Compensation - Part 11 - Deferred Compensation

Deferred compensation is an award made by an employer to compensate an employee in a future cost accounting period for services rendered prior to receipt of compensation. It does not include the normal year-end salary, wage or bonus accruals.

The costs of deferred compensation awards are allowable subject to the following limitations:

1. The costs shall be measured, assigned, and allocated in accordance with CAS 415, Accounting for the Cost of Deferred Compensation
2. The costs of deferred compensation awards are unallowable if the awards are made in periods subsequent to the period when the work being remunerated was performed.

The trick here is to charge only the present value of the award to the current accounting period. This means that contractors will need to reasonably estimate when the payouts will occur (one of the conditions of CAS 415).

Next: Section l - Compensation incidental to business acquisitions.