Case Study 2

Corporate Contributions Increase Retention

An international bank with a strong United States presence was in a highly competitive geographic market and wanted to retain and selectively reward a group of their top people. The bank was experiencing a high level of turnover in the early years of an executive's employment while executives who stayed with the bank for five years or more seemed to stay long term.

The bank implemented a deferred compensation plan with these funding components:

  1. The executive is permitted to defer a maximum of 25% of his base and bonus compensation.
  2. The bank mandated that 25% of the annual bonus be paid into the plan and that it vest at 25% per year. The executive could be paid this part of the bonus at the end of four years of service or he could elect to defer it long term. Each year of bonus deferral started a new four-year vesting period for the current year's plan contribution. With this structure the executive always has funds at risk unless the bank elects to waive the vesting schedule, as they are allowed in a non-qualified plan.
  3. There is also a discretionary profit sharing contribution to the plan. The amount of the total contribution is determined by the Bank Board of Directors and its allocation to each executive is determined by the CEO. All amounts are, again, subject to four-year class vesting. The vesting schedule serves as a retention tool.