One belongs to the people who got the owner here. The other belongs to the owner. Both are quietly losing ground in the same way — and both are solved by the same kind of engineering.
Two scenes play out in nearly every privately held company. Different cast. Same arithmetic.
Scene one. The owner is closing the books on a good year — twenty-eight years in. His accountant tells him what the year did for his personal retirement: a 401(k) contribution at the IRS limit plus a small profit-sharing piece. About $35,000 in personal wealth this year on $750,000 of income. Most years, he is told, look like this.
Scene two. The VP of Operations has been there for fifteen years. He runs the floor, knows the customers, and holds the institutional memory. He earns about 200 grand — a 401(k) and a piece of the bonus pool. A recruiter called him last week with something different: restricted stock he can vest into, a deferred bonus tied to multi-year performance, and a retention package that the owner has not been shown how to build. He is not unhappy. But now he knows what is on the other side of the table.
Two different people. Two quiet math problems. Both solved by engineered compensation architecture — and both still sitting unaddressed in many privately held companies.
Path one: the executives who got the owner here
The standard mix — 401(k), bonus pool, good place to work — was engineered for the average employee. For the two to twenty senior leaders carrying enterprise value, the IRS limits are a ceiling that caps tax-deferred savings at roughly 12% for someone earning $200,000, 8% for someone earning $300,000, and 6% for someone earning $400,000. Public companies fill that gap with performance-based equity. Privately held companies either fill it with nothing, or the owner feels compelled to share ownership, whether they want to or not.
There is a category of compensation engineering — Executive Compensation & Retention Engineering for Privately Held Companies — built to solve exactly that. Deferred compensation structures work above the 401(k) ceiling, vest over multi-year service periods, and tie senior leaders’ financial futures to the company’s long-term success. The structure is tax-efficient on both sides of the table.
Done right, deferred compensation is not a perk. It is enterprise value engineered into a written promise.
Path two: the owner whose own number is the smallest in the room
Most owners have spent decades pouring profits back into their business. What they have built outside it — in their personal name — is often a fraction of their peers. The 401(k) and profit-sharing plan was engineered for the average worker, not the person at the top.
A Defined Benefit plan, layered on top of the existing plan architecture, changes the math considerably. For an owner in their 50s or 60s, the actuarial math favors them by design. Annual deductible contributions can increase from the current plan’s limit to the low to mid-six figures. The company gets the deduction. The owner gets the contribution. The existing 401(k) for employees does not change.
A Defined Benefit plan is not a universal solution. It may not fit companies with many highly compensated employees, or those with a demographic mismatch — a younger owner with an older workforce, for example. The right answer depends on the actuarial geometry of the actual people in the building.
The diagnostic
Both paths start the same way. An analysis will map what the company currently provides, what’s available, and the distance between the two. For most owners, it’s the first time that picture has been laid out in one place, in context.
The gap is almost always larger than they expected. The cost of addressing it is almost always smaller.
An executive compensation program is the most honest document a leader writes about their team — and about themselves.
About the Authors
Joel Gilley is Founder and President, and Charlie Thiel is Managing Director, of Promus Financial — an Allentown-based firm that engineers executive compensation and retention systems for privately held companies that want to recruit, retain, reward, and transition leadership without diluting ownership or losing control. Promus is the Latin word for steward.
