executive bonus plan;
how to design an executive bonus plan to achieve specific objectives; and
the taxation issues involved in executive bonus plans for both the employer and the executive.