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Mezrah Consulting founder and CEO, Todd Mezrah, is a featured guest on the ForbesBooksAudio podcast. Listen in on Todd’s interview with host Joe Pardavila and their discussion about what it takes to be a business athlete. [The episode is also available on Apple, Spotify, and wherever you get podcasts.] #businessathlete#entrepreneurship#mezrahconsulting https://lnkd.in/d6Dh-MGU

Mezrah Consulting is proud to support "Clays For a Cure", a Sporting Clay Tournament to benefit Moffitt Cancer Center. Proceeds from this event, taking place on Friday, September 24, 2021, will go to Bay Area Advisors to support Moffitt Cancer Center's vision to transform cancer care through service, science and partnership. Please contact Denise Parker, FEI Tampa Bay Chapter Administrator, at sdeniseparker@yahoo.com or by phone at 813-494-9551, for more information.

July 16, 2021 Download our 2021 Proposed Tax Changes Summary which provides a snapshot of the changes proposed for this year.

For organizations to thrive in today’s economy, finding and retaining the best executives is vital. Given the unprecedented challenges and increased competition blooming across a myriad of industries, retaining top executive talent is crucial. Many companies tend to be myopic as it relates to understanding the true cost of losing an executive. It is important for companies to focus on the “total” costs that will accompany the loss of an executive, particularly an extremely talented executive. The real cost of executive turnover is, for the most part, an unknown. This is largely due to the fact that most companies don’t have systems in place to track exit costs which can include the following: Recruiting Interviewing Hiring Orientation Training Lost productivity Potential customer dissatisfaction Reduced or lost business Administrative costs Lost expertise It takes collaboration among departments (HR, Finance, Operations) which, in effect, need to develop tools to measure these costs concomitant with reporting mechanisms. As we all know, collaboration between two departments, much less multiple departments, on any issue can be challenging. Traditionally, most people think that the costs of losing an executive are just “explicit” costs which are more tied to fees paid to a search firm to find a replacement. However, the more impactful costs are the “implicit” costs of losing a key executive, also known as opportunity costs. Thus, the summation of explicit and implicit costs illuminate the true cost (i.e., total cost) of losing an executive. Generally speaking, the total cost can be approximately 200 - 300 percent of the executive’s salary. In 2019, according to Statista (1), 16.5% of executive teams (CEOs, CFOs and COOs) turned over. Also in 2019, according to the Work Institute (2), a shocking 42 million people voluntarily left their jobs. This equates to 27% of the workforce. This was an increase of over 2 million in 2018, which saw 40 million voluntary departures and an increase of over 88% since 2010. It is important for companies to find ways to reduce the likelihood of this loss by creating and/or enhancing incentive plans. These plans should be designed to embrace executive retention, amplify cost savings and, more importantly, preserve the value of the enterprise. Explicit Costs Executives should be of paramount importance given the high costs associated with their turnover. Direct replacement costs, or explicit costs, can include search fees, legal fees (employment agreements, severance and non-compete agreements, etc.), advertising, background check and time spent internally (interviewing, screening and personal assessments) all of which can equate to 50-60% of one’s salary. For instance, suppose a 45-year-old executive makes $250,000 annually, then decides to work for a different organization. Under the general assumption, tangible direct replacement costs and other related costs would range from $125,000-$150,000. Implicit Costs Explicit costs represent just part of the true cost of losing an executive: implicit costs can also be impactful. The time necessary to replace the executive alone would constitute a high opportunity cost. The alternative where the executive stays and remains productive during the same time period is usually preferred. This opportunity cost can entail other factors, such as a negative work atmosphere that contributes to employee disengagement. Per Gallup, employee disengagement costs the US economy upwards of $350 billion per year (3) (note: other employees who see high turnover tend to disengage and lose productivity). From a company standpoint, the lost productivity and engagement of employees associated with a departed executive can create costs equal to $10,000 or more per year, per employee. For example, if an executive’s departure impacts even just 10 employees, implicit costs associated with disengagement alone could total $100,000. Other implicit costs that need to be considered are as follows: Cost of Onboarding - training and management time. Lost Productivity - it may take a new employee one to two years to reach the productivity of an exiting executive. Lack of Customer Service and Increased Errors - for example, new employees take longer and are often less adept at solving problems. Long Term Training Cost - over two to three years, a business will invest 10 to 20 percent of an employee’s salary or more in training. Cultural Impact - whenever someone leaves, others take time to ask why. Losing a key member of your team can be extremely painful and challenging for the entire organization. Moreover, it can create costs that most have never considered or even know how to measure. What is the solution? How can companies reduce or even eliminate the economic impact of unexpectedly losing a key executive? Pay to Stay vs. Pay to Go The focus should be finding cost effective ways to motivate and encourage executives to build their careers at your organization. Rewarding executives based on performance and years of service are two drivers that can be incorporated into every executive retention plan. There are two ways to deliver value to an executive and reward them for their commitment and loyalty; cash and benefits. Delivery of cash with an accompanying vesting schedule and a predetermined payout can be extremely “sticky”. There can also be a non-compete incorporated into the plan design. Delivery of benefits based on years of service whereby the benefits are paid for 100% by the company and/or benefits can be structured to be portable to the executive are seen as extremely attractive. We will explore a Long Term Incentive Plan (LTIP) and other executive benefit plans that take into consideration both of these strategies. The goal is to put plans in place that are less costly than the economic impact of losing a key executive. Cash - Long Term Incentive Plan Establishing an LTlP can reduce the company’s explicit hiring and training costs by 50 percent. The true savings created by an LTlP becomes even greater when considering the implicit costs associated with losing an executive. The most impactful LTIP’s deliver both an immediate cash component and a deferred cash component. The immediate cash component is typically tied to a vesting schedule whereby a percentage of the LTlP benefits are delivered based on a vesting schedule (e.g., 1/3 vested a year, 100% vested in 3 years). A common percentage paid out over the vesting schedule is 50% of the total LTlP benefits. The remaining 50% that is deferred can be invested to earn a tax deferred rate of return and paid at a future point in time (e.g., 10 years, retirement age, etc.). It is this deferral component that creates the “golden handcuff” and is utilized to retain the executives in the long term. Below is a hypothetical graphical cost comparison of establishing an LTIP vs. incurring the costs of losing an executive. Long-Term Incentive Plan (LTIP)* Benefits - Split Dollar and Executive Long Term Care In addition to cash, there can be substantial value in providing executives and their families with valued benefits. The benefits provided would be in addition to traditional employee benefits. Two of the most popular benefits for executives are establishing a split dollar plan and an executive long term care plan. Both plans can be established without any P&L impact to the company while providing substantial cash benefits to the executives and their families. A split dollar plan is a structure that allows a company to provide tax free life insurance benefits to an executive with little cost being incurred by the executive. Moreover, based on years of service, a cash component can be designed into the plan at retirement age or after a certain period of time. It is important to note that the plan can be designed to recover 100% of the company’s costs. An “investment oriented” long term care insurance plan can provide executives with substantial tax free benefits in the event they lose two of five daily living activities. The premium is paid for by the company which creates a money market account on the balance sheet of the company. In the event the benefit is not utilized by the executive either because a) they didn’t meet the minimum number of years of service required to receive the benefit or b) they remain healthy, the company will be returned 100%+ of their premiums. Executive Summary The true cost of losing an executive equals the summation of the explicit and implicit costs that arise upon their departure, with the latter representing the most formidable costs, depending upon the quality of talent lost and the quality of the talent acquired. As Zappos CEO once remarked, poorly chosen hires have cost the company “well over $100 million” (6). It is clear that a company can be much better off creating ways to retain talent rather than taking on the risks of hiring new talent; the known usually outweighs the unknown. Companies across the country pay these costs every year for multiple executives which runs into the million of dollars. By way of example, a company with $1 billion in revenue, depending on the industry, will generally have about 250 executives that are considered highly compensated executive level employees. If the average salary is $180,000 and a company loses 5% of their executive team a year (i.e., approximately 12 executives out of 250), that equates to a total cost, conservatively, of about $4.3 million. Given the magnitude of this cost and potential damage on the enterprise value of the organization, it is important for companies to ask themselves two questions: What can we do to better retain our key people to effectively reduce executive turnover? Is the solution something that is less costly than the economic impact that is created when an executives leaves? Based on our experience in working with C-level talent and executive teams, it is important for a company to be proactive in understanding the cost formula: Pay to Stay < Pay to Go Exploring ways to reduce the impact of executive loss and, moreover, developing plans that preserve and enhance the long term enterprise value of the organization, should be an important part of every company’s strategic plan. Company Overview Mezrah Consulting (MC) is a national executive benefits and compensation consulting firm based in Tampa, Florida. Mezrah Consulting’s work is predominantly focused on executive benefits planning for sizable publicly traded and privately held companies. MC is a knowledge company offering its clients highly creative and innovative solutions. MC uncovers value and recognizes risks that other firms typically do not see. MC specializes in the design, funding, implementation, securitization and administration of non-qualified executive benefit programs. MC has been engaged in this consulting niche for over 25 years, advising companies in over 27 states and providing custom non-qualified plan administration on its proprietary cloud platform. For more information contact Lori Brink at (813) 367-1111 or lbrink@mezrahconsulting.com or learn more at MezrahConsulting.com. Download a PDF version of this article: The True Cost of Losing an Executive & the Best Ways of Structuring Plans to Retain Executives.

Mezrah Consulting is proud to support the "Building a Better Future Together", St. Joseph School and Parish 2021 Ford Bronco Sport – Badlands Drawing. The video link below provides an overview of their efforts underway and those served by this charity. It highlights the possibilities in building better futures for those in need: "https://player.vimeo.com/video/530359960". For more information on how to contribute, go to St. Joseph School and Parish (charityraffles.org).

When most people think about compensation, few think about severance as a form of compensation they will receive. It is important to plan for all contingencies regardless of their likelihood. Severance from employment can occur for a variety of different reasons unrelated to your performance including a corporate change in control or ownership, a change in corporate leadership or just as a result of normal cost cutting. Severance benefits can make up a meaningful part of compensation that often is currently not needed. Depending on the length of severance, it may not take long to find another opportunity thus creating unnecessary excess compensation and taxes. Many may want to take time off upon separation but rarely does the time off last more than a few months. There may be other forms of compensation that may vest, especially if one’s severance is the result of a change in control, the aggregate of which could result in excess parachute payments and excise taxes. For these reasons, many executives may choose to defer their severance benefits (or part of their severance) into a non-qualified deferred compensation plan and warehouse that cash on a pre-tax basis to be distributed at a future point in time. While severance is not always thought of as a traditional form of compensation, it can be included as a form of compensation that can be deferred. This is traditionally done through the “company contribution” provision within the plan that allows for the company to make discretionary contributions into the deferred compensation plan on behalf of the executive. When one is terminated from employment and severance is offered, the parties may agree to have some, or all of the severance paid in the form of a company contribution to the deferred compensation plan. Hypothetical example for illustrative purposes only. Actual results will vary. In the event of a change in control or ownership, 26 U.S. Code §280G limits the amount of compensation an executive can receive as a result of such change. In this situation, compensation (including severance) paid to the executive which exceeds three (3) times the executive’s gross income are considered “excess parachute payments.” Under 26 U.S. Code §4999, excess parachute payments are not deductible by the employer and the executive is subject to an additional 20% excise tax on these amounts. How to Defer Severance There are generally only three (3) ways one can defer severance: In the original employment or severance agreement, the severance benefit or some percentage thereof is structured to be deferred; If severance has not been offered yet in the form of a formal agreement or employment agreement; If a current severance right exists at the time termination occurs, and the payout is scheduled to occur more than 12 months after termination. Simply stated, if a severance plan already exists and there is a legal obligation in place to pay severance within 12 months after termination, then it is generally too late to defer the severance. Planning is paramount when including severance in one’s employment agreement; either severance needs to be elected to be deferred prior to a formal agreement going into place or the severance payments need to be designed to be delayed for at least 12 months after termination to allow the participant to make a deferral election at the time of termination. This delay can allow one to accommodate IRC 409A by making an election to defer severance 12 months prior to the date it is scheduled to be received. This will only be permitted if the executive defers the income for at least five (5) years from the date they would have otherwise received the income. In the event of a change in control or ownership, there are several ways to reduce the impact of severance agreements under 26 U.S. Code §280G. Traditionally, severance paid as a result of termination upon a change in control are included in the calculation of excess parachute payments. However, severance agreements can be amended and/or modified to reclassify such payments as reasonable compensation effectively removing them from the calculation of excess parachute payments, if they are put in place at least one (1) year prior to a change in control or ownership. Below are four (4) different ways to reposition severance benefits to avoid the negative tax impacts of §280G: Restructure the agreement so that normal severance only applies to a termination prior to or more than 24 months after a change in control, and cap severance payments within 24 months of a change in control at the three (3) times gross pay limit when combined with other severance payments; Restructure all or parts of severance amounts that might otherwise be payable as severance as a company contribution allocated to the deferred compensation plan with appropriate vesting during employment; Recharacterize severance as reasonable compensation for personal services over a period of time after a change in control; Recharacterize severance as a payment for adhering to an enforceable non-compete agreement. If severance has not yet been offered, then one can elect to defer all or part of their severance prior to entering into a binding agreement to receive it. Having the ability to make a planning decision ahead of time could save an executive a significant amount of unnecessary taxes and provide him or her with an opportunity to accumulate wealth on a pre-tax basis for retirement purposes. If the income is not needed due to another job already being secured or the release of other types of income, deferring severance benefits can make a lot of sense from an overall financial planning perspective.

February 16, 2021 Download our 2020 Market Review which provides a snapshot of the tumultuous year. The US endured a global pandemic, layoffs, a volatile economy, and a contentious presidential election, but the markets persevered.

Click here to download our first of six about “Zero P&L Impact Series: Benefit Strategies for Highly Compensated Executives.” Companies underestimate their ability to leverage their balance sheet and buying power when driving valuable cost savings and benefits to their executive team. In this series, we highlight strategies to attract, motivate and retain key executives with no added cost to companies.

Click here to request an article about “Recover Losses in Your 401(k) with a Deferred Compensation Plan.” The value of leveraging a deferred compensation plan during a time when values in 401(k) plans have been significantly impaired can be substantial. Being able to better control the timing on rebuilding pre-tax retirement plan accounts is paramount from a wealth building and goal planning perspective. Although there are limitations on what can be deferred into a 401(k) plan annually, there are comparably little to no limitations on the amount that can be deferred into a deferred compensation plan.

Click here to request the article, “The Compensation Recovery Plan: A Creative Solution to the COVID-19 Impact on Compensation.” A Compensation Recovery Plan should be considered by companies who are focused on retaining key employees and rewarding them for successfully navigating through the economic impact of COVID-19. Moreover, the value proposition of delivering an encouraging incentive during these challenging times can be extremely positive both psychologically and economically to each plan participant.

Click here to download a briefing about “Retirement Planning in the Era of COVID-19.” As uncertainty from the COVID 19 pandemic and declining markets continue, we know communication with our clients is critical. To help assist you with navigating the investment landscape and maintaining a long-term perspective, M Financial Group has prepared the attached piece “Retirement Planning in the Era of COVID-19” to share with our clients.

You can now access your Deferred Compensation Plan through your mobile device! The mapbenefits mobile app brings you the ability to view your account information and complete your annual enrollment right on your mobile device. Through the mapbenefits mobile app you will be able to: Track account balances and fund details, including fund performance View deferral, payout, and beneficiary elections View Plan Overview Book Contact your Account Manager Enroll online during the open enrollment period Preview the App:Download the App now: We’ve simplified your experience to bring the most used pages of the mapbenefits website to you on the mobile device platform of your choice. We hope you find the new mobile app to be user-friendly and of value. Should you have any questions or feedback, you may submit your inquiry directly on the mobile app using the Contact Us feature. Alternatively, you may reach out to your Account Manager at mezrahclientservices@mezrahconsulting.com or (813) 367-1111.