Executive Compensation Going all in on Good People & Doubling Down on Top Talent By Jim Vollmer

Executive Compensation Going all in on Good People & Doubling Down on Top Talent

By Jim Vollmer 

• Executive Compensation

• Executive Bonus

• Golden Handcuffs

• Split-Dollar Plans

• Golden Parachutes

What ‘s Executive Bonus

Worth Protecting

Administrator, CFO, COO, CNO / DON, Pharmacist or any other key Employee

Claims ExpertiseWHY USE LIFE INSURANCE FOR EXECUTIVE COMPENSATION

More Flexible & Efficient than just increasing Salary

• Tax Free Death Benefit

• Immediate Value

• Permanent & Flexible

• Grows Tax Free

• Cash Build Up

• Retention Tool

• Key Man Insurance

Life Insurance is Property

50% 50%

It can be owned by two parties much like a real estate joint venture.

An Undivided Interest in Life Insurance consists of a percentage share in each right & benefit.

POLICY OWNERSHIP & CONTROL

Employer EmployeeShared

Key ComponentsExecutive Compensation using Life Insurance

Death Benefit

Cash Values

Premium

Joint Ownership

Plan Agreement

Funding Period

Tax on Bonus

Bonus to Exec

J

• Ownership Undivided Interest• Premium $40,000 per year• Term 15 Years• Executive Age 45 • Vesting 25% Year 5

50 % Year 10100% Year 15

ASSUMPTIONSIllustration # 1

Executive Compensation Illustration #1Employer Perspective

Year &

Age

Premium Paid by

Company

Share %

Company’s Portion of Surrender

Value

Company’s Net Death Benefit

Salary Expense

for Premium

Share

Salary Expense

for Buyout

Yr 1

Age 46

$40,000 100% $38,400 $876,472 $0 $0

Yr 5

Age 50

$40,000 75% $146,400 $702,190 $0 $50,000

Executive Compensation Illustration #1Executive Perspective

Year &

Age

Share %

Salary Bonus

for Premium

%

Salary Bonus

for Buyout

Income Tax on Salary Bonus (30%)

Executive’s Portion of Surrender

Value

Executive’s Net Death Benefit

Yr 1

Age 46

0% $0 $0 $0 $0 $0

Yr 5

Age 50

25% $0 $50,000 $15,000 $48,800 $234,068

Executive Compensation Illustration #1Employer Perspective

Year &

Age

Premium Paid by

Company

Share %

Company’s Portion of Surrender

Value

Company’s Net Death Benefit

Salary Expense

for Premium

Share

Salary Expense

for Buyout

Yr 9

Age 54

$30,000 75% $278,438 $844,576 $10,000 $0

Yr 10

Age 55

$30,000 50% $213,020 $589,312 $10,000 $103,084

Executive Compensation Illustration #1Executive Perspective

Year &

Age

Share %

Salary Bonus

for Premium

%

Salary Bonus

for Buyout

Income Tax on Salary Bonus (30%)

Executive’s Portion of Surrender

Value

Executive’s Net Death Benefit

Yr 9

Age 54

25% $10,000 $0 $3,000 $92,812 $281,526

Yr 10

Age 55

50% $10,000 $103,084 $33,925 $213,020 $589,312

Executive Compensation Illustration #1Employer Perspective

Year &

Age

Premium Paid by

Company

Share %

Company’s Portion of Surrender

Value

Company’s Net Death Benefit

Salary Expense

for Premium

Share

Salary Expense

for Buyout

Yr 14

Age 59

$20,000 50% $327,986 $704,278 $20,000 $0

Yr 15

Age 60

$20,000 0% $0 $0 $20,000 $347,810

Executive Compensation Illustration #1Executive Perspective

Year &

Age

Share %

Salary Bonus

for Premium

%

Salary Bonus

for Buyout

Income Tax on Salary Bonus (30%)

Executive’s Portion of Surrender

Value

Executive’s Net Death Benefit

Yr 14

Age 59

50% $20,000 $0 $6,000 $92,812 $281,526

Yr 15

Age 60

100% $20,000 $347,805 $110,342 $718,616 $1,471,200

Ability to Make Things Easy

Age Height

WeightGender

Para Medical Information

UNDERWRITING VARIABLES

Tobacco Usage

J

• Ownership Undivided Interest• Premium $30,000 per year• Term 28 Years• Executive Age 37 • Steeped Vesting 12% Year 1

64 % Year 15100% Year 27

ASSUMPTIONSIllustration # 2

Executive Compensation Illustration #2Employer Perspective

Year &

Age

Premium Paid by

Company

Share %

Company’s Portion of Surrender

Value

Company’s Net Death Benefit

Salary Expense

for Premium

Share

Salary Expense

for Buyout

Yr 1

Age 37

$30,000 100% $28,687 $876,472 $0 $0

Yr 5

Age 41

$23,014 72% $111,779 $731,098 $6,986 $6,679

Executive Compensation Illustration #2Executive Perspective

Year &

Age

Share %

Salary Bonus

for Premium

%

Salary Bonus

for Buyout

Income Tax on Salary Bonus (30%)

Executive’s Portion of Surrender

Value

Executive’s Net Death Benefit

Yr 1

Age 37

0% $0 $0 $0 $0 $0

Yr 5

Age 41

28% $6,986 $6,679 $4,100 $42,932 $257,058

Executive Compensation Illustration #2Employer Perspective

Year &

Age

Premium Paid by

Company

Share %

Company’s Portion of Surrender

Value

Company’s Net Death Benefit

Salary Expense

for Premium

Share

Salary Expense

for Buyout

Yr 10

Age 46

$16,978 53% $184,588 $593,412 $13,022 $12,098

Yr 20

Age 56

$ 7,211 21% $192,493 $427,798 $22,789 $25,244

Executive Compensation Illustration #2Executive Perspective

Year &

Age

Share %

Salary Bonus

for Premium

%

Salary Bonus

for Buyout

Income Tax on Salary Bonus (30%)

Executive’s Portion of Surrender

Value

Executive’s Net Death Benefit

Yr 10

Age 46

47% $13,022 $12,098 $7,536 $163,807 $526,607

Yr 20

Age 56

79% $22,789 $25,244 $14,410 $717,697 $1,595,010

Executive Compensation Illustration #2Employer Perspective

Year &

Age

Premium Paid by

Company

Share %

Company’s Portion of Surrender

Value

Company’s Net Death Benefit

Salary Expense

for Premium

Share

Salary Expense

for Buyout

Yr 26

Age 63

$1,492 2 $36,262 $66,253 $28,508 $35,564

Yr 27

Age 64

$ 739 0% $0 $0 $29,261 $37,085

Executive Compensation Illustration #2Executive Perspective

Year &

Age

Share %

Salary Bonus

for Premium

%

Salary Bonus

for Buyout

Income Tax on Salary Bonus (30%)

Executive’s Portion of Surrender

Value

Executive’s Net Death Benefit

Yr 26

Age 63

98% $28,508 $35,564 $19,222 $1,436,467 $2,624,570

Yr 27

Age 64

100% $29,261 $37,085 $19,904 $1,566,971 $2,789,680

The Plan Agreement

• Establishes the Undivided Interests• Accompanies Life Application• Becomes part of the Policy File• Addresses Administration

• Legal Instruments• Accounting • Annual Review• Administrative Costs

• Annual Fee of $150 per year• One time fee of $175

Claims ExpertiseIMPLEMENTATION

Application & Plan Agreement

• Para Meds

• Final Rating

• Pay First Premium

• Policy Delivered

• Annual Reviews

• What happens at the end of the term?

• What are the options for the Executive?

• Suppose the Executive finds a dream job they can’t resist?

• What if the Hospital falls out of love with their star executive?

Exit Strategies

1. Let it self-complete 2. Mid-course Exit3. Early Exit

Executive Compensation Going all in on Good People & Doubling Down on Top Talent

By Jim Vollmer  April 7, 2011

Qu

estion

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