Finance: What is Deferred Compensation?

What is Deferred Compensation? The process of a company taking a portion of wages due and paying it out at a later date is referred to as `deferred compensation’. This is often done for tax reasons, and are usually a part of pension or retirement plans. Another kind of deferred compensation that has been more recently developed in the digital era is for startup tech companies to pay a portion of compensation in warrants that are equivalent to equity shares of a company that will have market value in the future.

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whywould compensation be deferred Well lotsa reasons think about a

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bonus that a sales person might earn through out the

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year like they get two grand in bonus money payable

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next year for each month that they sell over four

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pounds of yellowcake uranium powder Bob here did it in

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january messed around in february and march and was a

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good boy in april may and june and then on

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lee hit one more sales goal ahead of christmas doing

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four pounds in uzbekistanian november So bob had five months

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hitting his sales bonus target and we'll have owed to

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him ten grand in bonus money e compensation that was

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deferred and noting that all bonuses are paid in january

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of the following year like it's deferred to the following

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year So from the company's perspective they show deferred compensation

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as a line item or a thing on their balance

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Sheet is a liability And then they converted to being

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an expense when they pay everything out the first month

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of the next year so come january Bob will be

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very happy with his healthy bonus That is you know 00:01:29.357 --> [endTime] assuming he's still around to enjoy it there No