Administration February 10, 2001

Executive Compensation Trends Remain Steady

October 2, 2001 (PLANSPONSOR.com) - The number of financial services firms that make use of nonqualified deferred compensation (NQDC) and supplemental executive retirement plans (SERPs) is on the rise, a new survey finds.

Reported by

Camilla Klein

The annual executive benefits survey by Clark/Bardes Consulting found that while the prevalence of NQDC plans held steady at 86%, and that of SERPS remained at 75%, the same level as in the last two years, the prevalence of these plans in financial institutions has increased to 87% this year, compared to 85% in 2000.

Funding

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Two thirds of those currently funding their NQDC plans are using Corporate-Owned Life Insurance (COLI) or Trust-Owned Life Insurance (TOLI) as a funding vehicle, up 1% from last year, survey results show.

Funding a plan provides the highest level of security against the potential loss of future payments.

Rabbi Trusts

In addition, some 83% of companies with NQDC plans have adopted some form of security device to protect against loss of future payments, consistent with last year. Of those companies, 87% use a funded rabbi trust for security purposes, up from 86% last year.

A rabbi trust, so named because the first one was set up for a rabbi, is a non-qualified benefit set up as a promise to pay. It is frequently set up to kick in when there is a change in company control. A rabbi trust is unsecured, so if the firm goes bankrupt, the promise to pay the benefit evaporates.

In addition, of those companies offering NQDC plans, 37% mirror the returns of either a 401 (k) plan or a particular stock index, up from 34% last year.

And, while 36% of the sample allows executives to defer long-term incentive compensation awards in NQDC plans, up from 34% last year, 12% allow stock option gains to be deferred into NQDC plans, up from 9% last year.

The survey also found that:

almost 60% of companies provide executives with corporate financial planning benefits
while 84% of executives take advantage of this benefit, consistent with last year.

Lastly, the survey also found that 95% of companies provide basic disability benefits such as group/long-term disability to employees.

Methodology

The results of 2001 “Executive Benefits – A Survey of Current Trends” reflect data compiled from 207 companies, with revenues ranging from $250 million to $2.5 billion and over. Among financial institutions, 87% reported assets in excess of $10 billion.