Exhibit 10.5


                         DEFERRED COMPENSATION AGREEMENT

      AGREEMENT made as of the second day of February, 2000, by and between
Harris & Harris Group, Inc., a corporation organized under the laws of the State
of New York (the "Company"), and Charles E. Harris (the "Executive").

      WHEREAS, the Company and the Executive are parties to an employment
agreement;

      WHEREAS, the employment agreement obligates the Company to adopt a
supplemental executive retirement plan for the benefit of the Executive;

      WHEREAS, in order to effect the foregoing, the Company and the Executive
wish to enter into a Deferred Compensation Agreement on the terms and conditions
set forth below.

      NOW, THEREFORE, in consideration of the premises and covenants hereinafter
contained, the parties hereto agree as follows:

Section 1. Deferred Compensation Account; Contributions to Trust.

      (1) The Company shall credit to a book reserve (the "Deferred Compensation
Account") commencing as of October 19, 1999 and for each month thereafter, an
amount equal to 8.25% of the Executive's Base Salary (as defined in the
employment agreement between the Company and the Executive dated October 19,
1999 (the "Employment Agreement")) for such month; provided that the Executive
is employed with the Company on the last business day of such month. The
Deferred Compensation Account shall be debited with amounts representing all
losses and distributions from the Trust (as hereinafter defined) and shall be
credited with all earnings of and deposits to the Trust or amounts otherwise
contributed to the Trust.

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      (2) Any amounts represented by credits made to the Deterred Compensation
Account in accordance with the first sentence of paragraph (1) above shall be
contributed by the Company on the last business day of each month to the trust
(the "Trust") established under the Trust Agreement substantially in the form of
Exhibit A annexed hereto (the "Trust Agreement"); provided, however, that
amounts represented by credits in respect of all completed calendar months from
October 19, 1999 to the date of execution hereof shall be contributed to the
Trust within 5 business days after execution of this Agreement. Amounts
contributed to the Trust shall be invested and reinvested in accordance with the
provisions of the Trust Agreement. To the extent that the Company is required to
withhold hospital insurance tax or other taxes in respect of credits to the
Deferred Compensation Account representing earnings of the Trust prior to
distribution of such earnings to the Executive pursuant to Section 2 below, the
Company and the Executive may agree that such withholding obligation shall be
satisfied from amounts otherwise payable to the Executive and, in the absence of
such agreement, such withholding obligation shall be satisfied from amounts held
in the Trust or amounts otherwise contributed to the Trust.

      (3) The Executive agrees on behalf of himself and his designated
beneficiary to assume all risk in connection with any debits or credits made to
him under the Trust by reason of losses or earnings on investments made in
accordance with the provisions of the Trust Agreement.

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Section 2. Benefit Payments.

      (1) The Executive shall determine the form and timing of the distribution
of amounts held in the Trust; provided that, however, no distribution shall be
made from the Trust unless the Executive shall have provided the Company with a
written request for a distribution (such request shall specify the timing and
form of the distribution) at least six months in advance of the day such
distribution is to be made from the Trust, and further provided that, such
request shall have been forwarded to the Trustee at least six months in advance
of the day such distribution is to be made from the Trust. In addition, where
the Executive requests a distribution from the Trust while still employed by the
Company, a six percent reduction shall be imposed on such distribution, and a
corresponding debit shall be made to the Deferred Compensation Account.
Notwithstanding the foregoing, in the event a termination of the Period of
Employment (as defined in the Employment Agreement) occurs pursuant to paragraph
6 ("Disability"), 7 ("Death") or 8 ("Effect of Termination of Employment") of
the Employment Agreement, the Company shall pay (or cause to be paid from the
Trust) to the Executive or to the Executive's beneficiary or estate (in the
event of his death) in cash a lump sum equal to the amount reflected in the
Deferred Compensation Account as of the effective date of the Executive's
termination.

      (2) The beneficiary referred to in paragraph (1) above may be designated
or changed by the Executive (without the consent of any prior beneficiary) on a
form provided by the Company and delivered to the Company before the Executive's
death. If no such beneficiary shall have been designated, or if no designated
beneficiary shall survive the Executive, the lump sum payment payable under
paragraph (1) above shall be payable to the Executive's estate.

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Section 3. Vesting.

      The Executive's interest in the Deferred Compensation Account shall be
100% vested and non-forfeitable.

Section 4. Unfunded Arrangement.

      It is the intention of the parties hereto that the arrangement described
in this Agreement be unfunded for tax purposes and for purposes of Title I of
the Employee Retirement Income Security Act of 1974, as amended. Nothing
contained in this Agreement or the Trust Agreement and no action taken pursuant
to the provisions of this Agreement or the Trust Agreement shall create or be
construed to create a fiduciary relationship between the Company and the
Executive, his designated beneficiary or any other person. Any funds that may be
invested under the provisions of the Trust Agreement shall continue for all
purposes to be a part of the general funds of the Company and no person other
than the Company shall by virtue of the provisions of this Agreement have any
interest in such funds. To the extent that any person acquires a right to
receive payments from the Company under this Agreement, such right shall be no
greater than the right of any unsecured general creditor of the Company. This
Agreement constitutes a mere promise by the Company to make a benefit payment in
the future.

Section 5. Nonalienation of Benefits.

      The right of the Executive or any other person to the payment of deferred
compensation or other benefits under this Agreement shall not be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, attachment or garnishment by creditors of the Executive or the
Executive's beneficiary or estate.

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Section 6. No Right to Employment.

      Nothing contained herein shall be construed as conferring upon the
Executive the right to continue in the employ of the Company as an executive or
in any other capacity.

Section 7. Effect on Other Benefits.

      Any deferred compensation payable under this Agreement shall not be deemed
salary or other compensation to the Executive for the purpose of computing
benefits to which he may be entitled under any pension plan or other arrangement
of the Company for the benefit of its employees.

Section 8. Binding Agreement.

      This Agreement shall be binding upon and inure to the benefit of the
Company, its successors and assigns and the Executive and his heirs, executors,
administrators and legal representatives.

Section 9. Governing Law.

      This Agreement shall be construed in accordance with and governed by the
laws of the State of New York without regard to its conflict of laws principles.

Section 10. Validity.

      The invalidity or unenforceability of any provision or provisions of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.

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Section 11. Counterparts.

      This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original but all of which together will constitute one
and the same instrument.

Section 12. Arbitration.

      Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in the City of New York in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction. The expense of such arbitration shall be shared equally by the
Company and by the Executive; provided that the arbitrator shall be entitled to
include as part of the award to the prevailing party the reasonable legal fees
and expenses incurred by such party in an amount not to exceed $25,000 in
connection with enforcing its rights hereunder.

Section 13. Amendment.

      The Agreement may be amended in whole or in part by a written instrument
executed by both parties hereto.

      IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officers and the Executive has hereunto set his hand and
seal as of the date first above written.

                                                     HARRIS & HARRIS GROUP, INC.


                                                     By: /s/ Mel P. Melsheimer
                                                     -------------------------
                                                     Mel P. Melsheimer,
                                                     President