Nonqualified benefit plans are implemented to recruit, retain and reward key employees. Properly implemented plans motivate and reward employees to work towards common company goals while retaining employees with a long-term outlook. These plans enable companies to provide appropriate retirement benefits with a more targeted and efficient use of benefit dollars. There are a few different plans to consider when looking at a nonqualified retention plan. These include: Short-Term Incentive Plan (STIP), Long-Term Incentive Plan (LTIP), Supplemental Executive Retirement Plan (SERP), Voluntary Deferral Plan and a Split Dollar Plan. Specifically, we will be focusing on Short-Term and Long-Term Incentive Plans providing an overview of each plan, advantages and a sample design structure.
Short-Term and Long-Term Incentive Plans
The best way for these plans to recruit, retain and reward your employees is implementing both an STIP and LTIP. The two plans complement each other and can be very effective if designed properly. STIPs should be used to motivate key employees to execute the company goal’s and make good operating decisions to maximize performance over the course of the year. LTIPs are developed to achieve long-term growth and increase the value of the organization over a long period of time. These plans are not governed by the Employee Retirement Income Security Act of 1974 (ERISA). They are simply bonus plans for key employees.