Long Term Capital Accumulation
Employees are granted rewards that appreciate over a long period (i.e., 10, 15 years or career) based on either annual or long-term company performance.
NOTE: this type of Alternative Reward Plan may take many forms, but is generally considered to be a non-qualified deferred compensation program.
Design Features:
- Annual or longer-term performance targets are established; requiring that standards be established and the planning process is well documented.
- Funding requires a systematic mechanism for setting aside sufficient moneys to fund rewards.
Advantages:
- Focuses participants on attainment of key performance targets.
- These are usually highly motivating programs since the commutative effect of awards over time is usually very significant.
- · The program can be integrated with other compensation plans to form a total compensation program.
Disadvantages:
- The motivational impact may be lost because of the long wait to receive cash payments; particularly for younger employees.
- De-emphasizes individual performance over group activities.
- Plan documentation is critical and can be expensive because of potential legal and IRS issues.
- Has the disadvantage of tying up large amounts of capital over long period.
The following are the four principal long term capital accumulation methods available to privately and closely held companies:
To find out more on how Compensation Resources, Inc. can help your company with Long Term Capital Accumulation, please contact us or call us directly to speak with our compensation consultants at 877-934-0505.
