Long Term Compensation

Written by Patricia Skinner
Bookmark and Share

Typically, there is some confusion as to what exactly constitutes long term compensation on the part of both employers and employees. As opposed to short term compensation, which includes salary and bonuses, long term payments can include stock option plans of various different types and performance plans. So why do employers opt for anything apart from the normal short term compensation?

The many types of long term compensation plans are employed by various businesses to lure employees. The attraction of any kind of deferred compensation is that employees will have either a lump sum, or regular payments after they retire, or at any point in their lives when they need it.

Advantages of Long Term Compensation

Often, long term compensation plans are fairly flexible, allowing employees to contribute as much or as little as they wish, but with an upper limit being set. For some types of plans, such as stock options plans, the employee is 'awarded' options to purchase stock in the future at a set price. You might be asking, "Just what is the difference between a deferred compensation plan and a pension fund, in this case?" In fact, the two are often used interchangeably by employees.

You will often see a job that offers a long term compensation plan advertised as having 401(k) plans. It's the same thing. The employer is happy because he can defer paying a portion of the wages to his employees, and employees are thrilled at being able to put some of their money into a fund, which they see as a retirement fund in most cases, instead of a portion of their taxes. When done properly it's a win-win idea for both sides, so no wonder these long term compensation programs are popular.


Bookmark and Share