Deferred Compensation

00:00:00:20 - 00:00:23:21

Matt Sitler

Hi, I'm Matt Sitler, Head of employee equity plan sales at Morgan Stanley at Work and we're here today to discuss the value of equity compensation with non-qualified deferred compensation plans. And I'm here with Mark Maizel, who is executive director of Retirement Services. And Mark, tell us what a non-qualified deferred compensation plan is?

00:00:23:23 - 00:00:55:12

Mark Maizel

Perfect. Thanks, Matt. A non-qualified plan is a pre-tax deferral plan. They have the ability to defer their own salary, their own bonus. They can have sign up bonuses, retention bonuses. There can be a company contribution but allows the executive to defer compensation, get pretax compounding, and pick the timing and form of their distribution.

00:00:55:12 - 00:01:09:09

Mark Maizel

So it's a very, very powerful financial planning tool and it ties in well with equity plans because we believe that the value to an executive is the integration of equity in non-qualified in terms of planning for their financial future.

00:01:10:13 - 00:01:36:02

Matt Sitler

There is and there's a lot of crossovers. It's the goal of both plans are the same. It is to attract and retain and motivate talent. So, the communication should be the same to all those people. What do you see across the industry in terms of that communication and education that is given to executives?

00:17:35:05 - 00:18:07:05

Mark Maizel

The number one thing that we found through our outside research on the non-qualified side is that plan sponsors are aware that executives don't fully appreciate and understand their non-qualified deferred compensation plan and how to take advantage of it. The nonqualified plan is a great way to have that compounding that we're aware of from the 401k model and then to be able to holistically asset allocate and pick the timing and form of distribution, most nonqualified plans allow you to pick that timing and form of distribution.

00:18:07:12 - 00:18:28:06

Mark Maizel

I can set up the strategy to meet whatever my individual financial goals and objectives are.

00:19:39:18 - 00:20:05:02

Mark Maizel

We were able to consult on the plan, partnered with the plan sponsor in terms of designing the plan and then customize the plan, the education and the participant experience so that they were able to defer not only equity in this case, but they also deferred cash compensation. And so from a plan sponsor standpoint, they had comprehensive experience

00:06:06:00 - 00:06:30:10

Matt Sitler

And that synergy continues with the employee equity because there are very different plans out there, right? Every company has a different type of plan. There are options, there's restricted stock, there's cliff vesting, there's immediate vesting, and individuals and executives could be using this equity to, just like you said, buy another house, pay for kids colleges, whatever it might be.

00:06:30:10 - 00:06:51:01

Matt Sitler

So, when an executive is talking to someone about their equity, their employee equity, and they're saying, well, what should I use this for and how should I use it? They should also be talking about their nonqualified deferred comp plan because that’s in the picture too.

00:06:51:11 - 00:06:54:13

Matt Sitler

And that's where the synergy of the advice comes in together.

00:08:23:23 - 00:08:37:14

Matt Sitler

How important is it right now with historic low unemployment trying to attract talent that's out there, the ability that, you know, pretty much anyone can work anywhere at this point in time? I think it's critical.

00:08:38:05 - 00:09:01:07

Mark Maizel

Yeah, it's very critical. And what we've seen with our plan sponsors is companies that have a nonqualified plan are looking to enhance it, companies that don't have a nonqualified plan are looking to implement one to do exactly what you said. Companies want to recruit, retain and reward. They want to provide an incentive to the executive, and they want to align that incentive plan with corporate goals and objectives.

00:09:01:16 - 00:09:19:23

Mark Maizel

And the beauty of the nonqualified plan, think of it as a platform or chassis to do all those different things. I can have my voluntary deferrals, my salary, my bonus. I could have a sign-up bonus, a retention bonus, a long term performance plan. I may get that. You may not get that right. Sorry, you're out, but.

00:09:20:01 - 00:09:29:03

Matt Sitler

But I might get restricted stock. I might get options, which is where the equity comp just extends for the same purpose to motivate and retain talent.

00:09:29:03 - 00:09:43:00

Mark Maizel

You talk about options, you talked about our issues. Talk to me a little bit more about how the equity plan is structured as a broad base? Is it restricted to a certain group of eligibles?

00:09:43:05 - 00:10:15:06

Matt Sitler

Across different industries, you really see different trends. So, if you look at in the West Coast and you're looking at technology industry out there, you see a lot of broad-based equity grants. And I think we're leaning more towards RSU these days or restricted stock as opposed to stock options. We still see that out there, as you move across the country and looking East Coast and a little bit more older organizations or established organizations, it really focuses more on the top of the house.

00:13:52:13 - 00:13:59:02

Matt Sitler

So Mark, for a typical non qual for a comp plan, what is the typical demographic of a client that you would bring on?

00:13:59:11 - 00:14:16:21

Mark Maizel

Yes. So there's no one size fits all in the nonqualified world. It really is about what is the company trying to achieve, Right. Do they have what we call discrimination testing issues in the 401K so that the executives aren't able to max out there 401K or they're losing company match? That's a natural for a non-qualified deferred compensation plan.

00:14:17:14 - 00:14:41:03

Mark Maizel

Do they just want to be able to offer the voluntary deferrals? My salary, my bonuses deferred because I'm trying to plan for my financial future and I need the non-qualified plan to be competitive. Non-qualified plans are competitive practice. Whether it's a big company or a small company, the majority of companies have some type of non-qualified deferred compensation plan and then they can pick and choose.

00:14:41:03 - 00:14:58:12

Mark Maizel

Do I add additional company contributions? So Non-qualified Plan is a great way for a company, remain competitive and offer the ability for the individual or the executive to defer their own compensation to save for their financial future and their goals and objectives.

00:14:58:21 - 00:15:18:23

Matt Sitler

And in the equity comp space, we find a lot is that companies really follow their peers and they look at what their peers are offering in terms of what kind of equity they offer to employees to attract talent out in the marketplace. Would you say that the same on a non-qualified that they're really the peers are chasing each other?

00:15:19:05 - 00:15:35:20

Mark Maizel

Yeah, absolutely. And in the non-qualified world, part of what we do on the consulting side is we can do benchmarking and peer studies so we can go out to the marketplace, if it's public companies, we can research through public filings. What are they doing in the non-qualified deferred compensation space? How do we enhance what they're currently doing today?

00:15:36:09 - 00:15:55:10

Mark Maizel

A lot of times with non-qualified plans they were put in a number of years ago and there hasn't been enhancements to the plan. As technology has advanced, the nonqualified plan can be modified or enhanced to provide more value and more benefit to the executive because of the flexibility in the plan.

00:15:55:20 - 00:16:06:13

Matt Sitler

I would also think it would translate that the better the employee and the executive understands the value of that that makes it more competitive. But that alone.

00:16:06:19 - 00:16:28:20

Mark Maizel

Yeah, absolutely. So, part of what we do is we integrate the education with the institutional expertise on the equity side, the institutional expertise on the non-qualified side, and then we partner that with the individual expertise of that wealth advisor Right. The heritage and background of Morgan Stanley is what managing wealth, right, managing assets.

00:16:29:03 - 00:16:44:19

Mark Maizel

And so, by combining the experience of the institutional consulting with the individual wealth advisor, we're providing a comprehensive and customized solution back to that plan sponsor. Then it leads to the participant, that executive, and that leads to better outcomes.

00:16:45:01 - 00:17:13:15

Matt Sitler

We do the same thing on the equity plan side, managing over 3000 plans. We can help companies manage it in a more effective way, and especially how to communicate it to all their employees out there.

00:22:46:17 - 00:23:05:15

Mark Maizel

So, part of what we do on the participant engagement side is we deliver the entire firm. And so, when you're engaged with Morgan Stanley, not only do we do the participant education on the equity and the non-qualified, but we leverage that financial advisor to provide to that executive and to that plan sponsor the global benefits of Morgan Stanley.

00:23:05:19 - 00:23:29:06

Mark Maizel

Right. From our global investment committee, the research that we have, the reports that we have, and that's part of the value of Morgan Stanley. And it really goes back to our core heritage in terms of providing investment advice, providing asset allocation advice, providing wealth management advice all through the equity, a non-qualified deferred compensation plan, and it avails you to the entire suite of services that Morgan Stanley has to offer.

00:23:30:12 - 00:23:53:00

Mark Maizel

Thanks, everybody, for joining us today. Hopefully you've learned a little bit about non-qualified deferred comp and equity compensation plans and the power that Morgan Stanley can provide to you as a plan sponsor and to your participants.

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