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Should incentive plan employees be paid their incentive if they are involuntarily transferred?

We have a group of employees who are enrolled in an incentive plan based on fiscal year (Sept thru Aug) results and payable (in general) in the month of December (after the results are audited). The plan indicates incentive eligible employees who have earned an incentive based on the results and who are still employed on the payout date will receive the incentive. My question relates to a scenario where ownership in an entire division of a company is being transferred to another company after a complete fiscal year has occurred but PRIOR to the payout date of the incentive. Since the incentive-eligible employees didn't voluntarily leave (in a traditional sense one would leave a company), is there legal and/or ethical requirements at play in this scenario whereby the company should still pay the incentive-eligible employees?

Answers

David Smith
Title: Manager
Company: Private
(Manager, Private) |

I don't know about a legal requirement... that would take an opinion from a lawyer preferably in your area.

Ethically, it would seem like the original company said to the employees "hey, create these results and we'll give you a prize." Then, assuming the employees set about creating results, the company says, "you know what, better for us if you work for a whole new company. See ya!"

Depending on the timing, a truly cynical person might opine that the old company had partial motivation to bail just to get out of the incentive payout.

If the employees actually achieved those results or even just got started or came close, I would think the new company would want to pay out on the old incentive plan. Even if the new company wants to end the plan, or even just wants to keep some of these employees, just to have fewer pissed-off employees.

Otherwise it's "Welcome aboard! Your compensation has been cut. Now get back to work!"

Regards, David

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

My .02 cents.

The incentive plan (liability?) should have been disclosed to the buying entity and should have been considered in the nego price (payment scheme/structure) and M&A plans. Whether the new company wants to end the plan or not is irrelevant. The liability is/was established and earned by the employees. I leave it up to the lawyers to determine what entity (old company or new company) the employees can go after if they get shafted. It all depends whether the plan was disclosed or not.

Ethically, I second David's comment. The value of the company was enhanced by the performance (via incentive) of the employees.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

And if the incentive plan was in writing, you now have a contractual liability that leaves little wiggle room versus an oral agreement.

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