The competition for talented executives is intense, particularly in an economy where companies need to maximize every resource they have to succeed. Non-qualified deferred compensation (“NQDC”) is very flexible tool that can be used to build a high-performing, loyal management team. Typical forms of deferred compensation include:
- Supplemental Employee Retirement Program (SERP) – The company agrees to pay the executive an amount of money when they separate from service (e.g retire). The payment can be made under terms and conditions established independently for each executive.
- Deferral Plan – The executive reduces his or her current income to avoid paying tax until the money is received at some point in the future. This option is generally used when an executive has maxed the company’s 401(k).
- Synthetic Equity – Many executives want some equity stake in the company. The transfer of actual stock, however, has legal and tax consequences. A comparable result to stock ownership can be obtained through NQDC.