Executive consulting has many advantages, both to the company and to executives. Unlike most employee benefit plans, such as qualified pension and profit-sharing plans, benefits can be provided on a discriminatory basis. Thus, plans can benefit key executives without the sometimes prohibitive cost of covering a larger group of employees, and can provide benefits beyond the limits allowed in qualified plans. Executive compensation plans can also be highly customized, allowing the employer to provide different benefits for different individuals, based upon company and individual objectives.
Because executive compensation plans are "nonqualified" plans (i.e. they do not receive the special tax benefits provided to "qualified" retirement plans), they do not require IRS approval, and are exempt from most ERISA disclosure, reporting, funding and vesting requirements. The company can set up any vesting and forfeiture schedule it likes, providing full and immediate vesting, or using deferred and restricted vesting as "golden handcuffs" to tie the executive to the company.
Unlike qualified retirement plans, there are no limits on the benefits that can be provided as executive compensation, though the deduction allowed to the company may be limited by the "reasonable compensation" requirements applicable to compensation deductions in general. Such plans are often used in addition to qualified plans in order to supplement the benefits provided to key executives, but they can also be set up on a stand-alone basis.
Executive compensation can allow the executive to increase his or her retirement savings beyond the limits of qualified retirement plans, and can also provide a level of security to the executive and/or his or her family upon other triggering events, such as death or disability. If structured properly, taxation of the benefit may deferred until some point in the future, often at or after retirement.