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
**excludes LexisPSL Practice Compliance, Practice Management and Risk and Compliance. To discuss trialling these LexisPSL services please email customer service via our online form. Free trials are only available to individuals based in the UK. We may terminate this trial at any time or decide not to give a trial, for any reason. Trial includes one question to LexisAsk during the length of the trial.
To view the latest version of this document and thousands of others like it, sign-in to LexisPSL or register for a free trial.
Existing user? Sign-inTake a free trial
Take a free trial
0330 161 1234