UK Accounting Glossary
Deferred compensation is the portion of an employee’s income that is paid out at a date later than when the income was actually earned. Broadly, there are two types of deferred compensation plans: qualified and non-qualified. Non-qualified deferred compensation plans include salary reduction arrangements, bonus deferral plans, supplemental executive retirement plans, and excess benefit plans. Non-qualified deferred compensation plans are not eligible for the tax deferral benefits associated with qualified deferred compensation plans. The benefits of non-qualified deferred compensation plans include aligning employees’ incomes with company growth and adding an incentive for employees to stay with a company. Qualified deferred compensation plans include pensions and retirement plans and are eligible for tax deferral benefits. The primary benefit of qualified deferred compensation plans is to allow employees to defer some of their income (as well as the taxes on that income) until retirement.
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This glossary post was last updated: 7th February 2020.