Designing your future paycheque: A smarter look at deferred compensation

If you’re an executive, chances are you earn more than just a paycheque. Your compensation may include a mix of bonuses, equity, and something called deferred compensation: income that you earn today but receive later, often in retirement.

On paper, deferring income can be a smart move. The idea is simple: get paid in a future year, when your tax rate may be lower. But to make the most of it, you need to understand how deferred compensation works – and how it fits into your broader plan.

Let’s walk through how to think about deferred income in a way that helps you take control of your future paycheque, not just wait for it.

What is deferred compensation?

Deferred compensation is income you’ve earned but haven’t received yet. Instead, it’s set aside to be paid at a later time, typically when you leave the company or retire.

For executives, deferred compensation often comes in one or more of these forms:

1. Deferred share units (DSUs)

These are hypothetical shares that fluctuate in value based on the underlying company stock, but don’t represent actual share ownership until you convert the units to shares at redemption time. Taxes are deferred until that time. DSUs can be useful for tax deferral and staying aligned with company performance, but you're locked into the company's payout rules.

2. Supplemental executive retirement plans (SERPs)

SERPs are designed to “top up” your retirement income when traditional pensions can’t. Some are funded (the company sets aside actual money), but many are notional, meaning the value exists only on paper until it's paid. SERPs can help replace a higher percentage of your income in retirement, but unfunded SERPs come with credit risk, as you’re relying on your employer’s ability to pay in the future.

3. “Top-up” pensions

These are extra pension benefits that go beyond what’s allowed under registered pension limits. They’re usually tied to years of service or tenure and may come with strict rules about retirement age or payout schedule. While supplementary pension plans can help maintain your lifestyle post-retirement, they may be inflexible and carry conditions.

4. Non-registered deferred bonus plans

In these plans, you earn a bonus now but delay receiving it. It doesn’t go into a registered plan like an RRSP, so growth isn’t tax-sheltered, but it lets you push the income and tax hit into the future. This can help smooth income in high-earning years, but needs careful timing to avoid large future tax bills.

Why it’s worth planning now

For many executives, deferred compensation feels like something to “figure out later.” But we’ve seen that some of the biggest planning challenges come from what’s left unasked or unexamined.

Here are a few common blind spots:

• “I know what I’m owed.” Many executives assume their deferred compensation is guaranteed. But if the plan is notional and unfunded, the payout depends on your employer’s future financial health – not just your contract.
• “I’ll just pay tax when I get it.” Without planning, a large deferred payout could push you into the highest tax bracket in retirement – undermining the very benefit of deferring it in the first place.
• “I’m retiring next year. It’s too late to change anything.” This is when planning matters most. With the right modeling, we can help you restructure drawdowns, coordinate with RRSPs or corporate assets, and build a tax-efficient plan, even if it feels late in the game.
• “It’s not a priority right now.” That’s understandable. But your deferred income may represent hundreds of thousands (or even millions) in future value. Understanding how it fits into your bigger picture helps you make better decisions today.
   

The real challenge: Control and clarity

What we often see is this: executives know they have deferred compensation, but they don’t fully understand it – or how to plan around it.

Ask yourself:

• When will I receive the income?
• What happens if I retire early, switch companies, or am let go?
• How will this affect my tax bracket when it’s paid out?
• Can I choose the investments—or is it all tracked notionally?
• What if the company is sold, or hits financial trouble?
• Is the plan actually funded, or is it just a promise on paper?
   

This last point is especially important. Many deferred compensation plans are “notional,” meaning the value is tracked but hasn’t been set aside or invested. If the company experiences financial trouble, your payout could be at risk.

If your plan is notional, it’s worth asking:

• Is there an insurance policy or trust backing the obligation?
• What happens to my payouts if I pass away?
• What other savings strategies can I build to offset that risk?
   

Understanding these details doesn’t just protect your future income – it gives you confidence to make decisions today, knowing where you stand.

How to take ownership of deferred compensation

We don’t treat deferred compensation like a side note. We bring it into your full financial picture so you can make better decisions today and tomorrow.

Here’s how we help:

1. Model future income and taxes

We project how deferred payouts will show up in your retirement income – and what that means for taxes, RRSP/RRIF withdrawals, and your personal spending goals. With this insight, you can decide whether to delay, draw earlier, or offset with charitable giving or other strategies.

2. Stress-test the “what ifs”

What if you leave your role at 55? What if your company changes hands? What if you pass away before payouts begin? We build flexible scenarios to explore these outcomes and adjust your plan accordingly.

3. Connect it to the rest of your plan

Deferred compensation doesn’t exist in a vacuum. It’s one part of your broader financial picture, and works best when it’s integrated with the rest of your planning.

That might include:

• RRSPs and TFSAs, to manage the timing and taxation of retirement income.
• Charitable giving tools like Donor-Advised Funds, which can help offset tax in high-income years.
• Income-splitting opportunities with a spouse or adult children, to reduce your overall family tax bill.
• Estate and insurance strategies, to protect what you’ve built and ensure it passes on smoothly.
   

When all these pieces work together, you gain more control – not just over your income, but over your options. It’s how we help clients move from complexity to clarity, and from uncertainty to a strategy that lasts.

Bring clarity to complexity

You’ve worked hard to earn your compensation. You deserve to understand it – and to feel confident it’s working for you.

Our team has deep experience working with executives and business owners across Canada. We help you:

• Understand what you’ve earned
• Model what it will look like in retirement
• Make smart, proactive choices to reduce taxes and protect your lifestyle
   

And because we work closely with your accountants, lawyers, and other professional advisors, we ensure your plan is both technically sound and personally meaningful.

We also understand how overwhelming these compensation structures can be for your family – especially if the unexpected happens. If something were to happen to you, we’re often the ones helping your spouse navigate it all. Because we already understand the details, we can step in, explain what’s in place, and guide them through next steps with clarity and care. That kind of continuity is one of the most meaningful ways we support the families we work with.

Let’s talk about what’s next

Your deferred compensation is part of a bigger story – one that includes your family, your goals, and the legacy you want to leave.

If you’re not sure how it all fits together, or want to understand how to optimize what you’ve already earned, let’s start with a conversation.

You’ve worked hard for your future. Let’s design it on your terms.