The manufacturing industry has experienced countless changes over the last decade, including the adoption of new technologies like robotics, artificial intelligence (AI) and the Internet of Things (IoT). Unfortunately, there remains a skills gap in the industry that directly impacts the future of manufacturing work.
According to a skills gap survey conducted by Deloitte and The Manufacturing Institute, a skills gap may leave an estimated 2.4 million manufacturing positions unfilled between 2018 and 2028. Today, many employers are discovering the benefit of executive bonus plans to attract and retain top talent.
What Is An Executive Bonus Plan?
An executive bonus plan is an agreement between an executive or key employee and a business. This mutually beneficial agreement strives to motivate employees and retain top talent. Also referred to as a Section 162 Plan, an executive bonus plan is typically business-sponsored and a nonqualified/non-ERISA arrangement. Under Section 162 of the Internal Revenue Code, employers may deduct certain expenses, such as salary, that are ordinary and necessary.
Employers frequently look for new incentives to motivate their executives and executive bonus plans often meet the mark. Similar to other nonqualified plans, an executive bonus plan is often used by employers to provide key executives with special treatment in return for his or her contribution to the business’s success. A life insurance policy provides the vehicle for the plan and permits executives to make additional premium contributions.
Benefits Of An Executive Bonus Plan
Executive bonus plans can be beneficial to both businesses and their executives. Businesses that offer executive bonus plans can attract new talent and help retain loyal, current employees. These plans may also increase long-term retention via annually increasing vesting. Businesses determine which employees get to participate in the plan. Additionally, they can deduct any payments made to these key employees in the year that the payments are made. No filing with the IRS is necessary when the plan is terminated.
An executive bonus plan also offers a variety of benefits to key employees, including retirement savings beyond the limits of qualified plans. Executive bonus plans allow earnings to grow tax-deferred and key employees can later receive tax-deferred income. In the event of death, an executive bonus plan allows employees to leave their beneficiaries an income tax-free benefit. Key employees also own their plan and the policy is safe from any creditor claims.
This strategy is fairly simple and requires an employer to pay policy premiums on behalf of the key employee. If the compensation is reasonable, the employer may receive an income tax deduction. The key employee then inputs the amount of the premiums paid by the employer on his or her taxes as gross income. The employee may then choose to take income tax-free withdrawals and possibly a loan from the plan’s cash surrender value. The money from the plan may then be used for retirement or another eligible expense.
Other Ways To Attract And Retain Talent
Aside from an executive bonus plan, there are other effective ways to attract and retain top talent in the manufacturing industry. Offering fair compensation is one of the best ways to draw in qualified job candidates. In a competitive industry like manufacturing, businesses must offer a competitive salary that aligns with the scope of the job. According to ZipRecruiter, the national average manufacturing salary in the U.S. is $27,246 per year or about $13 an hour.
In addition to a fair and competitive salary, employers in the manufacturing industry should devote extra time to the hiring process. The manufacturing field needs experienced and skilled candidates for a wide range of niche positions.
To find these types of candidates, employers must create job descriptions that appeal to a certain audience. Proper evaluation of candidates and a thorough hiring process can help in finding the right employee for that position.
Employee training programs can also attract and retain top talent in the manufacturing industry. Ideally, every business should have a system that enables workers to climb the career ladder as they gain new skills, knowledge and experience in the field. This allows new employees to take on beginner roles that can be enhanced through training and mentoring programs. Recruitment is also a great way to reach new audiences and attract fresh talent to the workforce.
Contact An Employee Benefits Consultant About Executive Bonus Plans
Businesses are always looking for new and effective ways to motivate their employees and to appeal to skilled job candidates. Offering an executive bonus plan can be an excellent incentive and retention strategy. To learn more about how executive bonus plans attract and retain top talent in the manufacturing industry, contact the employee benefits consultants at New City Insurance.