With the IPO market gaining momentum and fierce competition for senior talent, companies are evaluating whether their compensation and benefits programs are keeping pace. Further, highly compensated employees can quickly hit the contribution limits to their retirement plans.
Nonqualified deferred compensation, or NQDC, can play an important role for that demographic — especially after a significant liquidity event like an IPO. This benefit allows eligible employees, typically executives and high earners, to defer a portion of their income and determine, at the time of the deferral election, when that income is paid out and taxed, for instance in retirement, when they drop down in income bracket. But the value of NQDC plans can extend well beyond employees.
