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Retrospective and Future Bonus Payments and "Performance-Based Compensation"


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Sorry for some very basic questions, but it seems to me that under the 409A regs the concept of "performance-based compensation"  is only invoked if there were a possibility of that compensation being deferred. In other words:

1. If there is no opportunity to defer, an employer could pay a bonus for performance over the preceding 12 months based on criteria established right before the bonus is paid without running into 409A, correct?

2. If there is no opportunity to defer, an employer can establish performance criteria for a bonus that would be paid with respect to a 12 month period that has already started without running into 409A, correct?  (E.g., in August 2022, the employer establishes performance criteria for the period July 1, 2022 through June 30, 2023, and any resulting bonus would be paid shortly after June 30, 2023.)


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1. Yes.

2. Yes, but note that the employer has 90 days into the performance period to establish performance-based comp criteria, so your example could still be performance-based compensation. 

The 409A rules around performance-based compensation generally deal only with the timing of an initial deferral election. 

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Agreed. Performance Period definition is necessary only if you want to permit deferral elections as late as 6 months before the end of the performance period, e.g. after there has already been some performance. 
Now that performance plans are no longer a tax exception for public company compensation under 162(m) it's a moot point in most cases for public companies. I've never seen private companies bother with it; they just use the 1 year/5 year deferral process if they want to permit deferral, and most just pay when due. 

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