The following Employment guidance note provides comprehensive and up to date legal information covering:
Bonuses can be a very effective tool to motivate and retain employees while allowing businesses to control wage costs. In certain sectors and industries (eg the financial sector), bonuses are a significant element of an employee's reward package. Directors' total remuneration frequently includes variable performance-based bonuses, which can be critical to attracting and retaining key individuals. An all-employee bonus plan can act as a simple tool to align a proportion of remuneration to a business' key performance indicators, potentially eliminating the differences between managerial and non-managerial grades.
Over recent years there has been increased public scrutiny of executive pay, particularly executive bonuses. Perceptions that such plans have supported 'short-termism' and 'rewards for failure' have led to increased regulation and legislation.
Bonuses broadly fall into two categories. The categorisation is important and has significantly different consequences for employers and employees:
discretionary or non-contractual bonuses, and
The two categories are considered below.
When dealing with a discretionary or non-contractual bonus, it is necessary to consider:
to which aspects of the bonus the discretion properly applies
constraints on the employer's exercise of discretion which apply as a result of case law
the effect of any oral representations made to employees about bonus
any expectations or contractual rights that may have been created by custom and practice
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