Retention Bonus Plans help you keep top talent
When it comes to running a business, you need to worry about many things. But when it comes to the top performers who are major contributors to your success, wouldn’t you like to worry a little less about losing them to the competition? Naturally, your goal is to keep these key employees on staff for the long term. But in exchange for that loyalty, these talented individuals often seek rewards that go beyond a paycheck.
It’s common for these top executives to seek the kind of financial rewards that substantiate the valuable contributions they make to your business. Fortunately, there’s an executive benefit program that can help to satisfy your employees’ needs — and yours. It’s called a Retention Bonus Plan.
What is a Retention Bonus Plan?
A Retention Bonus Plan is ordinarily created through the use of a Retention Bonus Arrangement — and it can be funded with a life insurance policy, which can help to make it a more affordable solution. Essentially, it works like this: If the employee participating in the plan stays with the employer for the period of time stipulated in the Retention Bonus Arrangement (the “stay period”), he or she will receive the bonus amount specified in the arrangement.
How a Retention Bonus Plan works
With the key employee’s written permission, the business owner purchases a life insurance policy that is owned by the business and insures the key employee. If the key employee remains with the company for the stay period (generally no more than 10 years), the key employee will receive the amount of the bonus that is specified in the Retention Bonus Arrangement. The employer can use the
policy’s cash value to fund this bonus.
Advantages
The Retention Bonus Plan offers advantages for both your business and those employees you choose to participate:
Advantages for your business
The plan builds loyalty
Key employees who participate may be more likely to stay with your company in order to earn the bonus.
It’s flexible
You can choose which employee(s) will participate — and even offer each participant a different bonus amount. You can also design the plan to offer additional stay periods — and corresponding rewards — after the initial stay period has been achieved.
It’s valuable
Policy cash value can be listed as an asset on your business’s books, and can be tapped in case of an emergency.
It’s cost-effective
If properly structured, the policy
death benefit can ultimately provide your business with recovery of plan costs. And when funded by life insurance, this plan can have less of an effect on your bottom line in the long term
It’s easy to implement and administer
The simplicity of the plan makes it easy for you (and your employees) to
understand — and easy for your business to implement.
It’s tax deductible
As long as it is reasonable compensation,the bonus may qualify for a tax deduction when it is paid out.
Advantages for your employees
• It’s valuable: The employees you select to participate will receive a lump-sum cash benefit if they stay with your business for the time frame specified in the Retention Bonus Arrangement.
• It’s attainable: The benefit will come within a reasonable time frame, compared to qualified pension plans or other benefits that aren’t accessible until retirement.
Why a Retention Bonus Plan may be right for your business
A Retention Bonus Plan can help to protect the long-term success of your business, since it can help you retain your top performers for years. This type of plan could be a valuable solution for your company if you:
• Have key employees with unique skills, experience, and leadership; valuable relationships with key clients; and/or specialized training that would make it difficult, time-consuming and expensive to replace them.
• Have executives, managers, or sales people on staff who make substantial contributions to your business’s bottom line — and are concerned about what would happen to your company should any of these key people leave.
• Can’t afford to lose any of your top performers to the competition.
• Have a business that’s stable and well positioned for the future
Learn how a Retention Bonus Plan could benefit your business