Compensation plays a critical role in attracting, motivating and retaining the highly qualified executives and management teams necessary to achieve a company’s goals. When structuring a compensation package, companies should understand the various compensation choices available: base salary, annual bonuses, nonqualified deferred compensation, equity compensation and fringe benefits.

Nonqualified deferred compensation (NQDC) is a general term that includes plans that provide equity compensation, plans that provide additional retirement benefits and plans that provide mid-term and long-term incentive payments.

Although NQDC plans have fewer restrictions than ”qualified” broad-based retirement plans such as section 401(k) plans, NQDC plans must also satisfy a number of conditions. Failing to understand these rules breeds expensive and painful situations for an employer and employees. Within the limitations, the NQDC plan rules provide employers with a number of fairly flexible and useful choices for attracting, retaining and motivating top employees.