The New CFO Financial Leadership Manual, Second Edition

Chapter 23. Employee Compensation

The CFO frequently supervises the human resources department, and so is responsible for a variety of employee compensation topics. While this chapter is not intended to be a comprehensive overview of the entire compensation area, it does provide useful information on several compensation topics for which the CFO is frequently expected to have direct responsibility—deferred compensation plans, life insurance, stock appreciation rights, and stock options. These topics tend to fall outside the range of day-to-day activities of the human resources department, because they tend to be granted only under special circumstances and with greater frequency to the executive team.

An additional topic is the use of a bonus sliding scale. The human resources department manages the bonus plan, but the CFO should be aware of the sliding scale system, since it has a significant impact on the behavior of anyone subject to the bonus plan. Finally, we address the use of captive insurance companies, which can profoundly reduce the cost of employee benefits.

Deferred Compensation^[*]

There are a variety of deferred compensation plans used by CFOs who attempt to lock in the services of company employees as far into the future as possible. Under any of these plans, an employee’s tax objective is to only pay a tax when the compensation is actually received, while the employer wants to receive a full expense deduction for any amounts paid—and the sooner, the better.

If a plan ...