Total Compensation Glossary

• 401(k) - 401(k) plans are qualified plans established by employers to which eligible employees may make salary deferral contributions on a post and/or pre-tax basis with a maximum annual contribution of $12,000. Employers may make matching or non-elective contributions to the plan on behalf of eligible employees and may also add a profit sharing feature to the plan.
• Certified Financial Planner (CFP®) - A CFP is a person who has passed examinations accredited by the Certified Financial Planner Board of Standards, showing that the person is able to manage a client's banking, estate, insurance, investment and tax affairs.
• Corporate-Owned Life Insurance (COLI) - COLI is an attractive investment alternative for nonqualified benefits because it allows the company to accumulate an asset, in the form of cash value, on a tax deferred basis. The use of COLI can ultimately provide a tax free return through death benefit proceeds.
• Certified Public Accountant (CPA) - A CPA is an accountant who has met certain standards, including experience, age and licensing and passed exams in a particular state.
• Deferred Account - A deferred account postpones tax liabilities until a later date. Deferred accounts are typically retirement accounts.
• Defined Benefits Plans - Defined Benefits Plans are traditional pension plans covered by federal insurance that limit the amount of salary that can be included in the calculation of benefits to $200,000.
• Employee Stock Option (ESOs) - ESOs are stock options granted to specified employees of a company. ESOs carry the right, but not the obligation, to buy a certain amount of shares in the company at a predetermined price.
• Employee Stock Ownership Plan (ESOPs) - In an ESOP, the employer contributes to a fund invested primarily in company stock and makes distributions in stock or cash. Employees who exercise a stock option under an ESOP do not pay tax on any gains until the stock is sold.
• Equity Split-Dollar Plans - In an equity split-dollar plan, the employer and key employee share in the cost of an insurance policy. The employer gives the executive an interest in the cash value of the life policy once the cash value exceeds the employer's cumulative premiums.
• Estate Planning - Estate planning is the overall planning of a person's wealth, including the preparation of a will and the planning of taxes after the individual's death.
• Executive Financial Planning - Executive Financial Planning is a financial services program for key corporate managers that helps employees with decisions about retirement and insurance benefits as well as income tax and estate plans to provide a fully integrated financial picture.
• Golden Parachute - A golden parachute is a severance agreement that protects the executive financially in the event of a dismissal.
• Incentive Stock Option (ISO) - A type of employee stock option with a tax benefit, when you exercise, of not having to pay ordinary income tax. Instead, the options are taxed at a capital gains rate.
• Noncontributory Plan - A plan that is completely funded by the employer.
• Nonqualified Deferred Compensation (NQDC) - Non-qualified plans that allow top management to defer income tax on current compensation as well as bonuses. Plan participants may contribute up to 100 percent of compensation and, in certain cases; companies make additional contributions to the plan.
• Nonqualified Stock Options (NSO) - Nonqualified stock options are a type of employee stock option where employees pay ordinary income tax on the difference between the grant price and the price at which the option is exercised.
• Mutual Funds - Mutual funds are a method of funding executive benefits plans that provide the company with returns that can be closely matched to the participants' investment allocation, although the company must pay the income taxes incurred on realized gains out of current income.
• Pre-tax Income - Pre-tax income is the account created with funds from a worker's paycheck before federal income taxes are deducted.
• Rabbi Trust - A rabbi trust is a trust created for the purpose of supporting the non-qualified benefit obligations of employers to their employees.
• Split-Dollar Life Insurance - Split-Dollar Life Insurance allows employers and employees to share in the cost of an insurance policy.
• Stock Purchase Plan - A stock purchase plan allows employees of a company to purchase shares of the company, often at a discount or with matching employer funds.
• Supplemental Executive Retirement Plans (SERPs) - SERPs allow companies to provide benefits to select key employees. They allow the sponsoring company to dictate who will participate, what benefits will be provided and how and when employee benefits will become vested. They are often selected for their strong retention value as well as for retirement income planning predictability.
• Total Compensation - Total Compensation or generally, "Compensation" is a term used to encompass the entire range of wages and benefits, both current and deferred, that employees receive from their employment. Total Compensation includes wages and salary, non-wage cash payments (such as bonuses) and benefits.
• Trust-Owned Life Insurance (TOLI) - TOLI is a life insurance policy purchased by a trustee to serve the interests of a trust and its beneficiaries by providing a financial vehicle for achieving specific objectives for the trust on an effective and efficient basis, such as paying or deferring taxes or moving assets from one generation to another.
• Vesting - The amount of time it takes for an employee to gain ownership of the employer's contribution to the employee's plan. Generally the employee does not own 100% of the contribution immediately; instead, the employee vests portions according to a schedule determined by the employer.
• Voluntary Deferred Compensation (VDC) Plans - VDC plans provide a select group of management or highly compensated employees with an opportunity to defer an amount of base salary or bonus for tax-deferred savings or to meet personal financial needs and capital accumulation objectives.