Golden Handcuffs


By: Louis Rendemonti

Imagine your key employee comes to you and tells you he is leaving. He has been hired by a competitor. After you get up off the floor you ask yourself what could I have done to keep my key employee happy and satisfied? You paid him a good salary, three weeks off for vacation, provided health insurance, a 401 (k) plan and yet he still left. Other than make him a stockholder or partner, what else could you have done?

In today’s competitive environment, business owners are seeking ways to reward their key employees in order to keep them motivated and retain their services. A Non-qualified Deferred Compensation Plan provides a business with a way to provide generous benefits to only selected, key executive employees. The employees can be selected by criteria such as meeting certain stated goals and/or staying with the business for a stated period of time.

I have personally helped many Home Builder’s and other small closely held businesses create this type of “Golden Handcuff” for key employees. I found that most key employees were not looking for ownership but in fact had a particular financial objective they were trying to achieve that led them down the path of seeking opportunities elsewhere. It was very effective and achieved the goals set out by the business owner and management.

A Non-Qualified Deferred Compensation Plan is a written agreement between a business and key executive.

The business makes a contractual, unsecured promise to make future payments to a key employee if the key employee meets certain stated requirements. The payments may be based on a number of factors and the flexibility is almost unlimited. Traditionally, the Non-qualified Deferred Compensation Plan provides significant benefits to the employee at retirement or to the employee’s beneficiary if the employee dies before retirement. Disability benefits can be incorporated into the plan as well. The business receives a tax deduction when payments are made and the employee receives the benefits as taxable income.

A Non- Qualified Deferred Compensation Plan can be informally funded with permanent insurance contracts that allow a business to achieve full cost recovery for the plan. Upon the executive’s death, the life insurance proceeds paid to the business can allow the business to recover any money paid out in contributions and benefits.

Some of the benefits to the business include:

  • Provides “Golden Handcuffs” to lock in key employees.
  • Helps the business recruit, retain, reward and retire key employees. Allows the business to select the key employee(s) they want to reward.
  • Increases loyalty
  • Avoids most “ERISA” compliance rules required of Qualified Retirement Plans. Gives the business control over plan benefits.
  • Can offer the business complete cost recovery.
  • Rounds out a business’ benefits package by providing additional benefits to any existing Qualified Retirement Plans.
  • With proper planning businesses can reward, motivate and retain their key executives in a cost – efficient manner.

Some of the benefits to the employee include:

  • Enhances existing retirement savings. Supplements existing qualified retirement plan
  • Provides additional pre-retirement death and disability benefits. Defers taxable income until benefits are paid.
  • Knows he/she is valued by the company.
  • Non – Qualified Deferred Compensation Plans are very flexible and can be customized for a given situation. As a result, there are several variations including: Salary Continuations Plans, Compensation Deferral, Performance Pay Plan, Death Benefit Only, and 401K Mirror Plans.

Non-qualified compensation arrangements provide an attractive way for employers to provide benefits that help recruit, reward, and retain key employees. The flexibility available in these arrangements, coupled with relative lack of government regulation, continue to make these attractive to employers and employees.

For more information on how you can keep your employees motivated and retain their services, call for your complimentary edition of the book “How to Run Your Business so You Can Leave it in Style” by John Brown, CEO of Business Enterprise Institute.

Louis Rendemonti, a member of the Manatee-Sarasota Building Industry Association, is Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 14021 Metropolis Ave, Ft Myers FL 33912. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian. Rendemonti Wealth Strategies LLC] is not an affiliate or subsidiary of PAS or Guardian. (2016-28018 Exp. 8/18)