Making deferral work: short-term credibility for long-term value

Deferred gratification used to define corporate reward. Work hard, stay loyal and your turn would come. Pensions, LTIPs, share options, carried interest, even the path to partnership - all rested on the same trade: sacrifice something today for a share of tomorrow's value.

I think that basic equation is under pressure. When money was cheap, time was cheap. Now, patience itself carries a yield. A sticky 4% base rate and persistent inflation have made waiting costly. Deferred rewards must now compete with liquid, income-generating assets. What was once a passive wait for upside now carries a visible opportunity cost. 

Tax friction amplifies the effect. Many deferred awards crystallise as income on vesting, while liquid alternatives compound under capital treatment. Deferral can therefore suffer a higher effective tax take and fewer compounding years - an expensive combination in today's environment, particularly with a tax-(hair?) raising Budget on the horizon.

When time itself earns a return, waiting requires justification. Deferred incentives must now prove their value early or risk losing credibility entirely.  

What banking pay showed us

One of our most regulated sectors - financial services - has recognised the diminishing returns of excessive deferral.

The PRA and FCA’s 2025 remuneration reforms reduced mandatory deferral for senior bankers and reintroduced earlier payout capability. 

That logic must surely translate across all sectors. When deferral stretches too far, the signal between performance and reward weakens. The design question is no longer whether to defer, but how to keep deferral credible.

Deferral 2.0?

Deferred reward once built discipline, resilience and alignment with long-term value. Replace it entirely with instant validation and you risk a culture of consumption, not creation. 

But the preference for immediacy isn’t moral weakness, it’s an economic response to rising opportunity costs. When liquidity pays, waiting feels irrational. The challenge for companies is to preserve the benefits of patience without ignoring the psychology of immediacy.

That’s why short-termism is so corrosive, not just for investors but for executives. It drives behaviours like early exercise, cash substitution and rapid churn, all rational responses to opaque or unreliable long-term value.

Modern incentive design needs to solve for this, not by removing deferral but by reinforcing confidence in it, potentially through transparent valuation, credible governance and clear line-of-sight to payout.

Making waiting credible

Case study: building a performance bank for cash rewards

We recently helped a private technology client re-engineer its executive incentive plan to make deferred reward more tangible.

During a multi-year value-creation phase, the business had limited near-term liquidity. Executives needed visible recognition of progress, not just the promise of an eventual exit.

Our solution: a cash-based performance bank - a notional account recording value earned each year from company performance against revenue, EBIT, gross margin and personal performance goals.

The credited amount vests in three equal instalments over three years - the “third, third, third” model - creating a continuous cycle where new value is earned annually and earlier tranches are paid out.

By year three, the plan reaches a steady state: each executive sees a cumulative banked balance building, directly tied to performance. Cash outflows remain controlled and predictable for investors, while executives experience a sense of ownership and ongoing momentum.

The effect has been striking. Turnover has fallen, engagement has improved and the Remco gained a framework that balanced financial prudence, transparency and retention - turning deferral from a frustration into a source of confidence.

Make value visible

• Performance banks to record cumulative, vested value year by year.
• Look-through valuations to translate performance into indicative current value.
• Transparent storytelling to demonstrate how value compounds and why timing matters.

Make value fair

• Rolling liquidity windows to permit controlled realisations without collapsing long-term alignment.
• Symmetry in leaver rules (clear leaver tests, consistent pro-rating etc.) so outcomes feel principled, not arbitrary.
• Consistent governance applied across all plans: malus/clawback, windfall policy, affordability caps etc.

The goal isn’t to shorten horizons. It’s to de-risk deferred value, by making progress visible, mechanisms transparent and outcomes feel earned.

The economics of patience

Patience hasn’t disappeared, but it has become harder to sustain. In a world of instant information and rising opportunity costs, waiting now carries a measurable price. Deferral no longer trades only on time; it trades on transparency, trust and credible value. Build the bridge from long-term intent to short-term proof and waiting becomes investable again.

At Burges Salmon we help companies make deferral work again.