MTC TECHNOLOGIES, INC. 2007 DEFERRED COMPENSATION PLAN

Exhibit 10.3

MTC TECHNOLOGIES, INC.

2007 DEFERRED COMPENSATION PLAN

Effective January 1, 2007

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TABLE OF CONTENTS

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MTC TECHNOLOGIES, INC.

2007 DEFERRED COMPENSATION PLAN

Effective January 1, 2007

ARTICLE I

Purpose and Effective Date

1.1. Purpose . This plan is intended to allow a select group of key management or other highly compensated employees of the Company and its parents, affiliates and subsidiaries to defer the receipt of compensation that would otherwise be payable to them and to provide supplemental retirement benefits for those employees. The terms of this Plan are intended to, and shall be interpreted and applied so as to, comply in all respects with the provisions of Internal Revenue Code Section 409A and regulations and rulings thereunder.

1.2. Effective Date . This Plan shall be effective as of January 1, 2007 .

ARTICLE II

Definitions

For ease of reference, the following definitions will be used in the Plan:

2.1. Account(s) . “Account(s)” means the account(s) maintained on the books of the Company used solely to calculate the amount payable to each Participant who defers Compensation under this Plan and shall not constitute or be treated as a separate fund of assets.

2.2. Beneficiary . “Beneficiary” means the person, persons or entity designated by the Participant to receive payments under this Plan in the event of the Participant’s death as provided in Article VII.

2.3. Board . “Board” means the Board of Directors of MTC Technologies, Inc.

2.4. Bonus Deferral Commitment . “Bonus Deferral Commitment” means that portion of bonus compensation for which a Participant has made an election to defer receipt pursuant to Article IV.

2.5. Change in Control . “Change in Control” means a change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the assets of the Company, as defined by the Secretary of the Treasury in §1.409A-3(g)(5) of the proposed regulations issued under Section 409A of the Code or any final regulations under that section.

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2.6. Code . “Code” means the Internal Revenue Code of 1986, as amended (and any regulations thereunder).

2.7. Company . “Company” means MTC Technologies, Inc. , an Ohio corporation, its parents, subsidiaries, affiliates and successors (excluding any parent, subsidiary or affiliate that has not been approved by the Plan Administrator for participation in this Plan). Where the context so requires, “Company” used in reference to a Participant means the specific entity that is part of the Company as defined herein that employs the Participant at any relevant time.

2.8. Company Contribution Account . “Company Contribution Account” means the Account maintained in accordance with Sections 5.3 and 5.4 with respect to any Matching Contributions and Discretionary Contributions made under this Plan. A Participant’s Company Contribution Account shall be utilized solely as a device for the determination and measurement of amounts to be paid to the Participant pursuant to this Plan and shall not constitute or be treated as a separate fund of assets.

2.9. Compensation . “Compensation” means compensation for services performed, including salary and bonus. This includes a Participant’s (i) base salary as in effect from time to time during a Plan Year and (ii) bonuses earned during a Plan Year. In no event shall any of the following items be treated as Compensation hereunder: (i) payments from this Plan or any other Company nonqualified deferred compensation plan; (ii) any form of non-cash compensation or benefits, including short and long term disability payments, group life insurance premiums, income from the exercise of non-qualified stock options, from the disqualifying disposition of incentive stock options, or realized upon vesting of restricted stock or the delivery of shares in respect of restricted stock units (or other similar items of income related to equity compensation grants or exercises); (iii) expense reimbursements; (iv) severance payments, or (v) any other payments or benefits other than normal Compensation as determined by the Plan Administrator in its sole discretion.

2.10. Compensation Deferral . “Compensation Deferral” means that portion of Compensation as to which a Participant has made an annual irrevocable election to defer receipt pursuant to Article IV. A Participant’s Compensation Deferral may consist of a Salary Deferral Commitment, a Bonus Deferral Commitment, or a combination, as applicable to the Participant.

2.11. Disability . “Disability” means that a Participant either (i) is unable to engage in any substantial gainful activity by reason of any medically determineable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve

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(12) months, or (ii) is, by reason of any medically determineable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an an accident or health plan covering employees of the Participant’s Employer. A Participant who has been determined to be eligible for Social Security disability benefits shall be presumed to have a Disability as defined herein.

2.12. Discretionary Contribution . “Discretionary Contribution” means any amount credited to a Participant’s Company Contribution Account under Section 5.4.

2.13. Elective Deferral Account . “Elective Deferral Account” means the Account maintained in accordance with Section 5.2 with respect to any elective Compensation Deferrals made under this Plan. A Participant’s Elective Deferral Account shall be utilized solely as a device for the determination and measurement of the amounts to be paid to the Participant pursuant to this Plan and shall not constitute or be treated as a separate fund of assets.

2.14. Employer . “Employer” means the Company and any affiliated or subsidiary entities designated by the Plan Administrator.

2.15. Matching Contribution . “Matching Contribution” means any amount credited to a Participant’s Account under Section 5.3.

2.16. Participant . “Participant” means any employee who satisfies the eligibility requirements set forth in Article III. In the event of the death or incompetency of a Participant, the term means his or her beneficiary, personal representative or guardian.

2.17. Participation Agreement . “Participation Agreement” means the authorization form that an eligible employee files with the Plan Administrator to elect a Compensation Deferral under the Plan for a Plan Year, a sample form of which is attached as Exhibit A .

2.18. Plan . “Plan” means this Plan, entitled the MTC Technologies, Inc. 2007 Deferred Compensation Plan, as amended from time to time.

2.19. Plan Administrator . “Plan Administrator” means the committee appointed by the Company to administer this Plan pursuant to Article VIII.

2.20. Plan Year . “Plan Year” means the twelve (12) month period beginning on each January 1 and ending on the following December 31.

2.21. Retirement . “Retirement” means termination of Company employment after attaining age sixty (60).

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2.22. Salary Deferral Commitment . “Salary Deferral Commitment” means that portion of salary compensation for which a Participant has made an election to defer receipt pursuant to Article IV.

2.23. Unforeseeable Emergency . “Unforeseeable Emergency” means a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participant’s spouse, or a dependent (as defined in Code Section 152(a)) of the Participant, loss of the Participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, but shall only include circumstances satisfying the requirements of Section 409A of the Code.

2.24. Year of Plan Participation . “Year of Plan Participation” means a twelve (12) month consecutive period in which the Participant has participated in this Plan.

ARTICLE III

Eligibility and Participation

3.1. Eligibility . An employee of the Company shall be eligible to participate in this Plan if the employee is a management or highly compensated employee and is named by the Plan Administrator to be a Participant in this Plan by notice given to the employee through delivery of a Participation Agreement. An individual shall remain a Participant until that individual has received full payment of all amounts credited to the Participant’s Accounts.

3.2. Participation . An eligible employee may elect to enter into a Salary Deferral Commitment with respect to any Plan Year by submitting a Participation Agreement to the Plan Administrator by December 31 (or such earlier date established by the Plan Administrator) of the calendar year immediately preceding the Plan Year. An eligible employee may elect to enter into a Bonus Deferral Commitment by submitting a Participation Agreement to the Plan Administrator no later than six (6) months prior to the end of the period in which the performance-based compensation that is the subject of the Bonus Deferral Commitment is earned (or such earlier date established by the Plan Administrator). Such Participation Agreement shall only be effective if entered into in a manner consistent with the provisions of Code section 409A.

3.3. Partial Year Participation . If an employee first becomes eligible to participate during a calendar year, the employee must submit a Participation Agreement to the Plan Administrator no later than thirty (30) days following the date the employee becomes eligible to participate. Such Participation Agreement shall be effective only with respect to Compensation for services to be performed subsequent to the election and deferred in a manner consistent with the provisions of Code section 409A.

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3.4. Change of Status . If a Participant no longer meets the eligibility criteria set forth in Section 3.1 or if the Plan Administrator determines that a Participant’s employment performance is no longer at a level which deserves reward through participation in this Plan, but the Participant’s employment with Employer is not terminated, participation herein and eligibility to receive benefits hereunder shall be limited to the Participant’s vested interest in such benefits as of the date designated by the Plan Administrator.

ARTICLE IV

Elective Deferrals

4.1. Amount of Deferral Election . A Participant may elect a Compensation Deferral in the Participation Agreement as follows:

(a) Salary Deferral Commitment . A Salary Deferral Commitment shall be related to the salary payable by the Company to the Participant for services performed during the Plan Year. The amount to be deferred shall be stated as a percentage of the salary to be earned during the Plan Year, as a flat dollar amount from any salary earned during the Plan Year, or in such other form as allowed by the Plan Administrator.

(b) Bonus Deferral Commitment . The amount to be deferred shall be stated as a percentage of any bonus earned during the Plan Year, as a flat dollar amount from any bonus earned during the Plan Year, or in such other form as allowed by the Plan Administrator.

4.2. Deferral Limits . The following limitations shall apply to Compensation Deferrals:

(a) Minimum . The minimum deferral amount for a Salary or Bonus Deferral Commitment shall be two thousand dollars ($2,000) per Plan Year. If the Compensation Deferral is a Bonus Deferral Commitment, the $2,000 minimum shall be calculated as a percentage of targeted incentive bonus.

(b) Maximum . The maximum deferral amount for the aggregate Salary and Bonus Deferral Commitment during any Plan Year shall be Seventy Five Thousand Dollars ($75,000).

(c) Changes in Minimum or Maximum . The Plan Administrator may amend the Plan to change the minimum or maximum deferral amounts from time to time by giving written notice to all Participants. No such change may affect a Compensation Deferral made prior to the Plan Administrator’s action unless otherwise required by law.

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4.3. Treatment under Qualified Plan . Amounts deferred under this Plan will not constitute compensation for any Company-sponsored qualified retirement plan.

4.4. Period of Commitment . A Participant’s Participation Agreement as to a Compensation Deferral shall remain in effect until otherwise revoked. After a Plan Year has begun, the Compensation Deferral shall be irrevocable for the remainder of that Plan Year. A Participant may revoke a Compensation Deferral for any future year prior to December 31 of the current Plan Year. Notwithstanding the above, the Participation Agreement shall be terminated if a distribution is made to a Participant as a result of an Unforseeable Emergency pursuant to Section 6.6 or if such termination is required for the Participant to be able to obtain a hardship distribution under a qualified plan with a qualified cash or deferred arrangement under Code section 401(k). Any resumption of the Participant’s deferrals under this Plan shall be made only at the election of the Participant in accordance with Article III herein.

ARTICLE V

Participant Accounts

5.1. Establishment of Accounts . For record keeping purposes only, separate accounts shall be maintained for each Participant to reflect his or her Elective Deferral Account and Company Contribution Account (collectively referred to as “Accounts.”) Separate sub-accounts shall be maintained to the extent necessary to properly reflect the Participant’s distribution elections and vesting.

5.2. Crediting Compensation Deferrals to Elective Deferral Account . The Plan Administrator shall credit Compensation Deferrals to the Participant’s Elective Deferral Account as soon as practicable after the date on which such Compensation would otherwise have been paid, in accordance with the Participant’s election. Any withholding of tax