CHAPTER 15
LONG-TERM INCENTIVES AND WEALTH BUILDING
It is only natural to believe that the leaders of organizations, even society, are most strongly
influenced by long-term objectives and strategic thinking. It is also easy to think that those in the lower
end of the economic hierarchy concern themselves with survival and short-term goals. (Where is my next
meal coming from? Where do I sleep tonight?) These views are overly simplistic and fail to recognize
the meaning and value of a multitiered middle-class society in a capitalistic world.
Possibly the single most critical factor influencing compensation in the high technology,
industrialized societies is national tax legislation. With the arrival of progressive income tax programs,
organizations have been keenly interested in ways to increase their employees’ take-home income and
reduce their tax obligations. Compensation specialists who are able to combine their knowledge of tax
legislation, agency regulations, and court rulings with accounting, insurance, and compensation practices
can assist organizations to increase both the short- and long-term income of their employees. A wide
variety of deferred income programs has been made available to senior management for decades, but
other than the conventional retirement programs, other employees have had minimal opportunity to
participate in some of these highly desirable estate and wealth-building programs.
The last years of the twentieth century witnessed increased attention by both the federal
government and organizations on the best ways of providing income to employees upon their retirement.
Employer funding of employee pension plans is a major cost to most organizations. There has been
considerable research by organizations into ways of reducing these costs.
KEY CONCEPTS:
2. During the 1980s, 401(k) deferred income plans were implemented within the great majority
of large USA businesses.
5. Smaller organizations are making greater use of SEP and SIMPLE pension plans to ensure
the availability of retirement funds for employees.
SIGNIFICANT POINTS OF INTEREST
1. A major area of interest relates to the various pension-type plans organizations provide. One
2. 401(k) salary reduction plans will replace or expand many savings and thrift plans.
4. Tax legislation influences the design of significant parts of a compensation program.
7. Long-term compensation components can be funded with capital accumulation arrangements.
8. Long-term compensation components provide the foundation for a secure and enjoyable
future after retiring from work.