The Advisors' Blog

Director deferred compensation programs have been popular for a long time, but this WTW alert says they’re far from universal. There may be opportunities there because deferred compensation programs “can strengthen a non-employee director pay program by providing financial planning flexibility while reinforcing long-term shareholder alignment — often without increasing underlying compensation levels.”

After reviewing disclosures of S&P 500 companies over the five-year period of 2020-2024, WTW found that 70% of the S&P 500 had a director deferral program in 2024. Deferral programs are less widely-adopted in mid- to small-cap companies.

Design also matters. Over half permitted directors to defer cash and equity compensation in 2024. Meanwhile, 32% permitted cash and 14% allowed equity deferrals.

Cash deferrals can help manage income timing and tax planning.

Equity deferrals may preserve or extend exposure to company stock and reinforce alignment with shareholders.

Programs that permit both cash and equity deferrals provide the broadest planning flexibility, and large-cap company prevalence of cash and equity deferral programs grew to more than 50% in recent years.

While shareholders generally don’t have a problem with them, there is a trade off that companies are balancing in that deferral programs mean added complexity and recordkeeping. The WTW team suggests that companies without deferral programs give them some thought and companies with deferral programs consider whether the design continues to be appropriate. They also share some questions to consider for any boards considering a new program or refreshing an existing program.

– Meredith Ervine