Executive Compensation: Decoded
Alright, you’re probably reading this and wondering why I am talking about executive compensation. Most of my clients aren’t executives and don’t have businesses that pay executives. Also, if you’ve read my content for any amount of time, you know that I disagree with retirement plans. So what’s the deal?
Don’t worry, this is going to make complete sense by the end of the article!
Imagine you’ve built your wealth. You’ve got assets and entities and corporations now and you just live off your passive income. At this point two things will be true.
- You will have people managing these assets, entities, and corporations for you.
- You will need to pay yourself from these as well.
You can use your Sacred Account for both of these.
First, let’s explore the concept of having so many assets that you need to hire staff and managers. This concept is called a Family Office. John Rockefeller coined it and made popular in the late 1800’s. You see, wealthy families did not have financial advisors. That wasn’t a thing back then. Why? Because wealthy people got wealthy by doing it themselves. They understood money, investing, and business enough to build up their wealth the way they wanted it without the help of a government licensed investment salesman who hasn’t amassed as much as they have.
So they’d hire staff to help them with minor components of their assets and eventually managers to manage those staff and eventually executives to implement their vision and manage the managers. This is a very real concept and should be a goal you aspire to. If you have a $10 million dollar net worth and let’s say you are earning $1 million per year in passive income, you could probably hire 5–6 employees to help you run your personal economy. You made almost $90,000 per month. Why not spend $30,000 of it on talented people who will help you grow and expand your legacy?
Now that we agree on the premise of why you’d have employees and executives, lets discuss the concept of executive compensation.
In this light, you are the main executive. You are the CEO of your wealth. You will also have other executives working for you (like we mentioned, 5–6 employees which probably means at least 1–2 of them are executive or management material).
Beyond just day to day compensation, how will you encourage these excellent people to stay with you?
That is where the Sacred Account comes in.
It is called a Defined Contribution Sacred Account. It comes from section 162 of the internal revenue code, which allows employees to pay discriminatory bonuses to their executives that are not offered to the other employees. This means you can tailor this strategy custom for each person based on their results, value, and production for your wealth.
You would setup a Sacred Account that your company owns. You would decide how much you will contribute on behalf of your employee. It can be a flat amount or it can be variable based on their production. You would pay them that amount of money and direct deposit it into the Sacred Account. You would also have a vesting schedule where they have to work for you for a given period of time before they can access and use that money for anything. You control this portion.
Because it was paid to them as a bonus, it is a tax deduction for you. While it is vesting, you can use the money in the account to invest in assets for yourself or on their behalf. When they are vested, they control the cash value of the Sacred Account. Depending on structure, when they begin to withdraw funds, it looks like a company benefit disbursement and is tax deductible for you at that point too.
Lastly, it is life insurance. You’re the owner, you’re the beneficiary, they’re the insured. When they pass away, your estate receives a death benefit that reimburses back to your estate, the money that you paid to them.
It’s a simple, but powerful strategy!
Now you can also do this for yourself. Want to move money from an entity over to yourself? Have the entity open a Sacred Account that it owns, insuring you as an executive. Just like with the employee, it will contribute to the account on your behalf. You then borrow against it tax free and use it for personal reasons outside of the business. When you die, the death benefit pays to your estate and multiplies your wealth.
Wealthy people do this all the time. In fact, this strategy has been coined “BOLI”. What does BOLI stand for? Bank owned life insurance. Banks famously take out policies on their key executives, stack money into the cash value, use the cash value to grow, give it to the executive at vesting and then when the executive dies the bank gets the death benefit tax free.
I have policies like this between my company and I and I plan to use them with my executives too as we grow!
I don’t expect you to master this concept from one article, but if you’re interested and want to learn more you can click here.
Own Your Potential,
CEO & Founder of Wealth DynamX
Jerry Fetta helps his clients gain more financial knowledge, make more money, keep more of it, and multiply what they keep.
If you feel like one or more of these areas is costing you money and opportunity right now, then get more information about Jerry Fetta and Wealth DynamX by going to www.WealthDynamX.com/contact