DEFERRED COMPENSATION Meaning and
Definition
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Deferred compensation refers to a form of payment that is earned by an employee for services rendered, but is accumulated and received at a later date. It is a financial arrangement between an employer and an employee, whereby a portion of an employee's income or bonuses is set aside for future distribution, generally upon the occurrence of a specific event, such as retirement, termination, or a predetermined timeframe.
This type of compensation allows employees to delay receipt of a portion of their income, providing them with potential tax advantages and financial security in the long term. Employees may choose to defer compensation in order to receive a larger sum of money at a later date, when they may no longer be earning income or in need of immediate funds.
Deferred compensation plans may take various forms, such as pension plans, retirement plans, stock options, or non-qualified deferred compensation plans. In some cases, employers may match or contribute additional funds to an employee's deferred compensation account, providing an added incentive for employees to participate in these plans.
It is important to note that the actual distribution of deferred compensation is subject to specific conditions and regulations, determined by the employer and outlined within the deferred compensation plan. These conditions may include reaching a certain age, completing a specific number of years of service, or meeting specific performance targets. Additionally, tax implications and restrictions may apply to both the employer and the employee in relation to deferred compensation.
Etymology of DEFERRED COMPENSATION
The term "deferred compensation" consists of two main words: "deferred" and "compensation".
The word "deferred" comes from the Middle English word "deferren", which means "to delay" or "to postpone". It can be further traced back to the Latin word "differre", which has the same meaning. The prefix "de-" in both Latin and Middle English denotes the idea of "down" or "away".
The word "compensation" originates from the Latin word "compensare", which means "to weigh together" or "to balance". This root word is a combination of "com", meaning "with" or "together", and "pendere", meaning "to hang" or "to weigh".
Therefore, "deferred compensation" signifies a form of payment or income that is delayed or postponed until a later point in time.
