As your boss reflects on your input for the year, are you getting itchy feet and thinking of resigning? If you do wish to be considered for a bonus and receive any award, you may want to hold off on quitting your job.
Many bonuses are discretionary. Common wording may be that payment of a bonus in one year does not guarantee payment in subsequent years, bonuses may be dependent on a number of factors and the bonus rules may change from time to time. It is important to know though that even where your employer has discretion, that discretion must not be exercised arbitrarily, capriciously or unreasonably. While it is not a very high threshold for the employer to pass, in some instances, the courts have held that discretion has not been exercised properly.
Some bonuses are calculated by reference to specific targets or sales. The terms will normally be more objective, providing an entitlement to payment rather than the employee having to rely on the employer’s discretion.
Again, watch out though for the small print. Sometimes, you could lose all or part of a bonus if you resign. Each bonus arrangement may be different and there could be weasel words in the rules that could come back to haunt you.
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 may be other forfeiture provisions too. In redundancy situations, employers often grant good leaver status and awards, which otherwise would have been forfeited, either continue to vest on the usual vesting dates or are accelerated.
So, if you are expecting a pot of gold, think twice times before announcing your departure. And whatever bonus expectations you have, it is always wise to check the relevant clauses in your contract as well as any scheme rules.
