Case Study 4

An Alternative to Stock Options

A private company with annual revenues in excess of $10 billon was seeking a benefit plan for its top executive group to compete with stock options offered by public companies. American Benefit Corporation designed a deferred compensation plan that permitted executives to defer a maximum of $60,000 of their base or bonus compensation. The company provided a match of 50% to a maximum of $30,000 per year. The corporate plan deposits were subject to a cliff vesting schedule. There was no vesting until the seventh year and then 100% vesting.

With the select group there were special arrangements which served as a retention tool:

  1. The CEO received a $200,000 plan deposit regardless of the amount of his deferral, if any.
  2. Another executive received a $100,000 plan deposit as a signing bonus. This was subject to a five-year vesting schedule.
  3. Another executive received a $60,000 plan deposit regardless of his deferral amount.