Small Business Glossary and Definitions

Deferred Compensation is when part of an employee’s compensation is paid out later, after it actually was earned. Examples include employee stock options, retirement plans and pensions. The advantage is usually is the tax usually is deferred until the date or dates the employee receives the money.

Deferred compensation is available only for public employees, senior management and other well-paid company employees. It is used an incentive to keep highly-sought or highly-paid employees from leaving for another company.

Such arrangements often closely examined by the Internal Revenue Service. So it might be more difficult to set up this arrangement in a family business or other closely-held business.