Keeping a quality chief executive engaged

Situation:

The passion, commitment, and contacts of the chief executive of a specialty museum helped make the organization more visible, achieve financial stability, and become a respected tourist attraction. Losing him to a competitor or to an unexpected health episode would cripple the organization until it found a suitable replacement.

Action Steps:

Grant, Hinkle & Jacobs helped the museum and the CEO design a SERP, the terms of which included a salary continuation benefit to be paid to his named beneficiaries if he passes away while employed by the museum. This incentivizes him to stay and continue to perform at a high level.

To meet its SERP obligations, the museum purchased an insurance policy on the CEO’s life. If he passes away while employed, the museum will use a portion of the death benefit proceeds to pay the salary continuation obligation. He elected to pay a small amount of current income tax in order to make this benefit tax-free to his beneficiaries.

The museum will keep the remainder of the death benefit for “key man” purposes to help it survive financially while it finds a replacement.

If the executive leaves or retires, the museum is still the policy owner and retains the flexibility to keep the insurance in force depending on the circumstances, including the health of the insured.

Results:

The museum was relieved that it finally found a cost-effective way to provide a meaningful benefit that helps to retain its chief executive while protecting the organization in case of his unexpected demise.