There are financial and regulatory reasons to structure it that way, even if you don't intend the bonus to vary much with firm or individual performance. Finan

There are financial and regulatory reasons to structure it that way, even if you don't intend the bonus to vary much with firm or individual performance. Financial first: deferring compensation from continuous throughout the year to a lump sum at the end is essentially getting your employees to lend you money. Depending on the implied terms of the loan (ie, how much extra you have to pay your employees in order to get them to agree to defer some of their compensation), it may be a better source of funding than issuing debt or equity. That's why banks and broker/dealers like the deferred bonus compensation model. On the regulatory side, banks and broker/dealers are required to maintain a minimum amount of capital. Guaranteed bonuses would count as liabilities, reducing capital. Discretionary bonuses, however, don't have to be counted as a liability for regulatory capital purposes, so they don't reduce your regulatory capital. (They still count as liabilities under GAAP though.) That regulation is why they like to make them discretionary. Disclaimer: regulatory capital definitely works like this for non-bank broker/dealers. Banks are subject to different rules, with which I am less familiar, but I would guess they work the same way with respect to discretionary compensation.