If your business is doing well, you may want to consider allowing your management team to share in your profitability. If you have units available, and if your operating agreement allows it, you can make that happen by giving the team members units as part of their compensation. However, the immediate receipt of units doesn't give your key employees a reason to stay in their jobs. The units are theirs, and the employees can keep them even if they quit and go to work for a competitor.

A nonqualified, deferred compensation plan may be a better solution. Unlike qualified retirement plans, a nonqualified plan is not subject to a long list of Internal Revenue Service (IRS) rules and regulations. While there are some rules, most of them govern when and how the plan's benefits are paid out.

A nonqualified plan can benefit a handful of key employees without benefiting the rest of your force work. It can have any vesting schedule, and you can condition your contributions on fulfillment of any conditions related to your business. You can set plant-wide, group or individual employee goals as the triggers for plan contributions. In other words, you can tailor the plan to your own plant and management team.

The IRS allows that flexibility because you can't deduct your plan contributions as you make them. You don't get to deduct them until your employees receive their benefits and pay income tax on them. In many plans, that happens years after the contributions are made. During that time, plan earnings are subject to income tax. As the employer, you will be responsible for that tax.

In return, you get to decide who your plan participants will be and when they will vest in their benefits. You also get to decide how plan benefits grow, and when and how they will be paid out.

As a rule, employers choose to vest benefits ratably over a five- or 10-year period. That gives the employees an incentive to stay in their jobs. Benefits may be paid when they vest, when the employee terminates or after a set number of years. Benefits may also be paid out on a change in control of the employer.

In many plans, contributions are made in cash. There can be different contribution amounts for different levels of employee performance. Contributions can also be equal to the amount of profit received by the holder of a set number of units. The employees can decide how to invest that cash, or it can earn at a rate or benchmark set by the employer. Over several years, the cash contributions and earnings can create a tidy sum to reward employee loyalty.

Sometimes, the plan holds units instead of cash. When the employees complete the vesting period, they get ownership of the units. In other plans, the units are "phantom" units. They aren't real or transferable, and they don't allow the employees to vote. However, they fluctuate in value and pay out profits just like the real units. While that sounds simple, phantom plans can create difficult accounting and valuation issues.

In summary, there are many kinds of nonqualified plans, and you can design the one that is most likely to motivate your management team. Because there are some technical rules, and possible accounting and securities implications, you should consult your advisors before implementing a plan.

Ronni Begleiter is a member of BrownWinick, a Des Moines, Iowa-based law firm, representing clients in employee benefits and estate planning matters. Begleiter can be reached at (515) 242-2463 or begleiter@brownwinick.com.