Bonus Deferred at Employer's Discretion - Deferral Election Needed?

[Christine Roberts]

Bonus plan calls for distribution of cash value of bonus by December 31 of each year, however company CEO reserves the right to defer bonus for up to 3 years. Forfeiture during that time occurs if employee leaves employment or violates confidentiality and non-solicitation clauses of employment agreement.

If deferrals is wholly within CEO's discretion, is employee still required to enter into a deferral election with respect to the bonus?

[Mark Whitelaw]

If the control of when the compensation for services is to be received rests with the employer, you have a SERP, not a deferral. The employee is not deferring compensation they have rights to today; hence, no need for a deferral election. Especially if the determination is after services have been performed.

[TCWalker]

You know, I think there's another layer of analysis due here under both the labor and business/professions codes of this employee's State. Whomever is advising this employer/CEO should evaluate the risks inherent is this "clawback" design.