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Year End Bonus Discussion - Last Minute Changes Okay?

Year End Bonus DiscussionIs it legal for a board of directors to change the bonus pay out formula in the middle of the month of December? This is after the operating year targets have been met by all affected subsidiaries. They have no problem retaining the additional NPBT, but balked at the large dollar amount of the bonus for executives (earned per the formula used for years) 25% of total pool for Presidents, 10% of pool reserved for the Presidents to distribute and the remainder to be distributed under the authority of the Presidents. On December 23rd, the board of directors threw out the entire bonus plan and formula and changed it to the following: Up to 5% of salary for all employees including the Presidents. It should be noted that the bonus accruals were recognized in the Q3 budgets, which were approved in October.

Answers

Topic Expert
Malak Kazan
Title: VP, Special Projects
Company: ERI Economic Research Institute
(VP, Special Projects, ERI Economic Research Institute) |

Typically if the board has adjusted the payment, there should have been "somewhere" in the communications / documentation pertaining to the goals or bonus plan, the board retaining "discretion" to adjust the payment (e.g. up or down) to accommodate possible windfall or extenuating circumstances. Also, if this variable pay plan was designed more like an incentive plan with specific threshold / target/ max performance and payout levels with no mention of discretion, you may have stronger recourse. Based on the information provided, this unexpected decision may be a symptom of other issues that transpired. Hope this helps.

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