[Narrator] Four tips for retaining, attracting, and motivating key employees.
If you have a successful business, chances are that success is due in part to the performance of your employees. And while every employee is important, there may be a select few that rise above the rest, employees with the skill sets, relationships, and experience to truly impact your bottom line.
These are your key employees, and recruiting, retaining, and motivating them are crucial. That's why you may want to consider a key employee compensation strategy.
[On-screen disclosure] Consult with a tax and legal advisor for consideration of these strategies. [End of on-screen disclosure]
This can take many forms, such as a key employee bonus plan, a nonqualified deferred compensation plan, or supplemental insurance to provide financial protection.
But before you decide on a specific key employee compensation strategy for your business, here are a few things to keep in mind. First, it's important to determine your goals, and the more specific you are about those goals, the better.
For example, if your goal is to sell the business in the near future, you'll need to motivate key employees to keep driving revenue to maximize the value of your business. Maybe you want to maintain consistency at the top of the organization. For that, you'll need a plan that rewards company loyalty.
Or let's say you want to expand into new markets. In that case, you may need to attract employees with knowledge in those markets. Are you trying to motivate, retain, or attract key employees? That's what you need to be clear about. After you've determined your goals, now you need to consider which employees are truly key to the ongoing success of your business.
Those could be employees who have trusted relationships with your best clients, or have knowledge or skills specific to your industry, or employees who would pose an immediate risk to your business if they become a competitor.
You could have one key employee or several, but remember, what motivates one employee may not motivate another.
[On-screen disclosure] This hypothetical example is provided for illustrative purposes only. [End of on-screen disclosure]
For example, a married 35-year-old employee making $80,000 per year who just had a third child may appreciate a bonus plan that provides them with a cash value life insurance policy, such as indexed universal life insurance.
A 55-year-old employee making $300,000 a year, whose children have already graduated college, may prefer the tax advantages of a nonqualified deferred compensation plan.
[On-screen disclosure] Consult with a tax and legal advisor for consideration of these strategies. [End of on-screen disclosure]
Finally, keep in mind that it's important to select a compensation plan that is most effective in achieving your business goals. If your goal is retaining key employees, a nonqualified deferred compensation plan that includes a vesting schedule could be a golden handcuff incentive to stay with your company.
Or if your goal is to motivate key employees, and you have considered granting them an ownership interest in the business, you may want to consider alternative plans that provide the financial rewards of stock ownership without giving them all the associated legal rights of ownership.
Two examples are phantom stock plans and stock appreciation rights plans. And if your goal is to provide a financial reward, a key employee bonus plan may be appropriate. When a key employee bonus plan is funded with an indexed universal life insurance policy, it provides a simple form of incentive compensation that requires minimal administrative costs.
The employer contribution will be tax-deductible, as long as it is reasonable compensation per IRC Section 162, and it will be taxable to the employee. The employer may provide a second bonus to reimburse the employee for taxes they need to pay.
And there are very few limitations on the amount, timing, performance measures, or number of employees you can include in the plan.
Remember, if your success depends on the performance of one or more key employees, attracting, motivating, and keeping them may depend on the appropriate key employee compensation strategy. So determine your business goals, identify your key employees, and choose a compensation plan that works for your employees and your business. Talk to your financia,l tax, and legal professionals about how you can build a key employee compensation plan to accomplish your employee recruiting and retention goals, and your financial professional to determine if an indexed universal life insurance policy is an appropriate funding vehicle.
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This content is for general educational purposes only. It is not intended to provide fiduciary, tax, or legal advice and cannot be used to avoid tax penalties; nor is it intended to market, promote, or recommend any tax plan or arrangement. Allianz Life Insurance Company of North America, its affiliates, and their employees and representatives do not give legal or tax advice. Customers are encouraged to consult with their own legal and tax advisors for advice, and financial professionals for specific guidance or product recommendations.
An employer-owned life insurance policy is subject to the requirements of Internal Revenue Code 101(i) in order to obtain an income-tax-free death benefit. In general, those rules require that before the policy is issued, the employer must provide the insured with a written notice of the life insurance, obtain a written notice of the life insurance, obtain a written consent from the insured, and provide the IRS with ongoing annual reporting regarding policy ownership. Consult with an attorney for application of those rules to a specific situation.
This content is for general educational purposes only. It is not intended to provide fiduciary, tax, or legal advice and cannot be used to avoid tax penalties; nor is it intended to market, promote, or recommend any tax plan or arrangement. Allianz Life Insurance Company of North America, its affiliates, and their employees and representatives do not give legal or tax advice. Customers are encouraged to consult with their own legal and tax advisors for advice, and financial professionals for specific guidance or product recommendations.
Indexed universal life insurance is subject to health and financial underwriting.
Guarantees are backed solely by the financial strength and claims-paying ability of Allianz Life Insurance Company of North America. www.allianzlife.com
Products are issued by Allianz Life Insurance Company of North America, 5701 Golden Hills Drive, Minneapolis, MN 55416-1297. 800.950.1962. www.allianzlife.com
This content does not apply in the state of New York.
AMK-512 (R-3/2025)
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