<PAGE>

                                                                   Exhibit 10.11



 
                                COST PLUS, INC.
                                        
                           DEFERRED COMPENSATION PLAN
                                       
                           EFFECTIVE OCTOBER 1, 1997

                                        
                                        
<PAGE>
  
                               TABLE OF CONTENTS
                               -----------------

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ---- 
                                                
<C>           <S>                                                        <C>
  ARTICLE I   DEFINITIONS.................................................   1
                                                
        1.1   "Accounts"..................................................   1
        1.2   "Benchmark Fund"............................................   1
        1.3   "Beneficiary"...............................................   1
        1.4   "Benefit Distribution Election".............................   1
        1.5   "Benefit(s)"................................................   1
        1.6   "Board of Directors"........................................   1
        1.7   "Bonus".....................................................   1
        1.8   "Bonus Deferral"............................................   2
        1.9   "Change of Control".........................................   2
       1.10   "Code"......................................................   2
       1.11   "Committee".................................................   2
       1.12   "Company"...................................................   2
       1.13   "Company Credit"............................................   2
       1.14   "Deferral Election".........................................   2
       1.15   "Distribution Date".........................................   2
       1.16   "Effective Date"............................................   2
       1.17   "Eligible Employee".........................................   2
       1.18   "Employer"..................................................   2
       1.19   "Entry Date"................................................   2
       1.20   "Initial Entry Date"........................................   2
       1.21   "Interest"..................................................   3
       1.22   "Interest Rate".............................................   3
       1.23   "Participant"...............................................   3
       1.24   "Plan"......................................................   3
       1.25   "Plan Year".................................................   3
       1.26   "Salary"....................................................   3
       1.27   "Salary Deferral"...........................................   3
       1.28   "Total Disability"..........................................   3
       1.29   "Trust".....................................................   3
       1.30   "Trust Agreement"...........................................   3
       1.31   "Trustee"...................................................   3
       1.32   "Year of Service"...........................................   3
                                                
 ARTICLE II   ELIGIBILITY                                                    4
        2.1   Eligibility.................................................   4
        2.2   Commencement of Participation...............................   4
        2.3   Cessation of Participation..................................   4
                                                
ARTICLE III   DEFERRALS                                                      4
        3.1   Salary Deferrals............................................   5
        3.2   Bonus Deferrals.............................................   5
        3.3   Limitations on Deferrals....................................   5
        3.4   Time for Making Deferral Elections..........................   6
</TABLE>

                                       i
<PAGE>
  
                               TABLE OF CONTENTS
                               -----------------
                                  (continued) 
<TABLE>
<CAPTION>
                                                                                                                             Page
                                                                                                                             ----
<C>          <S>                                                                                                              <C>
    3.5      Vesting.......................................................................................................    6
                                                                               
ARTICLE IV      COMPANY CREDITS............................................................................................    6
    4.1      Company Credits...............................................................................................    6
    4.2      Vesting.......................................................................................................    6

ARTICLE V       ACCOUNTS...................................................................................................    6
    5.1      Account.......................................................................................................    6
    5.2      Interest Credited to Accounts at Least Monthly................................................................    6
    5.3      Determination of Interest Rate................................................................................    7
                                                                               
ARTICLE VI      BENEFIT DISTRIBUTIONS AND ACCOUNT WITHDRAWALS..............................................................    7
    6.1      Benefit Amount................................................................................................    7
    6.2      Timing of Distributions.......................................................................................    7
    6.3      Planned Benefit Distributions.................................................................................    7
    6.4      Distribution Following a Change of Control Event..............................................................    8
    6.5      Form of Distribution of Benefits..............................................................................    8
    6.6      Method of Distribution Following Plan Termination.............................................................    9
    6.7      Death Benefits................................................................................................    9
    6.8      Early Withdrawal..............................................................................................    9
    6.9      Financial Hardship Withdrawal.................................................................................    9
    6.10     Limitation on Distributions to Covered Employees..............................................................   10
    6.11     Tax Withholding...............................................................................................   10
                                                                               
ARTICLE VII     BENEFICIARIES..............................................................................................   11
    7.1      Designation of Beneficiary....................................................................................   11
    7.2      No Designated Beneficiary.....................................................................................   11
                                                                               
                                                                               
ARTICLE VIII    TRUST OBLIGATION TO PAY BENEFITS...........................................................................   11
    8.1      Deferrals Transferred to the Trust............................................................................   11
    8.2      Source of Benefit Payments....................................................................................   11
    8.3      Investment Discretion.........................................................................................   11
    8.4      No Secured Interest...........................................................................................   11
                                                                               
ARTICLE IX      PLAN ADMINISTRATION, AMENDMENT AND TERMINATION.............................................................   11
    9.1      Committee Powers and Responsibilities.........................................................................   11
    9.2      Decisions of the Committee....................................................................................   12
    9.3      Plan Amendment................................................................................................   13
    9.4      Plan Termination..............................................................................................   13
    9.5      Additional Power and Responsibility Following a Change of Control.............................................   13
                                                                               
ARTICLE X       MISCELLANEOUS..............................................................................................   13
    10.1     No Assignment.................................................................................................   13
    10.2     Successors....................................................................................................   13
    10.3     No Employment Agreement.......................................................................................   13
</TABLE>


                                                                ii
<PAGE>
  
                               TABLE OF CONTENTS
                               ----- -- --------
                                  (continued)                               Page
                                                                            ----
<TABLE>
<CAPTION>

<S>            <C>                                                           <C>
     10.4      Attorneys' Fees............................................... 13
     10.5      Arbitration................................................... 14
     10.6      Governing Law................................................. 14
     10.7      Entire Agreement.............................................. 14

</TABLE>


                                      iii
<PAGE>
 
                                COST PLUS, INC.
                           DEFERRED COMPENSATION PLAN
                                        
                           EFFECTIVE OCTOBER 1, 1997

      THE COST PLUS, INC. DEFERRED COMPENSATION PLAN (the "Plan") is adopted
effective October 1, 1997, by COST PLUS, INC., a California corporation
("Company"), for the purpose of providing a tax-deferred capital accumulation
program through the deferral of Salary and Bonuses as well as additional
corporate contributions to a select group of management or highly compensated
employees of the Company and its subsidiaries. This Plan is intended to be an
unfunded, nonqualified deferred compensation plan. Plan participants shall have
the status of unsecured creditors of the Company with respect to the payment of
Plan benefits.

                                   ARTICLE I

                                  DEFINITIONS
                                  -----------

      Whenever used herein, the masculine pronoun shall be deemed to include the
feminine, and the singular to include the plural, unless the context clearly
indicates otherwise, and the following definitions shall govern the Plan:


      1.1  "Accounts" means the book entry account(s) established under the Plan
            --------
for each Participant to which are credited Salary Deferrals, Bonus Deferrals,
Company Credits, and the Interest with respect thereto. Account balances shall
be reduced by any distributions made to the Participant or the Participant's
Beneficiary(ies) therefrom and any charges that may be imposed on such Account
pursuant to the terms of the Plan.


      1.2  "Benchmark Fund" shall mean one or more of the mutual funds or
            --------------
contracts selected by the Committee pursuant to Section 5.3.1.


      1.3  "Beneficiary" means one, some, or all (as the context shall require)
            -----------
of those persons, trusts or other entities designated by a Participant to
receive the undistributed value of his or her Account following the
Participant's death.


      1.4  "Benefit Distribution Election" means the election, whereby a
            -----------------------------
Participant may elect an optional form of Benefit distribution pursuant to
Section 6.5.3, a planned Distribution Date pursuant to Section 6.3 or an early
withdrawal of Benefits pursuant to Section 6.8. Such election shall be made in
such manner as may be prescribed by the Committee from time to time.


      1.5  "Benefit(s)" means the total vested amount credited to a
            ----------
Participant's Account.


      1.6  "Board of Directors" or "Board" means the Board of Directors of the
            ------------------      -----
Company.


      1.7  "Bonus" shall mean cash amounts, if any, paid under such of the
            -----
Employer's bonus plans as may be applicable to a Participant.

                                       1
<PAGE>
 
      1.8  "Bonus Deferral" means the amount or percentage of a Participant's
            --------------
Bonus that the Participant elects to defer pursuant to Article III.


      1.9  "Change of Control" means (a) the purchase or other acquisition by
            -----------------
any person(s) or entity(ies), within the meaning of section 13(d) or 14(d) of
the Securities Exchange Act of 1934 (the "Act") or any comparable successor
provisions, of beneficial ownership (within the meaning of Rule 13d-3 under the
Act) of thirty percent (30%) or more of the outstanding shares of common stock
or the combined voting power of the Employer's outstanding voting securities;
(b) the approval by the Employer's shareholders of a reorganization, merger or
consolidation transaction when after such transaction the Employer's
shareholders own less than fifty percent (50%) of the combined voting power
owned before such transaction; (c) a dissolution or liquidation of the Employer;
or (d) the sale of all or substantially all of the Employer's assets.


      1.10  "Code" means the Internal Revenue Code of 1986, as amended.
             ----


      1.11  "Committee" means the Deferred Compensation Committee composed of
             ---------
individuals appointed by the Board to function as the Plan administrator. The
Deferred Compensation Committee shall interpret and administer this Plan and
take such other actions as may be specified herein.


      1.12  "Company" means Cost Plus, Inc., a California corporation, and any
             -------
successor organization thereto.


      1.13  "Company Credit" means an amount credited to a Participant's Account
             --------------
by the Company in its discretion on behalf of a Participant pursuant to Article
IV.


      1.14  "Deferral Election" means the election whereby a Participant elects
             -----------------
to make Salary Deferrals and/or Bonus Deferrals to the Plan. Such Deferral
Election shall be made in such manner as may be prescribed by the Committee from
time to time.


      1.15  "Distribution Date" means the date on which distribution of a
             -----------------
Participant's Benefits is made or commenced pursuant to Article VI.


      1.16  "Effective Date" means the date on which the Plan shall be first
             --------------
effective, which is October 1, 1997.


      1.17  "Eligible Employee" means an employee of the Employer who is
             -----------------
designated by the Committee, in its sole discretion, as a member of the select
group of management and highly compensated employees who are eligible to
participate in the Plan.


      1.18  "Employer" means the Company or a subsidiary thereof that has
             --------
adopted this Plan.


      1.19  "Entry Date" means March 1 of each year.
             ----------


      1.20  "Initial Entry Date" means October 1, 1997, or, if later, the first
             ------------------
day of the month following the date on which an individual is designated as an
Eligible Employee who is eligible to participate in the Plan.

                                       2
<PAGE>
 
      1.21  "Interest" means the investment return or loss determined in
             --------
accordance with Article V, which shall be credited to the Participant's Account.


      1.22  "Interest Rate" shall have the meaning set forth in Section 5.3.3.
             -------------


      1.23  "Participant" means an Eligible Employee who has elected to
             -----------
participate in the Plan by submitting a Deferral Election to the Committee. A
Participant shall also mean an Eligible Employee for whom Company Credits are
made, regardless of whether such Eligible Employee has submitted a Deferral
Election Form.


      1.24  "Plan" means this Cost Plus, Inc. Deferred Compensation Plan,
             ----
effective October 1, 1997, as it may be amended from time to time in the future.


      1.25  "Plan Year" means the 12-month period beginning on March 1 and
             ---------
ending on February 28 of each calendar year, except the first Plan Year shall be
the period commencing on the Effective Date and next ending on February 28
thereafter.


      1.26  "Salary" shall mean the base salary paid by the Employer, but shall
             ------
not include any other form of compensation, whether taxable or non-taxable,
including, but not limited to, Bonuses, commissions, incentive payments, non-
monetary awards and other forms of additional compensation.


      1.27  "Salary Deferral" means the amount or percentage of a Participant's
             ---------------
Salary that the Participant has elected to defer pursuant to Article III.


      1.23  "Total Disability" means a determination by the Social Security
             ----------------
Administration that the Participant is totally and permanently disabled and
eligible for Social Security disability benefits or by the insurer under the
Company's long-term disability insurance policy that the Participant is disabled
and eligible for long-term disability benefits under such policy.


      1.29  "Trust" means the legal entity created by the Trust Agreement.
             -----


      1.30  "Trust Agreement" means that trust agreement entered into in
             ---------------
connection with this Plan and any amendments thereto. The Trust Agreement is
attached to this Plan as Exhibit A.
                         ---------

      1.31  "Trustee" means the original Trustee(s) named in the Trust Agreement
             -------
and any duly appointed successor or successors thereto.


      1.32  "Year of Service" means a period of 12 consecutive months during
             ---------------
which the Participant is employed by the Employer. Employment commences on the
date the Participant first performs an hour of service for the Employer and ends
on the date that the Participant quits, retires, is discharged, is determined to
be Totally Disabled or dies.

                                       3
<PAGE>
 
                                   ARTICLE II
                            
                                  ELIGIBILITY
                                  -----------


      2.1  Eligibility. Eligibility for participation in the Plan shall be
           -----------
limited to key management or highly compensated employees of the Employer who
are selected by the Committee, in its sole discretion, to participate in the
Plan. Individuals who are in this select group shall be notified as to their
eligibility to participate in the Plan.


      2.2  Commencement of Participation. An Eligible Employee may begin
           -----------------------------
participation in the Plan upon his Initial Entry Date or any subsequent Entry
Date thereafter, subject to making a Deferral Election Form pursuant to Article
III. In addition, participation of an Eligible Employee who has not otherwise
commenced participation in the Plan, shall commence when a Company Credit is
made to the Account of such Eligible Employee pursuant to the provisions of
Article IV.


      2.3  Cessation of Participation. Active participation in the Plan shall
           --------------------------
end when a Participant's employment terminates for any reason. No contributions
to the Plan shall be made. with respect to Salary or Bonuses paid after such
termination date. Upon termination of employment, a Participant shall remain an
inactive Participant in the Plan until all of the Benefits to which he or she is
entitled under this Plan have been paid in full.


                                  ARTICLE III

                                   DEFERRALS
                                   ---------


      3.1  Salary Deferrals.
           ----------------

           3.1.1  As of the Participant's Initial Entry Date, the Participant
may elect to reduce his or her Salary by the amount or percentage (up to a
maximum of 70% of Salary) set forth in a written and signed Deferral Election
that is filed with the Committee. Salary Deferrals shall be subject to the
limitations of Section 3.3 below. The Salary Deferral shall not be paid to the
Participant, but shall be withheld from the Participant's Salary and an amount
equal to the Salary Deferral shall be credited to the Participant's Account.

           3.1.2  Each election to make or cease Salary Deferrals shall apply
only to Salary earned after the effective date of such election. Generally,
Salary Deferrals shall commence on the first day of the pay period which begins
on or after the effective date of the election.

           3.1.3  An election to make Salary Deferrals shall be revocable
throughout the Plan Year for which it was made. If a Participant revokes his or
her election to make Salary Deferrals, no further Salary Deferrals shall be made
with respect to such Participant until the subsequent Plan Year. Effective as of
any subsequent Plan Year, a Participant may modify or terminate an election to
make Salary Deferrals by filing a new election for such subsequent Plan Year.

                                       4
<PAGE>
 
           3.1.4  Unless amended to cease or modify Salary Deferrals, the
Participant's Salary Deferral election shall continue in effect until the
Participant terminates employment with the Employer.



      3.2  Bonus Deferrals.
           ---------------


          3.2.1  As of the Participant's Initial Entry Date, and the first day
of each Plan Year thereafter, the Participant may elect to reduce his or her
cash Bonus payable with respect to the Plan Year by the amount or percentage (up
to a maximum of 100%) set forth in a written and signed Deferral Election Form
that is filed with the Committee. Bonus Deferrals shall be subject; to the
limitation provisions of Section 3.3 below. The Bonus Deferral shall not be paid
to the Participant, but shall be withheld from the Participant's Bonus payments
and an amount equal to the Bonus Deferral shall be credited to the Participant's
Account. For purposes of this Section 3.2, a Bonus shall be payable with respect
to a Plan Year if it relates to a Plan Year or is calculated based on
performance during a Plan Year, regardless of when such Bonus is actually paid.


          3.2.2  Notwithstanding any other provision herein to the contrary, a
Participant may make a Bonus Deferral election upon his or her Initial Entry
Date only if such Initial Entry Date is at least six (6) months prior to the end
of the Plan Year in which such Initial Entry Date occurs. Thereafter, a
Participant's election to make Bonus Deferrals for any Plan Year shall be
effective only if it is received by the Committee by the February 15 immediately
preceding the first day of the Plan Year.


          3.2.3  An election to make Bonus Deferrals shall be irrevocable
throughout the Plan Year for which it was made. A Participant's Bonus Deferral
election shall be valid only for the Bonus, if any, payable with respect to the
Plan Year for which it was made. A new Bonus Deferral election must be filed
each year.


      3.3  Limitations on Deferrals. A Participant's Salary Deferrals and Bonus
           ------------------------
Deferrals shall be limited as follows:


          3.3.4  A Participant must defer a minimum of $2,500 each Plan Year.
This minimum deferral amount may be satisfied by Salary Deferrals, Bonus
Deferrals or a combination of both. In the event the total deferral in a Plan
Year is less than $2,500, the amount deferred during that Plan Year shall be
paid out to the Participant as soon as administratively feasible after the end
of the Plan Year.


          3.3.5  The Participant's Salary and/or Bonus Deferral elections shall
be reduced by the amount(s), if any, which may be necessary:


                 3.3.5.1  To satisfy all applicable income and employment tax
withholding and FICA contributions;


                 3.3.5.2  To satisfy all garnishments or other amounts required
to be withheld by applicable law or court order.

                                       5
<PAGE>
 
                 3.3.5.3  To satisfy contributions under the Company's employee
stock purchase plan and other welfare benefit plans.


          3.3.6  Any salary deferral elections made under a 401(k) Plan shall be
determined based on the Participant's compensation after reduction for the
Salary Deferral and/or Bonus Deferral Contributions to this Plan.


      3.4  Time for Making Deferral Elections. A Deferral Election for a
           ----------------------------------
Participant's initial participation must be received by the Committee within
thirty (30) days of the Participant's Initial Entry Date and shall be effective
as of the first period which begins thereafter. A Deferral Election for any
subsequent Plan Year must be received by the Committee by the February 15
preceding the first day of such Plan Year and shall be effective for the first
pay period which begins in the Plan Year for which such election is made.


      3.5  Vesting. Salary Deferrals, Bonus Deferrals and the Interest credited
           -------
to the Participant's Account with respect thereto shall be 100% vested at all
times.


                                   ARTICLE IV

                                COMPANY CREDITS
                                ---------------


      4.1  Company Credits. In addition to Salary and Bonus Deferrals, a
           ---------------
Participant's Account shall be credited with such amounts and at such times as
the Employer may, in its sole discretion, determine and communicate to the
Participant. The Employer shall be under no obligation to continue to make
Company Credits and may discontinue or change the amount or method of
calculating the amount of such Company Credits at any time.


      4.2  Vesting. A Participant shall vest in his or her  Company Credits and
           -------
the Interest credited to the Participant's Account with respect to such amounts
and at such times as the Company may, in its sole discretion, specify.


                                   ARTICLE V

                                   ACCOUNTS
                                   --------


      5.1  Account. An Account shall be established and maintained for each
           -------
Participant. The Participant's Account shall be credited with the Participant's
Salary Deferrals, Bonus Deferrals and Company Credits, if any, made on behalf of
each Participant. The Participant's Account shall be credited (debited) with the
applicable Interest, as set forth in Section 5.2. The Participant's Account
shall be reduced by distributions therefrom and any charges which may be imposed
on the Account pursuant to the terms of the Plan.


      5.2  Interest Credited to Accounts at Least Monthly. Each Account shall be
           ----------------------------------------------
credited (debited) monthly, or more frequently as the Committee may specify, in
an amount equal to the Account balance on the first day of the prior month
multiplied by the Interest Rate.

                                       6
<PAGE>
 
      5.3  Determination of Interest Rate.
           ------------------------------


          5.3.1  The Company shall designate the particular funds or contracts
which shall constitute the Benchmark Funds, and may, in its sole discretion,
change or add to the Benchmark Funds; provided, however, that the Committee
shall notify the Participants of any such change prior to the effective date
thereof.


          5.3.2  Each Participant may select among the Benchmark Funds and
specify the manner in which his or her Account shall be deemed to be invested;
solely for purposes of determining the Participant's Interest Rate. The
Committee shall establish and communicate the rules, procedures and deadlines
for making and changing Benchmark Fund selections. The Company shall have no
obligation to acquire investments corresponding to the Participant's Benchmark
Fund selections.


          5.3.3  The Interest Rate is the investment return, net of
administrative fees and investment management fees and other applicable fees or
charges, of the Benchmark Fund(s) designated by Participant and other applicable
fees or charges. The Interest Rate may be negative if the applicable Benchmark
Fund(s) sustain a loss.


                                   ARTICLE VI

                       BENEFIT DISTRIBUTIONS AND ACCOUNT
                       ---------------------------------
                                  WITHDRAWALS
                                  -----------


      6.1  Benefit Amount. The value of the Participant's Benefit shall be equal
           --------------
to the vested value of the Participant's Account on the last day of the calendar
month prior to the Distribution Date, adjusted for any Salary or Bonus Deferrals
or withdrawals which have been subsequently credited thereto or made therefrom
prior to the Distribution Date.


      6.2  Timing of Distributions. Benefits shall be paid (or installment
           -----------------------
payments shall commence) as soon as practicable after the earlier of:


           6.2.1  The first day of the month following the end of the calendar
quarter in which the Participant's employment with the Employer terminates; or

           6.2.2  The Distribution Date designated by the Participant at least
two years in advance in accordance with Section 6.3; or

           6.2.3 The date that the Plan is terminated in accordance with Section
9.4.

      6.3  Planned Benefit Distributions.
           -----------------------------


           6.3.1  Two-Year Advance Election. A Participant may elect a
                  -------------------------
Distribution Date by filing a Benefit Distribution Election at such time and in
such manner as the Committee shall specify. Such Benefit Distribution Election
shall specify a Distribution Date that is at least two years after the date the
Benefit Distribution Election is received by the Committee. Except as otherwise
provided in this Article VI the Benefit Distribution Election shall apply to the

                                       7
<PAGE>
 
Participant's Salary Deferrals and Bonus Deferrals and shall also apply to
Company Credits, except to the extent the Company has specified otherwise, for
the Plan Year(s) specified in the Benefit Distribution Election and the Interest
credited thereto until the Distribution Date, or to such lesser dollar amount as
may be specified in the Benefit Distribution Election.



           6.3.2  Revocation or Amendment of Benefit Distribution Election. A
                  --------------------------------------------------------
Participant may revoke and/or amend a Benefit Distribution Election by filing a
revocation or, an amended Benefit Distribution Election at least twelve (12)
months in advance of the Distribution Date specified in the prior Benefit
Distribution Election. Any new Distribution Date elected in an amended Benefit
Distribution Election must be a date later than the Distribution Date specified
in the prior Benefit Distribution Election. A Participant may revoke and/or
amend a Benefit Distribution Election no more than twice in such Participant's
lifetime.


           6.3.3  Termination Before the Planned Distribution Date.
                  ------------------------------------------------
Notwithstanding any prior Benefit Distribution Election, if the Participant
terminates employment with the Employer before his elected Distribution Date,
distribution of the Participant's Account shall commence as soon as
administratively feasible after the first day of the month following the end of
the quarter in which the employment termination occurs.


      6.4  Distribution Following a Change of Control. In the event of a Change
           ------------------------------------------ 
of Control, as defined in Section 1.9, the Committee may decide, in its sole
discretion, that the Plan shall be terminated and all Accounts shall be
distributed as soon as administratively feasible after the termination date of
the Plan.


      6.5  Form of Distribution of Benefits.
           -------------------------------- 


           6.5.1  Installment Payments. Except as provided in Section 6.5.3,
                  --------------------
below, if all of the following requirements are met, the Participant's Benefits
shall be distributed in 60 quarterly installment payments:


                  6.5.1.1    The value of the Benefits payable, determined in
accordance with Section 6,1, exceeds $25,000 and the Participant has completed
at least five Years of Service for the Employer; and


                  6.5.1.2    Benefits are payable on account of a termination of
employment (A) after the Participant has attained age 55, or (B) as the result
of the Participant's Total Disability.


           6.5.2  Lump Sum Payments. If the requirements set forth in Section
                  -----------------
6.5.1 are not satisfied, then the Participant's Benefits shall be paid in a lump
sum cash payment.


           6.5.3  Optional Form of Payment. A Participant who satisfies the
                  ------------------------
requirements for installment payments set forth in Section 6.5.1 may elect to
have his or her Benefits paid in one of the following optional forms of payment:


                  6.5.3.1  Lump sum cash payment;
                  

                                       8
<PAGE>
 
                  6.5.3.2  20 quarterly installments;


                  6.5.3.3  40 quarterly installments.


           6.5.4  An election to receive an optional form of payment may be
made, revoked or amended by filing a written Benefit Distribution Election, in
the form required by the Committee, at least one year in advance of the
Distribution Date.


      In the absence of such timely filed election (or revocation or amendment
thereof), the value of such Participant's Benefits shall be distributed in
accordance with a previously timely filed Benefit Distribution Election, and if
there are none, in accordance with the provisions of Section 6.5.1 or 6.5.2,
above.


           6.5.5  Installment Amounts. For purposes of this Section 6.5,
                  -------------------
installment payments shall be substantially equal payments. The amount of each
payment shall be determined by dividing the value of the Participant's Benefits
at the time of such installment by the number of payments remaining.


      6.6  Method of Distribution Following Plan Termination. Generally, all
           -------------------------------------------------
Benefits shall be paid in a lump sum cash payment following termination of the
Plan. Notwithstanding the foregoing, if a lump sum payment will result in an
"excess parachute payment" to a Participant, as that term is defined in the
Internal Revenue Code, the Committee, in its sole discretion, may determine that
such Participant's Account shall be paid by some other method.


      6.7  Death Benefits. If a Participant dies before his Benefit payments
           --------------
have commenced, then such Participant's Benefits shall be paid to his designated
Beneficiary in a lump sum cash payment as soon as administratively feasible
after the Committee is notified of the Participant's death and receives evidence
satisfactory to it thereof.


      6.8  Early Withdrawal. Notwithstanding any other provision of the Plan, a
           ----------------
Participant may withdraw ninety percent (90%) (but not less than 90%) of the
total amount of his or her vested Benefits at any time. The amount so withdrawn
shall be paid in a single lump sum. Upon such withdrawal, the remaining ten
percent (10%) of the total vested Benefits and any unvested Company Credits,
shall be forfeited and the Participant shall have no further right thereto. Such
Participant shall be prohibited from making any further Salary Deferrals or
Bonus Deferrals pursuant to the Plan and no Company Credits shall be made to the
Participant's Account for the remainder of the Plan Year in which an early
withdrawal occurs and for the entire Plan Year thereafter. A Participant shall
be permitted to take a maximum of two early withdrawals.


      6.9  Financial Hardship Withdrawal. With the consent of the Committee, a
           -----------------------------
Participant may withdraw up to one hundred percent (100%) of his or her vested
Benefits as may be required to meet a sudden unforeseeable financial emergency
of the Participant. Such hardship distribution shall be subject to the following
provisions:


           6.9.1  The hardship withdrawal must be necessary to satisfy the
unforeseeable emergency and no more may be withdrawn than is required to relieve
the financial need after

                                       9
<PAGE>
 
taking into account other resources that are reasonably available to the
Participant for this purpose.


           6.9.2  The Participant must certify that the financial need cannot be
relieved: (i) through reimbursement or compensation by insurance or otherwise;
(ii) by reasonable liquidation of the Participant's assets, to the extent such
liquidation would not itself cause an immediate and heavy financial need; (iii)
by discontinuing the Participant's Salary and Bonus Deferrals; or (iv) by
borrowing from commercial sources on reasonable commercial terms.


           6.9.3  An unforeseeable financial emergency is a severe financial
hardship to Participant resulting from a sudden and unexpected illness or
accident of Participant or of a dependent of Participant (as defined in section
152(a) of the Internal Revenue Code), loss of Participant's property due to
casualty, or other similar extraordinary and unforeseeable circumstances arising
as a result of events beyond the control of Participant. Neither the need to pay
tuition expenses on behalf of the Participant or the Participant's spouse or
children nor the desire to purchase a home shall be considered an unforeseeable
emergency.


           6.9.4  The Committee, in its sole discretion, shall determine if
there is an unforeseeable financial emergency, if the Participant has other
resources to satisfy such emergency and the amount of the hardship withdrawal
that is required to alleviate the Participant's financial hardship.


           6.9.5  A Participant shall be prohibited from making any further
Salary Deferrals and Bonus Deferrals and the Employer shall not make any Company
Credits pursuant to the Plan for the remainder of the Plan Year in which a
financial hardship withdrawal occurs and for the entire Plan Year thereafter.


      6.10 Limitation on Distributions to Covered Employees. Notwithstanding
           ------------------------------------------------
any other provision of this Article VI in the event that the Participant is a
"covered employee" as that term is defined in section 162(m)(3) of the Code, or
would be a covered employee if Benefits were distributed in accordance with his
or her Benefit Distribution Election or early withdrawal request, the maximum
amount which may be distributed from the Participant's Account in any Plan Year
shall not exceed one million dollars ($1,000,000) less the amount of
compensation paid to the Participant in such Plan Year which is not
"performance-based" (as defined in Code section 162(m)(4)(C)), which amount
shall be reasonably determined by the Committee at the time of the proposed
distribution. Any amount which is not distributed to the Participant in a Plan
Year as a result of this limitation shall be distributed to the Participant in
the next Plan Year, subject to compliance with the foregoing limitation set
forth in this Section 6.10.


      6.11 Tax Withholding. Distribution and withdrawal payments under this
           ---------------
Article VI shall be subject to all applicable withholding requirements for state
and federal income taxes and to any other federal, state or local taxes that may
be applicable to such payments.

                                       10
<PAGE>
 
                                  ARTICLE VII

                                 BENEFICIARIES
                                 -------------


      7.1  Designation of Beneficiary. The Participant shall have the right to
           --------------------------
designate on such form as may be prescribed by the Committee, one or more
Beneficiaries to receive any Benefits due under Article VI which may remain
unpaid on the date of the Participant's death. The Participant shall have the
right at any time to revoke such designation and to substitute one or more other
Beneficiaries.


      7.2  No Designated Beneficiary. If upon the death of the Participant,
           -------------------------
there is no valid Beneficiary designation, the Beneficiary shall be the
Participant's surviving spouse. In the event there is no surviving spouse, then
the Participant's Beneficiary shall be the Participant's estate.


                                  ARTICLE VIII

                        TRUST OBLIGATION TO PAY BENEFITS
                        --------------------------------


      8.1  Deferrals Transferred to the Trust. The Employer may transfer Salary
           ----------------------------------
Deferrals, Bonus Deferrals or Company Credits, if any, made by or on behalf of a
Participant to the Trustee to be held pursuant to the terms of the Trust
Agreement.


      8.2  Source of Benefit Payments. An benefits payable to a Participant
           --------------------------
hereunder shall be paid by the Trustee to the extent of the assets held in the
Trust by the Trustee, and by the Employer to the extent the assets in the Trust
are insufficient to pay a Participant's Benefits as provided under this Plan.


      8.3  Investment Discretion. The Benchmark Funds established pursuant to
           ---------------------
Section 5.3 shall be for the sole purpose of determining the Interest Rate to be
used for determining the Interest credited to the Participant's Account. Neither
the Trustee nor the Committee shall have any obligation to invest the
Participants' Account in accordance with his deemed investment directions or in
any other investment.


      8.4  No Secured Interest. Except as otherwise provided by the Trust
           -------------------
Agreement, the assets of the Trust, shall be subject to the claims of creditors
of the Employer. Except as provided in the Trust Agreement, the Participant (or
the Participant's Beneficiary) shall be a general unsecured creditor of the
Employer with respect to the payment of Benefits under this Plan.


                                   ARTICLE IX


                       PLAN ADMINISTRATION. AMENDMENT AND
                       ----------------------------------
                                  TERMINATION
                                  -----------


      9.1  Committee Powers and Responsibilities. The Committee shall have
           -------------------------------------
complete control of the administration of the Plan herein set forth with all
powers necessary to enable it

                                       11
<PAGE>
 
properly to carry out its duties in that respect. Not in limitation, but in
amplification of the foregoing, the Committee shall have the power and authority
to:


           9.1.1  Construe the Plan and Trust Agreement to determine all
questions that shall arise as to interpretations of the Plan's provisions
including determination of which individuals are Eligible Employees and the
determination of the amounts credited to a Participant's Account, and the
appropriate timing and method of Benefit payments;


           9.1.2  Establish reasonable rules and procedures which shall be
applied in a uniform and nondiscriminatory manner with respect to Deferral
Elections and Benefit Distribution Elections;


           9.1.3  Establish the rules and procedures by which the Plan will
operate that are consistent with the terms of the Plan documents;


           9.1.4  Compile and maintain all records it determines to be
necessary, appropriate or convenient in connection with the administration of
the Plan;

           9.1.5  Adopt amendments to the Plan document and/or the Trust
Agreement which are deemed necessary or desirable to facilitate administration
of the Plan and/or to bring these documents into compliance with all applicable
laws and regulations, provided that the Committee shall not have the authority
to adopt any Plan amendment that will result in increased Company Credits or
substantially increased administrative costs unless such amendment is contingent
upon ratification by the Board before becoming effective;


           9.1.6  Employ such persons or organizations to render service or
perform services with respect to the administrative responsibilities of the
Committee under the Plan as the Committee determines to be necessary and
appropriate, including but not limited to attorneys, accountants, and benefit,
financial and administrative consultants;


           9.1.7  Select, review and retain or change the Benchmark Funds which
are used for determining the Interest Rate under the Plan;


           9.1.8  Select, review and retain or change the Benchmark Funds used
to determine the Interest Rate;


           9.1.9  Direct the investment of the assets of the Trust;


           9.1.10 Review the performance of the Trustee with respect to the
Trustee's duties, responsibilities and obligations under the Plan and Trust
Agreement.


           9.1.11 Take such other action as may be necessary or appropriate to
the management and investment of the Plan assets.


      9.2  Decisions of the Committee. Decisions of the Committee made in good
           --------------------------
faith upon any matter within the scope of its authority shall be final,
conclusive and binding upon all persons, including Participants and their legal
representatives or Beneficiaries. Any discretion granted to

                                       12
<PAGE>
 
the Committee shall be exercised in accordance with rules and policies
established by the Committee.


      9.3  Plan Amendment. This Plan may be amended by the Company at any time
           --------------
in its sole discretion. Additionally, the Plan may be amended upon an action of
the members of the Committee, subject to the provisions in Section 9.1.1.
However, no amendment may be made that alters the nature of a Deferral Election
or Benefit Distribution Election or which would reduce the amount credited to a
Participant's Account on the date of such amendment; and provided further that
no amendment that affects the Trustee's duties and obligations under Plan may be
made without the Trustee's consent.


      9.4  Plan Termination. The Chief Executive Officer of the Company reserves
           ----------------
the right to terminate the Plan in its entirety at any time upon fifteen (15)
days notice to the Participants. The termination of the Plan shall automatically
revoke all outstanding Benefit Distribution Elections and all elections to have
Benefits paid in installments. If the Plan is terminated, all benefits shall be
paid as set forth in Section 6.6. Any amounts remaining in the Trust after all
benefits have been paid shall revert to the Employer.  Notwithstanding the
foregoing, in the event of a Change of Control the Plan may be terminated in the
sole discretion of the Committee.


      9.5  Additional Power and Responsibility Following a Change of Control. In
           ----------------------------------------------------------------
the event of a Change of Control, the Plan may be amended only by a unanimous
vote of the Committee. Additionally, the successor to the Company shall have no
right to dismiss any member of the Committee or add members to the Committee
without the express unanimous consent of the Committee members. Such limitations
on the rights of any successor corporation or business entity shall take effect
on the date of the Change of Control and shall remain in effect for a period of
12 months following the Change of Control unless the Committee unanimously
agrees to withdraw these limitations earlier.


                                   ARTICLE X

                                 MISCELLANEOUS
                                 -------------


      10.1 No Assignment. The right of any Participant, any Beneficiary, any
           -------------
Policy Beneficiary or any other person to the payment of any benefits under this
Plan shall not be assigned, transferred, pledged or encumbered.


      10.2 Successors. This Plan shall be binding upon and inure to the benefit
           ----------
of the Employer, its successors and assigns and the Participant and his or her
heirs, executors, administrators and legal representatives.


      10.3 No Employment Agreement. Nothing contained herein shall be construed
           -----------------------
as conferring upon any Participant the right to continue in the employ of the
Employer as an employee.


      10.4 Attorneys' Fees. If the Employer, the Participant, any Beneficiary,
           ---------------
any Policy Beneficiary, the Trustee and/or a successor in interest to any of the
foregoing, brings legal action

                                       13
<PAGE>
 
to enforce any of the provisions of this Plan, the prevailing party in such
legal action shall be reimbursed by the other party, the prevailing party's
costs of such legal action including, without limitation, reasonable fees of
attorneys, accountants and similar advisors and expert witnesses.


      10.5 Arbitration. Any dispute or claim relating to or arising out of this
           -----------
Plan shall be fully and finally resolved by binding arbitration conducted by the
American Arbitration Association in Santa Clara County, California.


      10.6 Governing Law. This Plan shall be construed in accordance with and
           -------------
governed by the laws of the State of California.


      10.7 Entire Agreement. This Plan constitutes the entire understanding and
           ----------------
agreement with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations or warranties among
any Participant and the Employer other than those as set forth or provided for
herein.


      IN WITNESS WHEREOF, this Plan has been adopted by the Company effective as
of the Effective Date.


                                               COST PLUS, INC.


Dated: October 27, 1997                        By: /s/ Diane Del Conte 
      -----------                                 ___________________________

                                                   Plan Administrator

                                       14