In professional football, the term franchise player is used to describe the key leaders on a team. Names like Roger Staubach, Aaron Rodgers and Drew Brees come to mind.

The same is true of your institution.

Running an organization is a team effort, and everyone on the team has an important role. Yet, certain players have unique abilities that bring extraordinary value to the team. Whether in professional football or in business, franchise players position your organization to reach its fullest potential.

Consider what would be the impact to your business if your franchise players were to leave, or if a competitor were to lure them away.

To keep your franchise players loyal, reward them appropriately. Give them an executive benefits plan that recognizes the value they bring to your team.

When creating your executive benefits packages, Non-Qualified Deferred Compensation (NQDC) plans are a must. The IRS calls these “Top Hat” plans, and  they present an attractive alternative for businesses that want to offer their key executives more than just stock options.

Non-Qualified what?

NQDC plans are attractive for many reasons. Foremost, they are not subject to the strict rules governing Qualified Retirement Plans, like 401k and pension plans. This means NQDC plans provide employers with tremendous flexibility. They allow the organization to choose the right plan for their business from a variety of deferred compensation arrangements. (Phantom Stock Plans, Deferred Cash Incentive Plans, and Supplemental Executive Retirement Plans are among the alternatives.)

Employers can be selective as to which executives are offered an executive benefits package. The organization can design executive benefits to provide for distributions during the time of employment, or payments may be postponed until after retirement. NQDC can also be tailored to function like familiar qualified plans by using either a ‘defined benefit’ or a ‘defined contribution’ approach. Whatever forms the packages take, all NQDC plans allow for customized vesting schedules which can be used to incentivize executives to remain with your organization long-term. This is often referred to as “Golden Handcuffs”.

Perhaps most important, employers can adjust any of the terms of the plan for each participant, to respond to the unique compensation needs of each key executive.

How can I set up Deferred Compensation for my team?

Creating executive benefits plans requires minimal effort from you as an employer when an experienced consultant is enlisted to help you design a plan that will meet your unique needs. The consultant will walk you through a simple four-step process.

  1. The employer selects specific terms for the compensation plan(s), including: benefits promised, payout date(s), and provisions for vesting.
  2. An agreement is executed between the employer and the employee, which defines the terms of the compensation plan unique to that individual.
  3. As an accounting procedure, the employer creates a deferred liability account to reflect its obligation to pay the deferred benefits.
  4. Once an Employer signs a deferred compensation agreement, there is potential liability that must be met at some point. Therefore, for prudent financial management of the organization’s obligation, an Asset Reserve of tangible assets should be established. Mutual Funds, Guaranteed Investment Contracts and BOLI/COLI are among the alternatives.

That was easy.

Initial and ongoing work in the areas of accounting, administration, and compliance are needed to ensure a successful executive benefits program. Using experienced consultants and third-party administrators to manage the details will ensure the plan is handled efficiently, with limited time required from the financial staff of your organization. Managed properly, your executive benefits program will attract, retain and reward franchise players for your organization, thus enabling your team to continue to grow shareholder value. And that’s a win for everyone.  ★

The Texas Independent Banker – January/February 2013 –

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