2 minutes
The most consequential decision in many executive benefit plans isn’t the life insurance product – whole life versus indexed universal life – or the benefit type. It’s how compensation was built into the structure itself, and whether anyone independent of the provider evaluated it.
In practice, the way advisors and providers are paid often shapes the plan more than boards realize. Product design choices that affect compensation can significantly impact policy performance, liquidity, and long-term economics. Yet boards are rarely told they’re making compensation decisions during plan approval.
This is not a critique of commissions, life insurance, or providers. Compensation exists in every professional service. The issue is governance: were decision-makers shown how compensation influenced the structure they approved, and whether alternative designs with different economics were available?
Executive benefit planning is inherently complex. It combines tax rules, accounting treatment, insurance mechanics, and governance judgment. Faced with that complexity, boards naturally focus on what is visible: the product, the illustration, and the projected benefit. What is often missing is visibility into how the compensation mechanics of the engagement itself were constructed.
With life-insurance-funded benefit plans, compensation is typically incorporated directly into the product pricing structure rather than disclosed as a separate line item. At the same time, the advisor presenting the plan may have substantial discretion over how the policy is designed – discretion that directly affects both commission levels and plan performance.
In many cases, boards are not asked to approve a compensation model at all. They are asked to approve a finished structure, with the incentives and tradeoffs already set.
For example, the same policy, using the same carrier, assumptions, and premium commitment, can be structured in many different ways.
In practice, those differences matter.
Two policies funded at identical premium levels can produce dramatically different outcomes with one reflecting higher product-based commissions and weaker early cash-values, and another designed with materially lower commissions and substantially stronger cash-surrender value. The difference is not the insurer or the market. It is the compensation-driven design choice.
In many executive benefit arrangements – particularly split-dollar structures – higher or even maximum levels of product compensation are layered alongside ongoing servicing or administrative fees. Boards may approve these plans without ever seeing the combined compensation economics assembled in one place or being presented with alternatives that greatly change the economics.
The governance risk is not that compensation exists.
The governance risk is that boards may unknowingly approve the highest-compensation version of a structure by default, without being shown that other options were available.
Strong board oversight does not eliminate incentives; it ensures they are understood, evaluated, and governed. The most durable decisions are not the ones made without examination. They are the ones that remain defensible over time – by current leadership and by those who inherit them years later.
Read the full governance analysis, True Governance in Executive Benefits, for a deeper examination of how compensation design and economic structure shape executive benefit decisions.
Alexander Bebis is an independent executive benefit consultant focused on the governance, design, and oversight of nonqualified benefit arrangements for credit unions and nonprofit organizations. His work centers on helping boards and leadership teams evaluate structure, assumptions, and long-term economic tradeoffs in executive benefit plans.
Learn more at www.arctisadvisory.com
