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The Danger of Deferred Compensation

If your company goes bust, you may not get paid

In the 1990s, many companies adopted programs that allowed top executives to defer pay until they needed the money--and to delay paying the taxes that went along with it. Now many of those execs are paying a steep price for that perk. As more companies go belly-up, managers are learning about the danger of "deferred compensation"--namely, that it could be deferred forever.

It's one of the lessons from the collapse of Enron. As the company teetered on the verge of bankruptcy last year, select execs were allowed to bail out of its deferred-compensation plan, while former employees were not. The latter became, in bankruptcy terms, "unsecured creditors," likely to lose most of their money. "The idea that you can lose it all doesn't dawn on you," says Stephen Pearlman, a former Enron executive who lost $260,000 when the company ignored his requests to withdraw the cash in November.