Bonus time: when is it worth challenging your payout?

Could you be in line for a juicy annual bonus? After all, you may have had a good year, met your targets and smiled at the right people. But what if you get a derisory bonus? You know, one that’s dressed up with gratitude but smacks you in the face for all your hard work and loyalty. Can you dispute it? Should you?

Whether it’s wise to query a bonus will depend on lots of things. Questions to ask yourself might include: What factors should your employer have taken into account? How was your individual performance and that of the department and company? How short of expectations is your bonus? How does it compare with awards in previous years? Do you know what your colleagues received? Could contesting the bonus ruffle feathers and jeopardise your job? Will objecting make any difference? Has there been any discrimination? And, what’s the best approach if you do complain?

Many bonuses are discretionary. Employment contracts often include wording stating that payment of a bonus in one year does not guarantee payment in subsequent years, bonuses are dependent on a number of factors and the bonus rules may change from time to time. Eligibility for consideration may also be subject to you or your employer not having given notice before the payment date. Therefore, think twice or three times about announcing any departure until the cash hits your account.

If the bonus is discretionary you don’t have a specific right to a bonus. The only legal requirements are that any discretion must not be exercised unreasonably and your employer must not discriminate by treating you less favourably because of protected characteristics. These protected characteristics include sex, race, religion or belief, disability, age and sexual orientation. There have been cases where the Courts have found that an employer has exercised discretion unreasonably and there have been successful discrimination claims relating to bonuses. Such claims are often difficult to prove.

Some bonuses are calculated by reference to specific sales or targets. The terms of the bonus scheme will normally be clearer, providing an entitlement to payment rather than the employer exercising discretion. There may be complicated formulae for calculating the bonus based on sales or revenue. Watch out for the small print. Sometimes, for instance, you could lose all or part of a bonus if you resign before it is has been paid.

Bonuses could be deferred in the form of cash, stock or options. Usually, if you resign before the award vests the award is forfeited. There might be other forfeiture provisions too. In redundancy situations employees may get good leaver status, and awards which otherwise would have been lost either continue to vest on the usual vesting dates or are accelerated.

Provisions could also allow for bonuses to be clawed back. For example, you may have to repay the bonus if it’s later discovered that you committed serious misconduct or were reckless in your duties.

So if you do get a lousy bonus or, worse, a doughnut (a zero bonus), hold off jumping up and down until you’ve assessed your rights.

Matt Gingell is a partner at the law firm Gannons, which specialises in commercial and employment law.