In today’s business world, keeping your best people isn’t just about giving raises or annual bonuses. It’s about building real alignment—helping your team feel like they have a long-term stake in the company’s success.

When employees start thinking more like owners than employees, their decisions reflect that mindset. And while equity is a common way to create that alignment, it’s not always the most practical tool—especially for growing companies or pass-through entities like LLCs.

That’s where Non-Qualified Deferred Compensation (NQDC) plans come in.

So, what exactly is an NQDC plan?

In a nutshell, an NQDC plan lets a company promise a portion of an employee’s compensation to be paid at a later date—typically tied to performance goals, tenure, or retirement. Unlike traditional 401(k)s and other qualified plans, NQDCs don’t come with as many rules or contribution limits. That means more flexibility to create a plan that truly fits your business and your people.

These plans are often used for high-level or key employees—the people who are critical to long-term growth. When structured right, NQDCs offer both a financial incentive and a reason to stick around.

Why businesses love NQDC plans

Here’s why NQDCs are such a powerful retention tool:

1. They encourage long-term thinking.
   Because these plans often vest over time or based on hitting certain milestones, they naturally encourage employees to stay invested—in both senses of the word.
2. They’re flexible.
   You can tailor the structure, timeline, and goals to fit your business. You decide when the compensation is paid out, what it’s tied to, and even how the deferred dollars are invested.
3. They don’t dilute ownership.
   Unlike equity, NQDC plans don’t affect the company’s cap table. That’s huge for founders and owners who want to keep control while still rewarding their top people.
4. They come with tax perks.
   Employees get to defer income taxes until they receive the payout—often when they’re in a lower tax bracket. Companies, in turn, deduct the expense when the payout is made. It’s a win-win for cash flow management.

Why equity isn’t always the best answer

We’re not knocking equity—stock options and RSUs absolutely have their place. But they also come with some real challenges:

• Dilution: Giving equity to employees can shrink the ownership stake of founders and early investors.
• Transparency requirements: Equity holders (especially in LLCs) may need access to sensitive financial info—not always ideal.
• Tax complexity: Employees could be taxed on paper gains they haven’t yet realized, and multi-state filings are common.
• Admin burden: Managing an equity plan (especially in a private company) can be time-consuming and legally complex.

For a lot of companies, especially those that aren’t ready to go public or raise outside capital, equity can create more headaches than it solves.

The takeaway: NQDCs offer real advantages

If you’re looking for a flexible, scalable way to retain top talent and reward long-term commitment—without giving up equity—NQDC plans are worth serious consideration. They’re especially well-suited for LLCs and closely held businesses where equity just isn’t a great fit.

At AVL, our CFOs regularly help founders and executive teams explore long-term incentive strategies. Whether you’re curious about bonus structures, sales comp plans, equity options, or NQDCs, we’ve got you covered. We also work closely with attorneys and wealth advisors to bring these ideas to life.

Let’s talk if you want to build a smarter, more sustainable retention strategy.