1 Align with strategy

Your deferred compensation plan should reflect and support your organization's strategic vision and objectives. For example, if you are in a high-growth industry with a lot of competition, you might want to link your deferred compensation to performance measures that reward innovation, market share, and customer satisfaction. If you are in a mature or regulated industry with stable cash flows, you might want to emphasize long-term value creation, risk management, and compliance. Think about what kind of behaviors and outcomes you want to encourage and reward in your executives, and design your deferred compensation accordingly.

2 Balance risks and rewards

Your deferred compensation plan should also balance the risks and rewards for both your organization and your executives. For example, if you are in a volatile or uncertain market, you might want to offer more flexibility and security in your deferred compensation, such as allowing executives to choose when and how to receive their payments, or providing some protection against market downturns or termination. If you are in a stable or predictable market, you might want to offer more upside potential and alignment in your deferred compensation, such as tying payments to stock price appreciation or dividend growth, or imposing vesting or clawback provisions. Think about what kind of trade-offs and incentives you want to create for your executives, and design your deferred compensation accordingly.

3 Comply with regulations

Your deferred compensation plan should also comply with the relevant laws and regulations that apply to your industry and context. For example, if you are in a public company, you need to follow the rules and disclosures of the Securities and Exchange Commission (SEC) and the Internal Revenue Service (IRS) regarding deferred compensation. If you are in a non-profit or government entity, you need to follow the rules and limitations of Section 457 of the IRS code regarding deferred compensation. If you are in a foreign or multinational company, you need to follow the rules and implications of the local tax authorities and currency fluctuations regarding deferred compensation. Think about what kind of legal and regulatory constraints and opportunities you face in your industry and context, and design your deferred compensation accordingly.

4 Benchmark with peers

Your deferred compensation plan should also benchmark with your peers and competitors in your industry and market. For example, if you are in a talent-intensive or highly specialized industry, you need to offer competitive and attractive deferred compensation packages to recruit and retain top executives. If you are in a low-margin or commoditized industry, you need to offer cost-effective and efficient deferred compensation plans to maintain profitability and sustainability. If you are in a niche or emerging industry, you need to offer innovative and differentiated deferred compensation plans to stand out and gain an edge. Think about what kind of market conditions and expectations you face in your industry and market, and design your deferred compensation accordingly.

6 Review and update

Your deferred compensation plan should also be reviewed and updated regularly to ensure its effectiveness and relevance. For example, if you have changes in your strategy, performance, or goals, you might want to adjust your deferred compensation to reflect and reinforce them. If you have changes in your industry, market, or context, you might want to adapt your deferred compensation to respond and anticipate them. If you have changes in your executives' needs, expectations, or feedback, you might want to modify your deferred compensation to address and improve them. Think about what kind of events and trends affect your organization and your executives, and design your deferred compensation accordingly.