An additional form of employee benefit is the deferred compensation program. It can be based on either or both company and individual performance. Such programs can be structured to be much like the other the stock-based programs, with both objective and subjective benchmarks entitling the employee to receive income at a future time based on company performance and employee performance, or a combination of the two. Like other stock-based programs, employees normally do not recognize income until it is actually paid, unless it is “constructively received” sooner. The employee is deemed to have “constructively received” income when it is credited to the employee's account, set apart for the employee, or if it is made available so he may draw upon it at any time. So long as none of these occur, the employee does not recognize the income for tax purposes until he or she actually is paid. Companies may structure their deferred compensation plans as either funded or unfunded plans, as well as either qualified or non-qualified plans. For an unfunded plans, the employee performs future services in return the employer's unsecured promise to pay a certain amount in future income. Normally, plans are unfunded, although they need not be. If the plan is funded, the employer irrevocably sets aside money to meet its deferred compensation obligations.

     Companies cannot use qualified plans to defer significant portions of executive compensation because of legal limitations on the amount of income that may be deferred and because of the anti-discrimination requirements for qualified plans. These restrict the extent to which the company can weight such plans in favor of its highly compensated executives. This is the reason companies most often use qualified plans for retirement income. On the other hand, companies can normally use non-qualified plans to defer of executive salaries, bonuses and other incentive compensation.

Please see the following articles for additional information: Employee Stock Option Plans, Tax Aspects of a Stock Option Plan, Federal Securities Aspects of a Stock Option Grant, Option Plan Decisions, Stock-based Compensation, Stock Appreciation Rights, Phantom Stock, Performance Units, Texas Exemption for Employee Stock Option and Similar Plans.

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