At a recent non-qualified deferred compensation conference, a discussion about retaining executives caught my attention.
One option was to give them a cash bonus. Another was to grant an award today that would vest and pay out three years later.
Paying someone today and promising a future reward serve different purposes.
But the conversation also raised a broader question: What does the employee actually value?
And, of course, thinking about my own practice, how applicable are these lessons to the smaller employers whose retirement plans I serve?
What the 2026 Newport survey tells us, and what it does not
The 2026 Newport/PLANSPONSOR Non-Qualified Deferred Compensation Plan Trends Survey collected responses from 203 employers.
Only 9% had fewer than 500 employees. Only 5% reported annual revenue below $250 million. Even the smallest employee category groups a 20-person business with a company employing several hundred people.
That limits how directly the findings apply to smaller employers.
Retention starts with the whole package
Salary deserves attention, but so do retirement contributions, health benefits, paid leave, flexibility, professional development, and recognition.
For example, WorldatWork's total rewards framework includes compensation, benefits, well-being, careers, and recognition. It treats these as components of the employment package. One size does not fit all.
Research focused on smaller employers offers another useful perspective. Principal’s February 2025 survey reported that employers identified an inability to offer competitive benefits as a retention challenge, while employees emphasized wanting more flexibility. Retirement benefits, paid family and medical leave, and mental health benefits were among the additions both groups wanted. These findings concern employees generally, rather than executives specifically.
My view? Ask your key leaders what matters to them before designing another benefit.
Is the concern compensation? Retirement savings? Travel demands? Family responsibilities? The ability to work remotely when the role allows it?
Those answers should shape the discussion.
Give the retirement plan a proper review
Before establishing a separate executive benefit, review the retirement plan already in place.
What does the employer contribute? Do employees understand the benefit? Are contribution limits affecting senior leaders?
For 2026, the regular 401(k) employee contribution limit is $24,500 before applicable catch-up contributions. Combined employee and employer contributions generally cannot exceed $72,000, excluding catch-up contributions, and the compensation limit is $360,000.
Those limits help explain why additional retirement compensation may deserve consideration for higher-paid executives. They do not, by themselves, establish that an executive needs a separate plan.
Vesting also matters. Employee contributions always belong to the employee. Certain employer contributions can become owned over time through continued service. Traditional safe harbor employer contributions, however, are immediately vested.
My starting point would be to determine whether improving the existing retirement benefit addresses the need.
I would also offer a cautionary note on vesting. Certain employer contributions can vest gradually over as long as six years. My concern is whether employees see that as a meaningful benefit or a test of their loyalty.
Reward staying, performance, or both
Consider a hypothetical small company that wants its operations leader to remain through a three-year expansion.
The company could grant a $30,000 award payable after three years of continued service. Alternatively, it could establish a target award whose payout depends on both continued service and defined results over those three years.
The first rewards staying. The second combines staying with performance. This is one way to structure a long-term incentive plan, or LTIP.
The employer should establish the goals, payment terms, and treatment of resignation, dismissal, retirement, disability, or a business sale before granting the award. It should also assess its ability to make the future payment.
Where deferred compensation fits
Non-qualified deferred compensation can involve an executive postponing receipt of salary or a bonus. It can also involve an employer promising an additional future benefit.
An employee deferring their own compensation postpones payment. An employer-funded benefit conditioned on future service can require the employee to stay to earn the additional benefit.
Smaller employers have access to these arrangements. Principal, for example, describes an executive retirement program intended for one to five key employees at financially stable businesses. The issues for some of my smaller employers are the costs of establishing and maintaining these programs, whether the employer can fund a meaningful benefit, and, if employee deferrals are offered, whether executives can afford to set aside additional compensation.
There is an important tradeoff: In a typical unfunded arrangement, the benefit remains an employer promise, exposed to the employer’s creditors. Before deferring compensation, an executive should consider the employer’s financial strength and ability to honor that promise.
The Parting Glass
My recommendation for smaller employers is to identify the need before selecting the benefit.
A cash bonus recognizes current contributions. A retirement contribution supports future savings. A three-year award can reward continued service and defined results. Flexibility addresses how the work fits into the employee’s life.
Review the existing package. Talk with leadership. Then decide whether an additional commitment has a clear purpose and an affordable cost.
Before asking what it would cost to keep someone, ask what would give them a reason to stay.
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