Deferring a bonus for a guaranteed return?

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Carguy85
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Deferring a bonus for a guaranteed return?

Post by Carguy85 »

The corp I work for is owned by private equity and rumor has it that they are likely going to sell first half of next year. They have seemingly been in the process more recently of cleaning up the books not taking on any more debt/purchasing any more practices to show maximum profits I suppose…likewise to make the books look better (I guess…I’m certainly no CPA) they are giving us the option to take our bonuses now in which I pay 30-35% tax on and then would put it into a 5% money market account to replenish my cash reserve to my liking…. OR I can defer the bonus in which they will pay 15% quarterly on the bonus paying it out in full with the PE sale or at the end of next year…whichever comes first. The difference equates to $2-3k taking it now vs deferring. I don’t really need the cash but was certainly looking forward to it to replenish the cash coffers. The money difference would be a drop in the bucket with the other money I’d get with the private equity sale(I have a fairly decent chunk invested in the company) but hey…money is money. Is this a total no brainer to defer it? Not sure why I’m thinking about this so much… I suppose because it was totally an unexpected option.
toddthebod
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Re: Deferring a bonus for a guaranteed return?

Post by toddthebod »

Carguy85 wrote: Sun May 28, 2023 7:45 am The corp I work for is owned by private equity and rumor has it that they are likely going to sell first half of next year. They have seemingly been in the process more recently of cleaning up the books not taking on any more debt/purchasing any more practices to show maximum profits I suppose…likewise to make the books look better (I guess…I’m certainly no CPA) they are giving us the option to take our bonuses now in which I pay 30-35% tax on and then would put it into a 5% money market account to replenish my cash reserve to my liking…. OR I can defer the bonus in which they will pay 15% quarterly on the bonus paying it out in full with the PE sale or at the end of next year…whichever comes first. The difference equates to $2-3k taking it now vs deferring. I don’t really need the cash but was certainly looking forward to it to replenish the cash coffers. The money difference would be a drop in the bucket with the other money I’d get with the private equity sale(I have a fairly decent chunk invested in the company) but hey…money is money. Is this a total no brainer to defer it? Not sure why I’m thinking about this so much… I suppose because it was totally an unexpected option.
What if the deal falls through? What if the new owners reneg? What if the economy crashes? What I'm saying is, just how guaranteed is this bonus if you defer it?
Topic Author
Carguy85
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Re: Deferring a bonus for a guaranteed return?

Post by Carguy85 »

If a deal falls through it is biz as usual. It is not up to a new owner to pay us or not (it would be horrible for their new investment if we didn’t get paid :D ). If the economy crashes, biz as usual. Actually if the market is down it’s likely a better environment for the sale. It’s always possible for the corp to go bankrupt and I not get my bonus or other investment money although seemingly extremely unlikely. Local biz would continue though with minimal speed bumps.
NabSh
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Re: Deferring a bonus for a guaranteed return?

Post by NabSh »

My advice is 1 bird in hand is better than 2 in the bush.

As you have said it yourself, the difference to differ is 2-3 K
I’m guessing that’s less than 10% of the bonus. Since your return in cash is 5%, the actual advantage to differ is less than 5%
inverter
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Re: Deferring a bonus for a guaranteed return?

Post by inverter »

I would take it now, UNLESS you get a full promissory note or are part of a formal deferred comp package. Otherwise, you're just risking your bonus.
billaster
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Re: Deferring a bonus for a guaranteed return?

Post by billaster »

I would not trust anything to do with a private equity firm. You have no idea of their actual plans, whether it is to strip the company, load it with debt, go into bankruptcy. Don't believe any of their promises. As you say, you are no CPA, so you have no idea exactly what they are up to.

Take the money up front.
Rex66
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Re: Deferring a bonus for a guaranteed return?

Post by Rex66 »

So they so badly need a loan that they are willing to pay 15%

I wouldn’t do it
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grabiner
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Re: Deferring a bonus for a guaranteed return?

Post by grabiner »

The problem with deferring the bonus is the risk that it will be lost, which the corporation must believe is a substantial risk. If the corporation is willing to lend you money at 15% against your bonus, this suggests that it needs cash and cannot get a more conventional loan at a lower rate. (While the transaction is not structured as a loan, it has the same economic effect on the books; corporations must report promised deferred compensation as a liability.)

The other reason to avoid the risk is that the most likely reason not to get the payment is that the corporation gets into financial trouble, which means that you might lose your job and the money at the same time.
Wiki David Grabiner
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Carguy85
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Re: Deferring a bonus for a guaranteed return?

Post by Carguy85 »

grabiner wrote: Sun May 28, 2023 9:40 am If the corporation is willing to lend you money at 15% against your bonus, this suggests that it needs cash and cannot get a more conventional loan at a lower rate. (While the transaction is not structured as a loan, it has the same economic effect on the books; corporations must report promised deferred compensation as a liability.)
This is my thought as well that it would still show up as a liability for the potential buyer…so I keep trying to figure out in simpleton terms what’s in it for them. Unless if the buyer wants to see more cash on hand and there is a fancy way of accounting for the liability to make it look better? In 4 years of bonuses nothing like this has been offered but seems like a sale is close. I will also say that they have been great and nothing has struck me as shady before.
Last edited by Carguy85 on Sun May 28, 2023 10:00 am, edited 2 times in total.
Topic Author
Carguy85
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Re: Deferring a bonus for a guaranteed return?

Post by Carguy85 »

billaster wrote: Sun May 28, 2023 9:26 am I would not trust anything to do with a private equity firm. You have no idea of their actual plans, whether it is to strip the company, load it with debt, go into bankruptcy. Don't believe any of their promises. As you say, you are no CPA, so you have no idea exactly what they are up to.

Take the money up front.
I like seeing my money in Vanguard any time I want no doubt. I very much dislike the secrecy/illiquidity of PE. I’m out when they sell regardless of how much return I get on the money already invested (guaranteed 8% but talks of 4x) It was sort of part of the deal when we sold. It’s just 10-15% or so of our NW though.
VoiceOfReason
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Re: Deferring a bonus for a guaranteed return?

Post by VoiceOfReason »

This is not a guaranteed return. One could argue it’s no different than a corporate bond on your company and you have no credit rating information.

Also, isn’t the definition of a bonus that it’s discretionary? Could current leadership or future leadership or bankruptcy courts relook at the bonus and its discretionary nature?

I’d take the money today and give it no more thought.
oilrig
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Re: Deferring a bonus for a guaranteed return?

Post by oilrig »

Take the bonus today. There is no guarantee that you will still be employed at your current company next year, especially in this economy: layoff, new job opportunity, company sale this year, your current company refuses to honor bonus etc.

Last year my previous company told its employees that our target annual bonuses for this year were looking good, and gave every employee a generous stock award. Fast forward to this year, the company sold and laid off the majority of its employees 2 months before the bonus was supposed to be paid out. We received zero dollars in bonus and our generous stock awards were wiped out.
Topic Author
Carguy85
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Re: Deferring a bonus for a guaranteed return?

Post by Carguy85 »

Well 100% in agreement thus far. My wife also says I should take it now. Just needed a reality check I suppose.
j9j
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Re: Deferring a bonus for a guaranteed return?

Post by j9j »

Carguy85 wrote: Sun May 28, 2023 11:40 am Well 100% in agreement thus far. My wife also says I should take it now. Just needed a reality check I suppose.
I would be surprised to hear anything different on this board. Also you stated it’s a 2-3k advantage. Take it now.
pizzy
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Re: Deferring a bonus for a guaranteed return?

Post by pizzy »

Carguy85 wrote: Sun May 28, 2023 11:40 am Well 100% in agreement thus far. My wife also says I should take it now. Just needed a reality check I suppose.
Could have just listened to the wife. :oops:
Vanguard/Fidelity | 76% US Stock | 16% Int'l Stock | 8% Cash
Topic Author
Carguy85
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Re: Deferring a bonus for a guaranteed return?

Post by Carguy85 »

pizzy wrote: Sun May 28, 2023 11:45 am
Carguy85 wrote: Sun May 28, 2023 11:40 am Well 100% in agreement thus far. My wife also says I should take it now. Just needed a reality check I suppose.
Could have just listened to the wife. :oops:
Bogleheads has given me “the why” to provide a contrary viewpoint in the past. I think we would otherwise had our money in jars buried in the back yard instead of in vtsax. Hopefully for my sake, time proves this strategy as a better choice 😃.
Last edited by Carguy85 on Sun May 28, 2023 12:23 pm, edited 1 time in total.
pizzy
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Re: Deferring a bonus for a guaranteed return?

Post by pizzy »

Carguy85 wrote: Sun May 28, 2023 12:21 pm
pizzy wrote: Sun May 28, 2023 11:45 am
Carguy85 wrote: Sun May 28, 2023 11:40 am Well 100% in agreement thus far. My wife also says I should take it now. Just needed a reality check I suppose.
Could have just listened to the wife. :oops:
Bogleheads gives me ammo if I want to provide a contrary viewpoint. I think we would otherwise had our money in jars buried in the back yard instead of in vtsax. Hopefully for my sake, time proves this strategy as a better choice 😃.
Or you’ll be the one buried in the backyard. :sharebeer :shock:
Vanguard/Fidelity | 76% US Stock | 16% Int'l Stock | 8% Cash
Topic Author
Carguy85
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Re: Deferring a bonus for a guaranteed return?

Post by Carguy85 »

😂 very true
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