Multiple Uses of Deferred Compensation Plans

business folk

With the improving economy, key employees that had been limited in other employment opportunities and resistant to look for new jobs are now willing to explore possible employment changes. Employers need well designed incentives to recruit and retain key employees.


Key executive deferred compensation programs are popular vehicles to motivate, incent, and retain key personnel. These programs offer valuable benefits for the employers. Design options can be customized to each specific desires and needs of the key personnel. These programs can have varying vesting schedules and benefit amounts with non-compete clauses designed for the long term financial success of the business.


Employers want to retain experienced, valuable employees. One way to do this is to offer a plan with financial incentives that will act as “golden handcuffs” that encourage key people to stay. The design of the vesting schedule can act as a deterrent to leaving for other opportunities. The vesting schedules can have “rolling features” or a flat retirement age. The design can have a claw back provision to protect the business. They could provide no benefits if he resigns or is terminated for cause.


The incentives can include deferred bonuses or equity awards triggered by a company IPO or sale. They can be set amounts over time or performance based, earned on the goals of the business. These can be used to prevent dilution from giving actual stock. This is preferred by most privately held family owned businesses.


These can be very helpful for protecting trade secrets, customer lists, or any proprietary information that they wish to keep confidential. In addition, key employees may have developed important customer relationships or suppliers.


Most private employers need to retain these key employees for current success, but to avoid an ownership void when the key owner wants to retire. These programs can have multiple designs, objectives, and uses. Working with advisors who specialize in this type of planning will smooth out the time and cost of implementation.