A key case that has covered this point of needing to apply good faith when exercising discretion, though it doesn’t relate specifically to bonuses, is the Braganza v BP Shipping case. It’s a very sad case, but in very simple terms, if you’re not familiar, a chief engineer on a BP oil tank disappeared from the ship whilst at sea. He had a death in service benefit which would have been paid to his family, but was subject to terms that it wouldn’t be paid if he took his own life. When BP Shipping investigated, they actually concluded that Mr. Braganza had taken his own life and therefore didn’t make a claim under the benefits scheme for the death in service benefit to his family.

Just Like it Sounds: Discretionary Bonuses are Up to the Employer

How sales organizations can balance AI-driven nudges with human judgment to design fair, adaptive, and effective compensation plans. A holiday bonus, on the other hand, can be regarded as non-discretionary and contractual if it becomes a standard and expected practice. Employers must comply with various laws and regulations when giving bonuses whether discretionary or non-discretionary. Your employees have to earn an attendance bonus by showing up to work. It’s not given at your discretion since https://videoremixes.solutecmontilla.com/best-accounting-software-for-small-businesses/ they know what they have to do to get this money.

Discretionary Bonuses:

For example, if you’re discretionary bonus all about innovation, reward the folks who think outside the box. Or, if customer service is your jam, consider bonuses for those who make your clients super happy. Be upfront about how you determine the amount of the bonus and when you’ll hand them out.

Ready to drive variable compensation to the next level?

Many companies choose to give discretionary bonuses once or twice per year, but are under no obligation to do so by law. Some contracts might refer to these bonuses as discretionary compensation performance recognition https://www.bookstime.com/ awards and payments. A discretionary bonus is a reward given to an employee without prior agreement or expectation. The employer decides when and how much to pay, often based on special occasions, company performance, or individual contributions.

Recognizing outstanding contributions with unexpected rewards can boost morale and engagement without creating an entitlement mindset. A comprehensive discretionary bonus plan not only helps maintain consistency in how bonuses are awarded but also motivates employees by making the criteria and process as transparent as possible. A discretionary bonus can be for specific or unexpected situations and are not part of the employee’s contractual monthly amount.

• They received a bonus in their first year of employment of $15,000 but were terminated without cause part way through their second year of employment.
• Understand the nuances between discretionary and non-discretionary bonuses and their impact on wage calculations and compliance.
• That their discretionary decisions are fair, transparent, and devoid of any favoritism.
• However, before you start making promises to your staff, you’ll need to understand the bonus-specific differentiators that could affect your payroll.
• Bonus that employees receive at the employer’s subjective wish or discretion is called a discretionary bonus.
• Or, there may not be any specific criteria, and the bonuses will be paid to employees who are performing well.