Executives and other individuals across industries are often entitled to receive short-term or long-term compensation in the form of an annual bonus, a retention bonus, a long-term incentive or other combination of cash, stock, options, or comparable equity. This entitlement can stem from an offer letter, contract, compensation plan, or other agreement. Outten & Golden attorneys have successfully negotiated to ensure that employees receive a bonus that has been earned, that it is paid in a timely way to avoid necessary compliance with IRS rules (ie., 409A), and the proper terms and criteria for its receipt. Our attorneys have litigated, arbitrated, negotiated, and mediated these types of compensation disputes when they arise.
In many businesses, employees receive bonuses based on their performance, the performance of their departments or divisions, and/or the overall performance of the company. Some companies will also measure performance against other industry standards. While some employees’ bonuses are a small fraction of their total compensation, in some businesses bonuses represent the majority of many employees' total compensation.
There are, generally, two types of bonuses: discretionary and guaranteed. Companies often use guaranteed bonuses as an incentive in hiring. An employee with a guaranteed bonus has a contractual right to that bonus, even if the employee does not have an employment contract and is instead employed "at-will". Attorneys at our firm negotiate offer letters and employment agreements that contain guaranteed bonus language and draft language designed to ensure that our client’s rights to guaranteed bonuses are protected in the event of termination.
Discretionary bonuses, in contrast, are generally not guaranteed by contract and are often based on performance goals being met such as EBIDTA, sales, new business growth or other measures of success.
A retention bonus is generally short-term compensation that is promised to an executive or employee when the company is potentially being sold, merged or in turnaround, and the business needs to motivate the executive to stay.