As executive-compensation schemes come under increasing scrutiny, nonqualified benefits plans are booming. Two recent studies say more companies are offering nonqualified forms of compensation to top executives, not only to boost those executives' retirement coffers but also to lure and retain top talent.
The Todd Organization, an executive-benefits consulting firm, found that 92 percent of the 276 companies it studied (based on Fortune magazine's "Most-Admired" list) offer some form of nonqualified plan, with nonqualified deferred compensation the most popular (see "Pay Me Later" at the end of this article). When MullinTBG, a provider of nonqualified executive benefits, asked companies why they offer such plans, 78 percent cited the need to attract and reward talented managers.
Nonqualified plans don't offer the same tax benefits as, say, a typical 401(k) plan, but they do provide a way for participants to squirrel away far more money than do qualified plans. And popularity seems to breed popularity: nonqualified forms of compensation are now routinely benchmarked so that companies can gauge how their benefits offerings measure up against competitors'.
"They're a major part of the business world now," says Todd Organization president Ward Russell. Therefore, he says, CFOs should monitor aspects of their plans (such as matching contributions, which about half of all companies offer) to make sure the plans meet corporate goals for executive compensation.
Pay Me Later
Prevalence of various aspects of nonqualified deferred compensation plans at select large companies.
- 86% Voluntary deferrals
- 65% At least one company contribution
- 48% 401(k) match restoration
- 28% Other match/discretionary contribution
- 18% Fixed rate with yield above statutory rate
- 15% Company stock as one choice
Source: The Todd Organization