Dodd Consulting, LLC

"We guide our clients through their decision making process involved in considering Executive Benefits, Employee Benefits, Wealth Preservation and Insurance Planning."

 

Including Performance Pay and Incentives in Disability Programs

In an era that has emphasized stock options and bonus compensation, executives may find their performance pay is not part of their current supplemental disability equation. Executives may be shocked to find that they would receive only a portion of what they anticipated in the event of a long-term disability. Often, this is not the intent of the company, but rather an oversight. With today's compensation mix for top employees comprising perhaps 20% to 30% salary (and 70% to 80% incentive bonus and stock options), an executive would receive only about 15% of total compensation if disabled, while suffering a significant lifestyle change. Many long-term disability plans were designed and implemented at a time when executive compensation was more heavily comprised of base salary.

These plans were designed to meet corporate clients' goals: providing basic benefits for the average covered employee, usually through a group plan, encouraging a return to work and doing so at the lowest possible cost. Highly compensated employees usually fall far short in plans designed to deliver a percentage of base pay "only" as disability benefits, even if income tax free. This is simply because of the disproportionate amount of total compensation arising from incentives, bonus, stock options, and other forms of contingent compensation.

Supplemental plans can be designed to give executives the opportunity to cover these other sources of compensation.

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