Attracting and Retaining Executive Talent with Fair and Reasonable Compensation

Transcription

1 Attracting and Retaining Executive Talent with Fair and Reasonable Chris Fazzi, Burns-Fazzi, Brock Loretta Dodgen, HCSGroup Kirk Sherman, Sherman & Patterson, Ltd. Your Presenters Chris Burns-Fazzi, Principal at Burns-Fazzi, Brock, has specialized in nonqualified plan design, implementation and administration of executive plans since Chris is based in Charlotte, NC ext. 201 Dr. Loretta P. Dodgen, Managing Partner at HCSGroup, brings more than 25 years of experience building the capacity of organizations and those who serve in leadership positions. She is based in Charlotte, NC Kirk Sherman is a partner with Sherman & Patterson, a law firm focusing in the areas of tax (e.g. 409A and 457(f)), nonqualified deferred compensation and employee benefits. Kirk is based in Maple Plain, MN. ksherman@splawfirm.net,

2 Agenda Attracting and Retaining Executive Talent with Fair and Reasonable Attracting Executive Talent Retaining Executive Talent The Role of the Board of Directors Q&A Federal Credit Union Act Board provides for hiring and compensation of officers and employees 12 U.S.C. 1760(c)(12). 2

3 Reasonableness: FCU s size and financial condition Employee s duties NCUA Reg (a) Examiner s Guide: Generally hands off Unless not safe and sound NCUA Examiner s Guide, p

4 Unsafe and unsound: Significantly exceeds compensation paid in similar settings NCUA Examiner s Guide, p

5 Similarity Responsibilities / duties CU size Location Circumstances NCUA Examiner s Guide, p $250 $200 $150 $100 Benefits Bonus Salary $50 $0 Sample A Sample B Sample C Our CEO 5

6 $250 $200 $150 $100 Benefits Bonus Salary $50 $0 Sample A Sample B Sample C Our CEO $250 $200 $150 $100 Benefits Bonus Salary $50 $0 Sample A Sample B Sample C Our CEO 6

7 $250 $200 $150 $100 Benefits Bonus Salary $50 $0 Sample A Sample B Sample C Our CEO Attracting Executive Talent is a systematic approach to providing monetary value to employees in exchange for work performed. may achieve several purposes assisting in recruitment, job performance, and job satisfaction. 1. Competitive market for talent 2. Increased scrutiny and regulatory changes 3. Pay for performance- variable pay 4. Strategic and reputation risk 5. Fair and reasonable- executives, credit union, and members 7

8 Attracting Executive Talent : attract, retain, recognize 1. Base salary- competitive to market and considers experience, skills, success 2. Bonus/incentives- engage and focus 3. Benefits 4. Perquisites Attracting Executive Talent: Strategy Implement well defined and consistent strategy linking business and HR choices Make decisions grounded in competitive strategy Consider the needs of today and potential evolution in the future Consider compensation as an investment Competitive compensation is a succession planning tool 8

9 Retaining Executive Talent What is the cost of executive turnover? Delay in achieving strategic goals Negative impact on performance Negative impact on morale, motivation Poor impression on membership, potential candidates Lack of leadership in day-to-day operations Retaining Executive Talent What is the value of retaining executives for career service? Long-term return on investment Strategic vision is advanced, uninterrupted Stronger connection to membership Institutional knowledge stays in-house 9

10 Retaining Executive Talent Types of executive benefit plans with retention power Nonqualified Deferred : 457(f) and 457(b) Welfare Benefit: BFB Split Dollar Section 83 Bonus: BFB Restrictive Bonus Plan Nonqualified Deferred Plan: 457(f), SERP, SIP Features Benefit defined by and paid for by credit union No IRS limitations on expense/contributions Flexibility in benefit amount and payment schedule Typically benefits are at risk - they are generally forfeited following voluntary termination or for cause prior to vesting date 10

11 Nonqualified Deferred Plan: 457(f) Plan Accounting Credit union records annual expense to accrue the intended benefit Benefit is payable upon the stated vesting date Benefit is taxable upon vesting Benefit is payable in lump sum Nonqualified Deferred Plan: 457(f) Plan PROS Predictable expense Plan ends at executive s termination Option for cost-recovery investment CONS Legal promise with associated ongoing expense and liability 11

12 Nonqualified Deferred Plan: 457(b) Plan Features Annual contributions made by the executive and/or the credit union Combined annual contributions may not exceed IRS limit ($18,000 for 2015) Nonqualified Deferred Plan: 457(b) Plan Accounting Credit union records an expense each year to accrue annual contributions Earnings on contributions are based on the executive s allocation among offered investment options (similar to 401(k) plan) Contributions and earnings grow tax-deferred 100% vested at all times Distributions are taxable to the executive when received 12

13 Nonqualified Deferred Plan: 457(b) Plan PROS Predictable expense Plan ends at executive s termination CONS IRS limits can make accruing a meaningful benefit difficult Welfare Benefit Plan: BFB Split Dollar Features Credit union pays premiums on life insurance policy owned by the executive Premium payments are treated as loans from credit union to the executive Credit union is repaid the premiums plus interest from the policy death proceeds During retirement, executive has access to tax-free income from policy values 13

14 Welfare Benefit Plan: BFB Split Dollar Accounting Executive owns the policy, so the IRS treats the premium payment as a loan Loan is nonrecourse to the executive and estate, but credit union s recovery is secured by collateral assignment of policy s cash values and death proceeds Interest rate is locked in at the long-term applicable federal rate (AFR) when premium is paid Welfare Benefit Plan: BFB Split Dollar PROS No promised benefit Built-in cost recovery Flexibility regarding vesting Benefit caps CONS Long term commitment 30 year Mortgage Interest rate is fixed 14

15 Section 83 Bonus: BFB Restrictive Bonus Plan Features Credit unions pays premiums on life insurance policy owned by executive Premium payments are taxable income to the executive Credit union bonuses executive for taxes due During retirement, executive has access to tax-free income from policy values Section 83 Bonus: BFB Restrictive Bonus Plan Accounting Credit union can choose to offset cost through the use of institutional insurance or annuities Premiums and bonus are expensed as paid No liability accrues on the books 15

16 Section 83 Bonus: BFB Restrictive Bonus Plan PROS Predictable expense Plan ends at executive s termination Option for cost-recovery investment CONS Ongoing expense and bonus commitment until termination The Role of the Board of Directors Key concepts Understanding the market Understanding the options Understanding the needs of the credit union s executive team Importance of the board retaining the consultant (rather than the executives) Ongoing executive compensation oversight 16

17 Questions? Chris Burns-Fazzi Burns-Fazzi, Brock Dr. Loretta Dodgen HCSGroup Save the date! Executive Benefits: Administration and Due Diligence for Your Current Plan Thursday, May 21 2:00 pm ET Registration opens soon at Kirk Sherman Sherman & Patterson Burns-Fazzi, Brock is the NAFCU Preferred Partner for Executive Benefits and Consulting Services. More educational resources are available at 17