Besides the basic executive bonus plan, there are other general plan variants. These options include a double bonus agreement and a restricted or controlled executive bonus plan. Executive bonus plans are easy to put in place in design and easy to implement. The executive bonus plan works as follows: There are also some drawbacks inherent in using an executive bonus plan, including: With a double bonus agreement, the company will provide the key manager with a bonus large enough to pay the life insurance premiums as well as income taxes that are generated by the general manager on the bonus. The company can use double the bonus agreement to eliminate all expenses out of pocket for the key manager. Executive bonus designs with life insurance have several advantages, including: If the company wants to keep some control over the bonus, the controlled executive bonus design is a good choice. With a controlled executive bonus, the company and key management conclude an agreement that includes a watch schedule for the growth of the policy treasury. The vesting calendar is a form of “golden handcuffs” that allows a company to limit the availability of benefits in current value until management meets the terms of the agreement. At this point, the executive is “vested.” Once the key line is transferred, they will have full and complete access to the current value of the policy. The Golden Executive Bonus Arrangement (GEBA) can be a way to reward and retain your most valuable executives.
This tool gives your business a discounted income tax deduction by paying a bonus that the employee uses to pay life insurance premiums in present value. The company can maintain control by incorporating provisions into the agreement drawn up by a licensed lawyer. If you are looking for an executive compensation tool that helps you keep one or more important executives, you should use life insurance in a GEBA. Attracting, motivating and retaining senior executives requires a competitive compensation package that includes more than one salary and a bonus. An executive bonus plan (section 162) is a way for entrepreneurs or businesses to offer additional services to key employees or executives of their choice.