The challenges for creating an effective executive compensation package are many. The executive wants more pay but less taxation, while the company wants incentive-based benefits that bind the executive more closely to the company.The traditional solution for these needs is a nonqualified stock-option program. The executive gets both a potentially high payout and the ability to time the taxation of the payout. The employer likes the program because stock options are a cashless, incentive-based package with vesting restrictions.

The executive benefit market has, however, changed significantly in the last few years. Stock options have lost much of their allure, while other plans have come to be seen as offering similar benefits in a more effective manner.

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