4 - Employee Bene ts and Perquisites— Part I Flashcards
Companies offer executive benefit plans and perquisites for a number of reasons. These types of programs are an integral part of executive compensation. They serve to ______ the executive-level employees.
A prime advantage of such supplemental plans is that the company can be selective in determining participation, extent of coverage, forfeiture and vesting provisions, and period of protection.
The disadvantage is that the company receives no ______until the benefit is paid. The advantage is that the executive receives a greater benefit than otherwise available, at reasonably attractive income tax rates.
Because the main appeal of perks is restricted use, they either (a) identify a group more exclusive than that covered by the long-term incentive plan or (b) reinforce the distinction between those covered under long-term incentives and all others, by de ning eligibility as participation in the long-term plan.
reward
tax deduction
Questions that should be raised in designing an employee bene t plan are:
- (a) What ______ should be provided?
- (b) Who will be ______?
- (c) Who will be _____?
- (d) Will there be _____ of coverage?
- (e) How will the plan be ______?
- (f) How much, if any, of the _____ will employees pay?
- (g) How will the plan be _____?
- (h) What program _______ is consistent with the organization’s culture?
- benefits
- eligible
- covered
- degrees
- administered
- cost
- funded
- balance
Defining benefit cost as a percentage of pay can be done in each of the three following ways:
- (1) Dividing the total cost for all benefits by gross pay or _____ compensation
- (2) Dividing the total cost for all benefits by base pay for _______
- (3) Dividing benefits cost, excluding time off with pay, by _____.
- W-2
- time actually worked
- gross pay
The executive, like everyone else in the company, is eligible to take a specified number of paid holidays. For most companies, these holidays are equivalent to two or three weeks. In addition, holidays called “______” may be provided. These are either predetermined by the company or left to employee choice. If left to employee choice, they may be suf cient in number to substitute for other popular holidays.
More important than paid holidays are paid vacations, which usually depend on the ________ with the company. It is common to find vacation time running from two to six or more weeks depending upon the policies of the company. Not many newly hired executives— even workaholics who are unlikely to take the full allowance—will be content with ____ weeks’ vacation. Thus, even if an executive is unable to take more than two weeks vacation a year, he or she will want to take advantage of any option designed to make the executive eligible for more vacation time. It is not unusual for companies to provide liberalized vacations for certain executives, identified by organization level and/or title. This may be a at four- or six-week minimum regardless of service or a supplement to the basic allowance. Also, executives may be allowed to accumulate any unused portion for one or more years.
floaters
length of service
two
Companies typically supplement the allowance provided for jury or witness duty. in other words, the company pays the individual as usual but expects the employee to sign over to the company any ______. some companies allow the employee to retain any allowance provided.
pay received
Accident or illness is covered by workers’ compensation if they are work-related or by disability pay plans if they are _______ in nature. Disability plans are short term or long term, depending on the length of absence. Normally, a short-term plan covers the first _____ months of absence at full pay.
While paid sick leave is a variation of short-term disability pay, it differs in that at the end of the year any unused sick leave is paid in _____. Disability pay is expressed in the maximum number of days or weeks that absence for medical reasons will be paid. Sick leave is usually described in the number of ________ each year.
nonoccupational
six
cash
days permitted
Long-term disability (LTD) bene ts begin when short-term bene ts expire. LTD bene ts are typically integrated with Social Security. LTD bene ts are added to Social Security payments to reach a speci c pay target, such as two-thirds of pay.
Long-term disability bene ts amounts are not normally affected by additional _______ purchased independently by the employee. Normally, long-term disability bene ts run for ____ years if the individual is unable to return to the same job he or she previously held. After this two-year period, it is common to continue benefits but only if one is unable to work at a job for which one is suited by experience, education, etc. Long-term bene ts can run from a short time period such as one year to much longer periods such as to age 65 or even for life. Since a signi cant portion of plan bene ts are after tax and gross pay is pretax, plan bene ts rarely exceed about two-thirds of gross pay.
Typically, broad-based long-term disability bene t plans discriminate against higher paid employees in two ways. These two ways are: (1) _______ pay is often excluded as a definition of pay, so the formula becomes two-thirds of salary rather than two-thirds of earnings, and (2) there is a maximum ______ beneft. However, it is not uncommon to supplement short- term and long-term disability payments by (a) increasing or completely removing the dollar maximum on bene ts and/or (b) increasing the time period of bene ts.
insurance benefits
two
incentive
monthly
the 1993 family and medical leave Act (fmlA) legally mandated time off to tend to family issues and/or recover from a medical problem. this act requires job-protected, unpaid time off for up to ____ weeks in a 12-month period. _____ benefits also must be continued.
12
medical
While such schedules do not provide additional pay for lost time, they increase exibility in the workweek schedule. Flexible scheduling includes variable start/stop times, variable workdays and job sharing. It also includes work at home, frequently referred to as _______ because of the electronic movement of the work rather than the physical movement of the individual. Not only does it eliminate transportation costs, evidence suggests it improves _____ and increases _____. For executives, the flexible work schedule also means working while commuting, whether being driven to work or back, or in the air. Transportation provides another opportunity for the executive to extend his or her workweek. Flexible work schedules for the executive’s _____ may make work more difficult because invariably the person the executive wants to see is not in.
telecommuting
morale
productivity
staff
For most employees, the employment contract is a _____ not a legal commitment. The idea behind today’s prevailing unwritten agreement between an employer and an employee is that in place of a job guarantee, the employer provides opportunities to acquire new ____. As long as an employee’s skills are needed and performance requirements met, the individual will have a job. When either is no longer true, the individual is discharged to nd work elsewhere but with newly acquired skills. In other words, the long-standing “__________” principle is truer now than ever before.
Newly hired executives and executives taking on new responsibilities should seek a written employment contract. Executive employment contracts typically specify the period of time covered, what constitutes acceptable performance and what the executive will receive in the way of compensation. In addition to stipulating compensation during the period of employment, the contract often will provide a ________ to cover what the executive has left behind in his or her old job and specify the terms and the conditions under which the executive is entitled to severance pay. Contract periods of three to five years are common, and they may provide for automatic annual renewal. Other common features include a process for resolving disputes and a clause barring the executive from disclosing confidential information, often for an indefinite period, and a noncompete clause that prevents the executive from engaging in any activities that are considered competitive to the employer. Normally, violation of a noncompete agreement results not only in the loss of future payments for _______, but may require the return of previous amounts if a ______ clause is included.
- social
- job skills
- employment-at-will
- signing bonus
- severance
- clawback
_______ is given to an employee who does not perform satisfactorily or who is no longer needed by a company. Conceptually, it is intended to bridge the period of ______ and to supplement governmental unemployment compensation payments.
Because it typically takes longer for a highly paid individual to find a new job, these benefits are very important to executives. However, most broad-based plans do not adequately protect executives since the normal pay period of weeks of pay is likely to be insufficient for their needs.
Therefore, some companies may devise a formula to address the issue of this pay for executives. A simple one would be one day of pay for every $1,000 of earnings or, alternatively, a ______ scale might be used. Or, some companies may adopt a more traditional two or three weeks per year of service for all employees including executives, except those executives whose pay is determined by the company’s compensation committee.
In addition to level of compensation, another factor in severance pay formulas is the general _______ of the departing executive. Other things being equal, a person with experience in several industries has an advantage over a person who has spent all of his or her working life in one industry. Furthermore, companies are likely to be more generous with an individual who has given all the outward appearances of trying.
severance pay
unemployment
graduated
marketability
Change-of-control contracts specify the pay and benefits an executive receives if his or her position is lost following a defined change of control of the company. The control change could be any of the following:
- (a) A specific percentage of the _____ shares having been acquired by a person or organization
- (b) A ______
- (c) A sale of a stated portion of the company’s _____
- (d) A specified change in the composition of the ________
- (e) ______ or dissolution of the company.
The contract may be activated at time of shareholder approval or later when the transaction is completed. Typically, these are called _______
A single trigger contract typically permits the covered executive to leave voluntarily within ___ days following a change in control and receive all the bene ts stated in the contract. A modified single trigger contract provides severance benefits for a voluntary termination typically within 30 days after a one-year anniversary of the defined change of control. Sometimes called a _____, it is in essence a delayed single trigger contract. Its purpose is to retain key executives for a stated period to ensure a smooth transition of leadership.
- voting
- merger
- assets
- board of directors
- Liquidation
called golden parachutes.
30
walkaway
Double trigger contracts, the more ______ of the two, require both a change in control and either involuntary or constructive termination.
An involuntary termination is one in which the executive is asked to leave; in a constructive termination, good cause is provided for the executive to leave within a specified period following the change of control, typically two to three years.
A ______ is a modified trigger that permits voluntary termination with full bene ts for a brief period after one year in addition to being a double trigger for the first two to three years. Since the ____-year average is the base for calculating the allowable golden parachute payment, it favors individuals who had significant ____ earnings during this period. Namely, it would be advantageous to have large stock option exercises, big incentive payouts, and no _____ of pay.
- prevalent
- hybrid
- five
- W-2
- deferrals
Some companies promise to gross up the payment to executives to ensure they receive the annual net of any excise taxes. In doing so, the company may also include other items in the contract. The most common is ________ vesting of all unvested stock options and stock awards. It may further require immediate payout. The value of a golden parachute to an executive is _____. It is a good severance package. The value to shareholders is that since executives are protected nancially, they should not be worried about losing their jobs, and thereby, be free to negotiate the best possible arrangement for shareholders.
At the time of a takeover, some companies have extended to all employees the type of severance bene ts usually reserved for executives. The all-employee protection plan is often called a _______. In designing or reviewing these, it is useful to compare the two payouts as well as comparing them to a standard termination schedule. Parachutes that are significantly more liberal than the Internal Revenue Code-defined golden parachutes are often called _______ parachutes.
- immediate
- clear
- tin parachute
- platinum
____________ is the help provided an employee in getting a new job. This includes preparing or updating a resumé and circulating that resumé to those who might be hiring, rst within the company to eliminate the need for severance pay and to permit the individual to continue the company bene t plans. If this fails, an external search is undertaken. Assistance is also provided in qualifying for unemployment compensation.
Employers often provide terminated executives more deluxe assistance at time of severance. The executive may be counseled either by company consultants or outside specialists on assessment of personal strengths and weaknesses, developing a plan of action for getting a new job, preparation of a resumé and conducting an effective job interview. All this advice is directed toward assisting the terminated executive to get a new job quickl
Outplacement assistance
