Legal Definitions - deferred compensation

Deferred compensation is a type of employee compensation where a portion of an employee's pay is set aside to be received at a later time, usually at retirement. This is done to avoid taxes that would be incurred if the employee received the compensation immediately.

For example, let's say an employee earns $100,000 per year and their employer offers a deferred compensation plan. The employee decides to defer 10% of their salary, or $10,000, to be received at retirement. This means that the employee will only pay taxes on $90,000 of their income for that year, instead of $100,000.

Another example of deferred compensation is a stock option plan. In this type of plan, an employee is given the option to purchase company stock at a set price in the future. If the stock price increases, the employee can purchase the stock at the lower price and sell it for a profit. This is a form of deferred compensation because the employee is not receiving the benefit immediately, but rather at a later time.

Overall, deferred compensation is a way for employees to save money on taxes and plan for their future financial security.