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Discretionary Bonuses Including Performance Factor

AndreaAndrea 20 Posts
in Compensation Vote Up0Vote Down
I'm looking for some ideas on how other companies include performance in the calculation of an annual bonus.

We have a discretionary bonus program that is based on company profit. The calcualations and payout are discretionary and currently do not include individual performance.

I have been asked to look at some ways we could include performance in the calculations and was wondering if anyone has any tips or pitfalls they've experienced and could share.

I have thought of developing some type of individual performance factor system but am wondering if I should tie it to the performance rating they recieved on their review or to develop something entirely separate.

Any ideas or thoughts would be greatly appreciated. :-?
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Comments

  • 2 Comments sorted by Votes Date Added
  • MrCreosoteMrCreosote 144 Posts
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    If the bonus program is based on last year's profits, I don't think it is a discretionary bonus. If you tie it in to last year's performance review, it is even less discretionary.
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  • AndreaAndrea 20 Posts
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    My understanding of a discretionary bonus is that 1) the fact that the payment is to be made and the amount of the bonus are both determined by the employer at its sole discretion, at or near the end of the period the bonus covers; and 2) the payments are not made pursuant to any prior contract, agreement or promise that would lead the employee to expect the payments regularly.

    Since we decide at the end of the year whether or not we will pay a bonus and we do not communicate nor give employees the expectation that we will, I believe we are okay calling it discretionary.

    We also decide at the end of the year, if we have a bonus, how we will calculate the amount. We typically use our profitability in the equation when determining the amount we will pay. The company has to have some way of calculating the bonus whether discretionary or not.

    All that aside, I've been asked to come up with some ideas to include individual performance in the equation. I'm looking for some ideas, samples, practices, pitfalls to avoid, etc. for doing this.

    Thanks! x:D
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