Financial Parity; Evaluating Offers

Linda* wasn’t expecting to leave the cosmetics company where she’d worked for 18 years, the last six as senior vice president. Her position was eliminated two months ago. Search firms have already started courting, and fortunately she expects her unplanned furlough to be short lived.

Linda had been deferring up to 20% of her $280,000 salary plus bonus into a nonqualified deferred compensation plan, which has been growing tax free. The nonqualified deferred comp plan benefit is complementary to the company’s 401(k). The plan lets highly compensated executives, who are constrained by top-heavy restrictions from maximizing their 401(k) contributions, to additionally defer income pre-tax up to 20% of compensation.

With that benefit, Linda has accrued about $750,000 in addition to traditional 401(k) retirement accounts. What is the equivalent annual income value of that tax-deferral benefit worth when Linda compares her total compensation with other cash offers? She knows that financial parity is achieved when total compensation, including equity compensation and deferrals, is compared with total compensation at the new company.

Linda owes it to herself to evaluate financial parity. She is unsure of the value of her short- and long-term incentives. She is aware that, as an executive wealth planning firm, SFG may help her to quantify financial parity between competing employment offers. She needs to do some planning around the timing and tax implications of her deferred compensation payout from her former employer as well.

SFG can model current and proposed cash and equity-based compensation and compare new and historical compensation side by side. Other considerations include the value of stock-based compensation from one company versus another; timing issues that impact parity; and the quantifiable differences between the two.

With that analysis in hand, Linda will consider the financial parity of an offer, along with the job content, company quality, fit and culture, in accepting a new role.

*The name, likeness, and circumstances in this example are a fictional composite of facts from executives similar to actual SFG Clients.

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Executive Compensation, Non-Qualified Deferred Compensation, Performance Stock Units, Restricted Stock Units, Retirement Planning

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