Golden Handcuffs: Rewarding and Retaining Key Employees with IULs

jmealpha1
2 hours ago
4 min read

The Talent Problem No One Warns Business Owners About

You’ve built the brand.

You’ve attracted the right talent.

And now, your top performers are producing results that drive your business forward.

But what’s your plan to keep them from leaving?

That’s the question many business owners ignore—until it’s too late. Because once a key employee starts entertaining outside offers, a counteroffer alone won’t cut it.

In today’s competitive market, retaining top talent takes more than a bigger paycheck. It requires vision, leadership, and strategy.

And that’s where the concept of "golden handcuffs" comes in.

What Are Golden Handcuffs?

Golden handcuffs are incentives designed to reward key employees while making it financially attractive for them to stay long-term.

These often include:

Deferred compensation
Stock options
Executive bonus structures
Retirement benefits tied to tenure or performance

The goal? To create loyalty by aligning their financial growth with your business’s continued success.

But not every business can or should offer stock or equity. That’s where a flexible, tax-advantaged tool like an Indexed Universal Life (IUL) insurance policy comes in.

Why Use an IUL for Key Employee Retention?

When structured properly, an IUL can serve as a non-qualified executive benefit plan. It allows the business to provide meaningful long-term rewards that:

Build cash value over time
Offer tax-deferred growth
Provide death benefit protection
Can be owned by the employee or the employer depending on structure

It’s a solution that’s powerful, flexible, and scalable—and unlike 401(k)s or pensions, it isn’t constrained by IRS contribution limits or complicated regulations.

Executive Bonus Plans: A Simple but Powerful Structure

The most common way business owners use IULs to retain talent is through an Executive Bonus Plan—also known as a Section 162 Bonus Plan.

Here’s how it works:

The business purchases an IUL policy on the key employee
The business pays the premiums as a bonus (typically tax-deductible to the company)
The employee owns the policy and can access the cash value in the future
The policy includes a death benefit for the employee’s family
Optional "restrictive endorsements" can limit access to cash value or ownership for a defined vesting period

This structure rewards loyalty while keeping key employees tied to the company’s future.

Case Study: Keeping a Rainmaker on the Team

Client Profile:

A regional consulting firm relied heavily on their top business development executive, Sara, who brought in over 40% of new client revenue annually.

Sara had been approached by competitors and was beginning to explore other offers. She wasn’t unhappy—but she wanted to know she was valued and had long-term growth potential with the firm.

The Strategy:

The firm implemented a bonus-funded IUL policy:

Premiums of $25,000/year paid by the business
Ownership and beneficiary rights granted to Sara
Vesting schedule built into the policy via a restrictive endorsement
Projected cash value of $350,000+ by year 15
Tax-free income potential in retirement
A death benefit of $750,000 for her family

Outcome:

Sara stayed—and she committed to a long-term leadership path within the firm. The company used similar plans to retain additional team members.

What Makes This Approach So Effective?

It’s Personal

The employee owns the policy. It’s theirs, not just a line item on a spreadsheet. That sense of ownership matters.

It’s Flexible

The structure can be adapted to various compensation levels, vesting periods, and bonus schedules.

It’s Tax-Advantaged

The business may deduct the bonus. The employee’s cash value grows tax-deferred, and future income can be accessed tax-free.

It’s Retentive

The longer they stay, the more valuable the plan becomes—turning potential flight risk into long-term loyalty.

Frequently Asked Questions

"What if the employee leaves before the vesting period ends?"

With the right structure, such as a restrictive endorsement or controlled access clause, you can reclaim control over the policy—or restrict their ability to access it early. Vesting terms can be designed to meet your retention goals.

"Does the employee pay taxes on the bonus?"

Yes, the bonus is considered taxable income. However, many employers choose to provide a double bonus—one to cover the policy premium and a second to offset the tax liability, making the benefit net-zero for the employee.

"Can I offer this to multiple employees?"

Yes. Executive bonus plans are non-qualified, so you can choose who participates and customize the structure for each key employee. There’s no requirement to offer it company-wide.

Talent Is the Fuel—Retention Is the Engine

At a certain stage, your business growth depends less on new ideas and more on execution—and that execution is carried by the people you trust most.

When you have team members whose work, relationships, or leadership can’t easily be replaced, you can’t afford to lose them.

An IUL-based executive retention plan isn’t just a benefit. It’s a strategic tool that:

Demonstrates leadership
Aligns incentives
Builds loyalty
Protects the business from talent loss

This is how smart companies secure their future—by investing in the people who help build it.

Let’s Design Your Executive Retention Strategy

At King Legacy Group, we specialize in custom IUL solutions that help business owners:

Retain their top talent
Build tax-advantaged executive benefits
Create long-term growth strategies for their team

Schedule your complimentary LivingLEGACY™ Strategy Session today, and let’s discuss how to use golden handcuffs to build long-term loyalty and value into your business.

Download our latest eBook, The Business Owner's Blueprint: A Strategic Guide to Creating Tax-Free Income, Business Continuity, and Multigenerational Legacy here.

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