How does deferred comp work?
Curious as to how deferred comp works? Do banks/funds keep track of a reserved amount of money every year with maturity date of say 5 years?
So say for every year, you get 30k in cash, then you get 50k in deferred, etc? Then after a certain number of years, you get the (n*50k) deferred in total?
1) How do you and the employe agree on a number? (or the employer just gives a discretionary number?)
2) How long is the deferral period?
3) If a rival employer promises to cover the deferred, how would you and your employer handle proof of deferral?
Usually it works where a portion of your comp is deferred for X years but it is paid out in increments. So if you had comp deferred for 5 years you’ll usually (not always, can only speak of the places I know) be paid 20% of the deferred amount a year.
As for how much is deferred at the mid levels it is rarely a negotiation but more of a decision made by the firm. So they’ll start shifting a portion of your comp to deferred. You can definitely negotiate, but it is usually just “we are going to give X bonus and Y deferred over Z years”. At the more senior levels that is more negotiable. I’ve usually found that the more senior you get the more it shifts toward deferred and stock grants, starts getting to where that becomes ~50% (or more) of your comp. At the more junior levels it is usually a much smaller portion.
As for proof, the firm will normally provide proof of that (a statement of what has accrued and is deferred). Again that has been my experience.
how bad is the deferral period? 5 years for mid-level?
Generally ranges from 3 - 5 years based on where I have worked
thanks,
so if you leave or get fired, you lose all of the deferred?
What's preventing a multi manager from firing you before your lockup period is finished to save on costs?
Well reputation for starters. No one is going to work at a place that f’s over people like that. And you open yourself up to legal ramifications, while employment is “at will”, malicious firing like this will lead to at a minimum very bad press.
For more senior people you negotiate what you get for any firing that isn’t for cause. So you make sure you can’t get screwed over.
But the reputation thing is a big thing. Large firms don’t want to do this.
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