Do We Pay a Bonus After the Employee Leaves the Organization?
Answers
It largely depends on the bonus policy of the firm. Eligibility (along with basis for computation and other details) should have been clearly spelled out. This should also have been discussed with the employees before hand (as part of their onboarding process or included in their policy/benefit/compensation manuals). This should also be included in the hiring/employment contract or include a reference to the policy would suffice. That's 3 "best practices" right there that could avoid the predicament.
Most of the policies I have seen require the personnel to be employed at payout date to be eligible.
In the absence of a clearly stated/defined eligibility rules? I would pay it out. There is no "legal" (law) obligation (as far as I know) BUT there is a good chance that the employee can and will get the bonus if and when he decides to file a lawsuit. I do not think firms would want to go that far unless it is for millions of dollars. Sometimes just paying it out saves everyone the time, money and aggravation. It is just not worth it.
Don't "punish" the employee for the "sins" (sins of ommission...lol) of the firm.
2
Emerson,
Thank you for your insights. We do not have an incentive plan in place to date. My question was geared toward factors we need to address in considering a plan and in developing a policy.
Best Regards.
Emerson is right on.
Sales people network a lot. You don't want to be known in industry as a bad place to work/ perceived to be withholding earned compensation. I work in tech, we always pay out sales people before they leave.
Yes, earned bonuses must be paid. Most state laws would require it to be paid. Nonetheless, it just makes good business sense. Sales people, past, present and future talk to one another. You undermine existing and new sales people's trust in the organization if you do not pay it. Pay it and move on. It is a cost of doing the right thing!
I would have to agree with Richard any earned income typically has to be paid according to state laws. If it is a "bonus" that is dependent upon certain factors that may not have to be paid out if the conditions are not met. Those conditions should be clear and agreed upon in writing before hand. I would check with your state labor laws to be certain.
It depends on the incentive plan that you have with your sales team
You might want your contract to be as clear as possible that payments can not be assured in cases where revenue can no longer be recognized because of the salesperson's departure. One example would be if the client expresses a desire to exercise an opt out clause because the salesperson is their go-to guy, and the company has to return all money received to the client.
This should be addressed in the bonus program policy. If not addressed, I think it should be paid.
Our policy specifically allows incentive compensation to be paid after the employee leaves the firm, unless terminated for cause. Bonus is paid 2 months after year-end, and the employee only needs to be employed on the last day of the year the bonus is earned.
They earned the commission by making the sale.
It is no different that working hourly and leaving for another employer.
You still owe the money either way.
You pay them and keep your reputation intact.
End of discussion.
How would you want to be treated?
Pamela
There is a thread at https://www.proformative.com/questions/should-annual-bonus-be-paid-employee-who-resigns-january
Take a look at some of the viewpoints there, perhaps they may help.
Regards
Filed Under:
Human Capital