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Deferred Compensation Plans

Deferred compensation plans refer to arrangements in which employees defer some portion of their current income until a future date. Examples of deferred compensation plans include pensions, retirement plans, and employee stock options. Wages earned by an employee during a period are actually received by the employee at a later date. The overall effect is to postpone taxation for the employee until compensation is received, usually at retirement.

The size of deferred compensation plans given to top company executives continues to be the focus of much stakeholder attention. These large awards often lead to discussions concerning fairness, corporate governance, greed, ethics, and chief executive officer (CEO) compensation. The large gap between executive pay and that of other employees of the firm supports the view that some ...

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