What is Deferred Compensation?
‘Deferred Compensation’ is the compensation deferred to the next financial year to save taxes on the salary. Generally, employees request for parts of their salary as well as bonuses to be deferred for saving taxes.
Pensions are another form of deferred compensation. Similarly, there used to be a practice of paying employees in company stocks to save taxes. However, the practice has been criticized as the benefits of savings in taxes would be diminished if the stock prices of the company decrease.
Deferred compensation is generally preferred by employees in the higher management levels as they are the ones who usually receive higher salaries and benefits. In fact, in some companies, the option of deferred compensation is available only if you have attained a certain seniority level.