Deferred Compensation

Nonqualified Deferred Compensation Trends: A Strategic Lever in Executive Rewards

Nonqualified Deferred Compensation (NQDC) plans continue to evolve in their design and strategic application, reinforcing their role as a key component of executive compensation. Discover what this means for both plan sponsors and executives in the latest NQDC Trends Report.

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As the importance of talent attraction and retention rises on corporate agendas, organizations are rethinking how executive compensation drives differentiation. According to 70% of decision-makers, NQDC plans are a leading executive reward for differentiation in a competitive talent market.

What is a Nonqualified Deferred Compensation Plan?

NQDC plans are workplace benefits that allow participants to defer a portion of their compensation, and related income taxes, to a later date. Unlike qualified retirement plans, such as 401(k) plans, nonqualified deferred compensation plans do not have statutory contribution limits, making them appealing to high-income earners interested in tax deferred growth potential.

Four Key NQDC Trends

  1. 1
    Deferred Compensation Delivers Executive Reward Differentiation

    While NQDC plans have historically been a core component of executive compensation, their design and strategic importance have continued to evolve, reinforcing their role in attracting and retaining senior talent. This aligns with 64% of plan sponsors considering making their deferred compensation plans available beyond the current eligible population to other high-potential talent. 

  2. 2
    Not Just a Retirement Benefit: NQDC Plans Bolster Equity Compensation

    Among NQDC decision-makers, 94% say that equity and deferred compensation are more effective together than either benefit alone. Part of this is the overlap in eligibility, with an average of 67% of employees eligible for NQDC, are also eligible for equity compensation. However, the connection between equity and NQDC also plays a part, with 95% of plan sponsors identifying them as complementary components of an executive wealth strategy – reinforcing the value of aligning these benefits rather than treating them independently.

  3. 3
    Opportunities Exist to Improve NQDC Education and Guidance

    Despite the mounting importance of deferred compensation, many organizations have not fully unlocked its potential. To better meet executive needs, plan sponsors are considering ways to inject greater flexibility into plan design. Similarly, to close participation gaps, 96% of decision-makers want to improve employee education and a similar percentage believe access to personalized guidance would boost plan participation and engagement.

  4. 4
    Plan Sponsors Value Nonqualified Deferred Compensation Expertise

    As NQDC plans grow in popularity, decision-makers are encountering execution challenges. To overcome them, plan sponsors are looking for providers who have proven NQDC experience and a broad benefits ecosystem. In fact, 58% agree that bundling NQDC and other workplace benefits through one provider can improve administrative efficiency and enhance the participant experience.

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Why This Matters to Plan Sponsors and Executives

To attract, retain, and engage executive talent, companies continue to leverage NQDC plans as a strategic extension of executive compensation—enhancing the value of equity compensation and strengthening overall rewards strategies. Organizations that treat deferred compensation as an integrated, participant‑centric benefit are better positioned to realize its full potential.

 

NQDC Action Items for Plan Sponsors:

 

  • Consider thoughtfully expanding plan eligibility beyond current eligible population to help incentivize high performing employees across the organization.
  • Increase plan participation by investing in education and personalized guidance.
  • Align NQDC with equity compensation strategies to help enhance strategic outcomes.
  • Improve administrative efficiency by working with a provider that can offer deferred compensation with other workplace benefits.

 

NQDC Action Items for Executives:

 

  • Evaluate how extending tax-deferred savings can support long-term wealth goals.
  • Integrate equity and nonqualified deferred compensation into a comprehensive financial plan.
  • Improve NQDC understanding by working with experienced professionals.

Frequently Asked Questions

A Nonqualified Deferred Compensation (NQDC) plan is a workplace benefit generally offered to a select group of highly compensated employees and key executives that allows them to defer a portion of their compensation, and related income taxes, to a later date.

According to the latest NQDC Trends Report, deferred compensation remains a core component of executive compensation, increasingly integrated into broader rewards strategies to help attract, retain, and engage senior talent—particularly when paired with equity compensation.

For employers, an NQDC plan can be a powerful executive recruitment and retention tool that can drive engagement by rewarding key talent for meeting their performance targets.

 

For executives, these programs can provide an additional tax-deferred savings opportunity for those affected by qualified retirement plan contribution limits and/or discrimination testing. They may also allow executives to reduce current income taxes.

NQDC plans are generally designed for highly compensated employees and key executives who want additional ways to defer income and build long-term wealth. They may be especially relevant for eligible individuals who have maximized contributions to qualified retirement plans and are looking to extend tax-deferred savings as part of a broader financial plan.

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Disclosures

Source: 2026 NQDC Trends Report, based on survey responses from decision-makers across U.S. companies offering nonqualified deferred compensation plans. Published by Morgan Stanley at Work.

Tax laws are complex and subject to change. Morgan Stanley and its affiliates, employees and agents do not provide tax or legal advice. Employers (and other service recipients) should consult their own tax and legal advisors before establishing a nonqualified deferred compensation plan, and regarding any potential legal, tax, and other consequences of any investments or other transactions made with respect to a nonqualified deferred compensation plan. Eligible employees (and other eligible service providers) should consult their own tax and legal advisors before deciding to participate in, or making any elections with respect to, a nonqualified deferred compensation plan.

Nonqualified deferred compensation plan recordkeeping services are part of Morgan Stanley at Work solutions and are offered by E*TRADE Financial Corporate Services, Inc., a wholly owned subsidiary of Morgan Stanley.

Morgan Stanley at Work services and stock plan accounts are provided by wholly owned subsidiaries of Morgan Stanley.

CRC#5466145 (05/2026)

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