Executive Bonus Plans
Top performers often seek financial rewards other than salary. You can establish an Executive Benefit Program that will exceed your key employees’ expectations and attract new talent without putting financial strain on your balance sheet.

What is an Executive Bonus Plan?
A basic Executive Bonus Plan is very simple.
The Executive purchases a life insurance policy on his/her life, and you pay the premium as a “bonus.”
You may be eligible to take an income tax deduction on the bonus1.
The Executive owns the policy and is responsible for the taxes on the bonus. You may choose to pay the taxes for you Executive through what is called a “double bonus.” The Executive has full access to the policy cash value2 and the valuable tax-free death benefit3 will be paid to the Executive's beneficiaries upon his or her death.
Advantages for your business
Recruit, reward, and retain key employees
Having a strong team in place throughout the life cycle of your business will add to the value of your business at time of sale or transition. The plan helps to ensure that your top performers will stay with your firm for the long term.
Simple to set up and easy to maintain
The plan is easy for your company to set up, and requires minimum administration. Documentation for the plan is straightforward. Neither ERISA reporting nor IRS qualification is required.
Immediate tax deduction
Your business is eligible for an immediate tax deduction for the bonus that you give
to your executive.
Who you reward is your choice
You may choose which executives will be given bonuses — and the amount of each bonus.
Advantages for your executives
Valuable protection
Protecting loved ones is a basic human drive. To provide an income-tax free death benefit for your executive’s beneficiaries is invaluable.
Use of the cash value
The cash value of the policy grow tax deferred and can be used by the executive for any purpose. Some policy owners use the cash value to supplement their retirement income.4
Low to No Cost
Unless you choose to use a double bonus, the only out-of-pocket cost to your executive is the tax on the bonus.
No government control or penalties
There are no IRS code contribution limits, and no penalty for early surrenders or loans — as long as the policy isn’t classified as a Modified Endowment Contract.
Customize your plan to meet your business needs
It's up to you -- reward whoever you like, at whatever level. Here are some common plan variations.

Double Bonus Plan
The Executive retains ownership of the policy and the inherent cash value and benefits, but they must pay taxes on the premium amounts paid to them as bonus. As an extra incentive, you can remove the tax burden by paying them an extra bonus to cover the taxes.

A Loyalty Reward
You can set up a vesting arrangement, restricting their access to the cash value of the policy until predetermined dates, or until they reach retirement. So the plan becomes a form of “golden handcuffs,” designed to keep the employee working at your company for as long as possible.

A Plan Tied to Performance
If you have certain goals or benchmarks in mind, you can structure your plan around the executive achieving them. If the Executive doesn’t achieve them, you can decrease or withhold the bonus amount.
1 IRC Section 162 requires compensation to be “reasonable” in order for it to be tax deductible to the business.
2 Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under age 59½, any taxable withdrawal may also be subject to a 10% federal tax penalty.
3 First Financial Group does not provide tax, legal, or accounting advice. Consult your tax, legal, and accounting professional regarding your individual situation.
4 Cash values in a whole life policy grow from dividends. Dividends are not guaranteed.