Executive Bonus Plan
About this form
The Executive Bonus Plan is a legal document that allows a company to establish a structured program for awarding bonuses, either in cash or shares of stock, to key employees. This form aims to incentivize performance related to the companyâs growth and profitability while retaining essential personnel. It is distinct from other bonus agreements by its inclusion of stock awards and its administration by the companyâs board or a designated committee.
Form components explained
- Purpose: Promotes company interests by rewarding key employees through bonuses.
- Stock Subject to Plan: Total of up to 5,000,000 shares of Common Stock available for bonus awards.
- Administration: Managed by the Board of Directors or a dedicated Compensation Committee.
- Eligibility: Awards can be granted to key employees, including executives and managers.
- Awards: Bonuses can be distributed in cash or in shares, with specific valuation criteria.
- Termination Rules: Outlines bonus eligibility upon employment termination or employee death.
When to use this document
This form is used when a corporation wants to create or modify a compensation program that includes bonuses for its key employees. It is particularly relevant in scenarios where the company seeks to boost employee retention, motivate performance, or align employeesâ interests with shareholder value through stock awards.
Who should use this form
- Corporations looking to implement or amend an Executive Bonus Plan.
- Business leaders, such as CEOs or Human Resource managers, responsible for employee compensation.
- Legal professionals advising companies on executive compensation policies.
Completing this form step by step
- Define the purpose and objectives of the bonus plan clearly.
- Identify eligible employees, including titles and roles, who will receive bonuses.
- Determine the number of shares and/or cash amounts that will be available for distribution.
- Establish the performance criteria that employees must meet to qualify for awards.
- Include provisions for how bonuses will be managed and administered by the Board of Directors or Compensation Committee.
Notarization guidance
Notarization is not commonly needed for this form. However, certain documents or local rules may make it necessary. Our notarization service, powered by Notarize, allows you to finalize it securely online anytime, day or night.
Common mistakes
- Failing to define clear performance metrics for eligibility.
- Not updating the plan to comply with state regulations.
- Neglecting to communicate the plan details to eligible employees in a timely manner.
Advantages of online completion
- Convenience of easily tailoring the plan to your companyâs needs.
- Quick access to legal templates drafted by licensed attorneys.
- Secure and reliable storage of the document for legal compliance purposes.
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FAQ
According to the Center on Executive Compensation, "Executive pay arrangements typically consist of six distinct compensation components: salary, annual incentives, long-term incentives, benefits, perquisites and severance/change-in-control agreements."1 See High-Performing Companies Pay Executives Differently.
Generally, the plans use life insurance, funded by the employer's bonus payments, to provide the insured employee with access to policy cash value if needed for retirement or other purposes and death benefit protection for the employee's family.
An executive bonus plan (Section 162) is a way for business owners or companies to provide additional supplemental benefits to key employees or executives of their choice.With an executive bonus plan, the business can use tax deductible company funds to selectively provide valued benefits to key people.
An employee bonus plan provides compensation beyond annual salary to employees as an incentive or reward for reaching certain predetermined individual or team goals. The purpose of bonus plans is to provide recognition for employees who go above and beyond normal work obligations.
A bonus scheme is a reward tool that provides a lump sum payment in return for meeting agreed objectives. The way schemes are designed often means that the value of the bonus is included in the targets that are set, which makes the scheme self-financing.
The employee is the owner of the policy, and gets to determine the beneficiaries and manage the funds within the policy. The employer covers the cost of the policy by periodically giving the employee a bonus big enough to pay the policy premiums. The employee then pays the premiums to the insurance carrier.
The employee is the owner of the policy, and gets to determine the beneficiaries and manage the funds within the policy. The employer covers the cost of the policy by periodically giving the employee a bonus big enough to pay the policy premiums. The employee then pays the premiums to the insurance carrier.
In a Double Bonus design, the employer pays the premium amount, and provides a cash sum to the executive to cover the tax on the premium amount. This makes the entire bonus effectively tax-free to the executive.
