There are 3 reasons driving the implementation of a SERP: Reward, Retention and filling the gap due to limits on qualified retirement programs commonly called a Restoration plan.
Reward occurs when you have an executive that has done a great job and you want to do more to recognize his/her positive impact on the organization. In addition, it is also an important component of a compensation strategy that matches long term performance with financial reward.
Retention utilizes the term, “Golden Handcuffs,” the premise being when the executive feels he/she can succeed financially while working for you, there is no reason to look elsewhere.
Traditional retirement plans such as 401k’s, pensions and social security have limits and are progressive in nature. These limits restrict the amount an executive can save in a tax deferred manner, negatively impacting their ability to replace their income in retirement. These types of plans are typically called restoration plans.
