PLANADVISER: What does the current
nonqualified deferred compensation [NQDC]
market look like? To whom are such plans
currently being offered?
Roberts: At one time, these plans were found
primarily at Fortune 1000 sized companies.
Now, mid-sized companies are adopting
these plans in greater numbers, and there
is even interest from small companies who
want to attract, retain and motivate their key
Publicly-held companies typically offer
various forms of equity-based compensation
to their key employees. While stock option
grants are in decline, we have seen a recent
increase in the prevalence of performance
units and restricted stock at public companies. For many years, privately-held firms would offer additional
cash compensation in lieu of equity-based compensation when
competing for talent. Recently, private employers are increasingly interested in performance based compensation programs
that do not result in an immediate cash payment.
PA: How do you see these privately-held employers looking
at plan design—long-term-incentive plan design—to structure
these programs? What are they considering? What options
make more sense for certain employers over others?
Roberts: Some privately-held employers have a particular plan
design already in mind before they reach out to attorneys,
vendors and consultants to begin discussions. We frequently
hear from business owners who want awards to be 100%
discretionary and subject to a very long vesting schedule.
While this design may work at some companies, we typically
try to connect the business owner with an experienced executive compensation and benefits consultant who can assist in
reviewing peer group pay and benefits practices, identifying
appropriate performance metrics and reviewing the demographics of the key employee population.
Next, the consultant can assist with designing an incentive plan which rewards company and individual performance
without driving unintended performance that can be detrimental to the company. The vesting schedule can be designed
so the plan participants can see the program’s value while
also creating the “golden handcuffs” which help to retain key
employees who drive the success of the business.
PA: How should an employer communicate the value of these
executive benefit plans to employees?
Roberts: The best employers do two things that are very helpful.
They provide access to financial planning for their executive
team – either paying for the service completely or partially, or
simply making an introduction. These employers work with the
financial planners to explain the details of the executive benefit
plans. When the financial advisors understand the plans, they
can provide customized, personal advice to the executives and
help them maximize their return from these
plans in terms of company contributions and
Second, the best employers incorporate
the CEO or the CFO (Chief Financial Officer)
into their communication strategy. Whether
via a live meeting, webinar or memo, the
message is much more likely to have an
impact when it comes from a top officer of the
company. These two strategies can help key
employees to better understand and benefit
from your executive benefit plans.
PA: How does the plan sponsor know if it
should offer a plan like this? What type of
demographic would indicate whether this
was the right plan option or benefit offering?
Roberts: Ultimately, executive compensation and benefit plans
are designed to attract, retain and reward key employees. If
someone crucial to your organization has left recently, you may
want to review your executive total rewards strategy. If you
already have something in place that seems to work, and you
don’t have a turnover issue, there may be no need to review
your executive compensation and benefits plans. But if key
people have left recently, and their leaving put a strain on the
business, perhaps you should have this conversation before
the next key employee walks out the door.
PA: How should plan sponsors look for a recordkeeper if
they’ve decided to offer such a plan, and what kind of participant experience should they be offering to employees?
Roberts: Both the record-keeper and the financial advisor
should have experience working with executive compensation
and benefit plans. If your financial advisor is primarily focused
on 401(k) plans, you may need to lean harder on your record-keeper to stay compliant with the special rules which apply to
deferred compensation and long term incentive plans. Many
plan sponsors are looking to consolidate vendors so they have
a single point of contact and a single website for the 401(k),
deferred compensation and long term incentive plans. While
this trend towards vendor consolidation has benefits, be sure
your record-keeper has plenty of experience working with executive benefit plans so they can track and enforce the unique
features of these plans and keep you from, potentially, a costly
§409A violation. n
Jeff Roberts from ADP Retirement Services discusses the value of
executive compensation and nonqualified deferred compensation plans
Valuable Executive Savings Plans
JEFF ROBERTS: Manager, ADP
Executive Deferred Compensation
The views expressed in this article are the speaker’s own and not necessarily those of ADP, LLC or its affiliates. The article is for general information only and is not intended to provide investment, financial, tax or
legal advice or recommendations for any particular situation or type of