Incentive Compensation Plans

12 Months Ended

Dec. 31, 2015

13. Incentive Compensation Plans

In May 2007, the Board of Directors approved the adoption of a new incentive compensation plan. This new plan was effective for fiscal year 2007 and replaced a previous plan. Under the plan, bonuses are payable quarterly in an amount not to exceed 18% of the Company’s Income from Operations for any period, subject to the Company achieving a minimum quarterly Income from Operations of at least $500,000. For fiscal years 2015 and 2014, the Board determined that the aggregate amount of incentive compensation available under the Plan shall be equal to 18% and 16%, respectively, of the Company’s Income from Operations. The bonus pool is allocated to executives according to a specified formula, with a portion allocated to a middle management group determined by the Executive Committee of the Board of Directors.

The Company expensed a total of $-0- and $89,000 to the participants of the bonus pool for 2015 and 2014, respectively.

In July 2010, the Company’s Reliv Europe subsidiary entered into a long-term performance-based incentive compensation agreement with the subsidiary’s senior managers. The valuation of the compensation agreement was an EBITDA-based formula derived from the subsidiary’s financial performance and vested in 20% annual increments which began in April 2011. The amount of the incentive, if any, varies in accordance with a 24-month look-back of the subsidiary’s financial performance and the vesting provisions. Upon initial vesting, a manager may elect to exercise his/her put option to receive in cash some or all of his/her respective share of the incentive. In the fourth quarter of 2012, the subsidiary’s 24-month financial performance became positive, and remained positive through April 2015, resulting in the recognition of compensation expense of $90,800 and $137,000 for 2015 and 2014, respectively, as presented within Selling, General, and Administrative in the accompanying consolidated statements of net income (loss) and comprehensive income (loss). At December 31, 2014, accrued compensation for this incentive plan was $666,000 and was presented in “Payroll, Payroll Taxes, and Incentive Compensation Payable”, a component of Accounts Payable and Accrued Expenses, as presented in the accompanying consolidated balance sheets.

During the second quarter of 2015, the cumulative incentive amount of $756,800 became 100% vested, and concurrently, each of the subsidiary’s senior managers exercised 100% of his/her put option. In the aggregate, the Company and the managers agreed to settle the incentive obligation whereby the Company: issued notes payable of approximately $424,000, issued 100,000 shares of Company common stock (fair value at settlement of $117,000), and made cash payments of approximately $216,000.

The notes payable were issued by the Company to the managers in April 2015 and range in length from one to two years with quarterly payments of principal and interest beginning three months from issuance. Each of the notes accrue interest at a floating interest rate based on the three-month pound LIBOR plus 3%. The interest rate at December 31, 2015 was 3.58%. The notes payable have a principal balance at December 31, 2015 of $283,455 and are presented within the respective current and noncurrent portions of long-term debt in the accompanying consolidated balance sheets.

The Company sponsors a Supplemental Executive Retirement Plan (SERP) to allow certain executives to defer a portion of their annual salary and bonus into a grantor trust. A grantor trust was established to hold the assets of the SERP. The Company funds the grantor trust by paying the amount deferred by the participant into the trust at the time of deferral. Investment earnings and losses accrue to the benefit or detriment of the participants. The SERP also provides for a discretionary matching contribution by the Company not to exceed 100% of the participant’s annual contribution. In 2015 and 2014, the Company did not provide a match. The participants fully vest in the deferred compensation three years from the date they enter the SERP. The participants are not eligible to receive distribution under the SERP until retirement, death, or disability of the participant. At December 31, 2015 and 2014, SERP assets were $275,000 and $284,000, respectively, and are included in “Other Assets” in the accompanying consolidated balance sheets. At December 31, 2015 and 2014, SERP liabilities were $277,000 and $288,000, respectively, and are included in “Other Non-Current Liabilities” in the accompanying consolidated balance sheets. The changes in the balances of SERP assets and SERP liabilities during 2015 and 2014 were due to net realized and unrealized investment gains/losses incurred by the plan.

- Definition

The entire disclosure for compensation costs, including compensated absences accruals, compensated absences liability, deferred compensation arrangements and income statement compensation items. Deferred compensation arrangements may include a description of an arrangement with an individual employee, which is generally an employment contract between the entity and a selected officer or key employee containing a promise by the employer to pay certain amounts at designated future dates, usually including a period after retirement, upon compliance with stipulated requirements. This type of arrangement is distinguished from broader based employee benefit plans as it is usually tailored to the employee. Disclosure also typically includes the amount of related compensation expense recognized during the reporting period, the number of shares (units) issued during the period under such arrangements, and the carrying amount as of the balance sheet date of the related liability.

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