POSTED: February 01 2019
Implementing a discretionary bonus scheme

Implementing a discretionary bonus scheme

If you are considering different ways to reward and motivate staff money is generally accepted as a strong option! advo HR looks at what you need to consider to implementing a bonus scheme.

advo HR’s Carly Gregory gives her own overviewBefore implementing a discretionary bonus scheme you should obviously first consider the scope, terms and the conditions surrounding it and clearly lay out and communicate. This can turn out to be a contentious issue and actually do more harm overall if not understood and accepted by employees. If an employee later disputes they should have received a payment, or higher payment bad feelings ensue. The employer and employees should be clear about what the scheme involves and its parameters.

There is a risk that even where the bonus scheme is paid at the discretion of the Company, that this could be seen by a tribunal as an implied term, if the bonus is always paid out on a regular basis and where the employee may begin to rely on it as part of their remuneration.
You may wish to consider the following terms and conditions:

  • The frequency of payments of the bonus e.g. annually, quarterly.
  • Who the bonus scheme will apply to.
  • Whether the individual needs to be an employee and/or do they need to have worked for the Company for a certain period of time?
  • What would happen if employee’s join or leave your employment part way through the year. Will the individual be paid on a pro rata basis or, upon notice of termination will the individual waive their right to any bonus payment?
  • The maximum amount payable.
  • Will bonuses be paid to individuals who are absent from work for long period of time. This will heavily depend on whether the bonus is classed as remuneration or not, the measures for performance and the timing of the maternity leave and bonus period.

We recommend whatever terms you decide upon, the employer should put it in writing that they reserve the right to withdraw the discretionary bonus scheme or change its rules, including the amount of bonus payable, at any time and from time to time, for flexibility. However, you should not completely rely on this term. The employer will be in breach of contract, if a tribunal consider no reasonable employer would have exercised the discretion in a particular way.

Next, you should consider what the bonus will be based on. Individual achievement or the overall business performance or both? When measuring performance, you will need to think about how this will be measured fairly, reasonably and transparently. If performance is based on both, you should decide what should happen if, for example, the employee meets their individual target but the business overall, does not have a good year.

It is worth putting in writing that bonus payments are not guaranteed and that previous bonus payments do not set a precedent for future bonus payments, to be clear to all employees. If the bonus becomes a contractual benefit or ‘a wage’ the employee may try and claim a deduction to wages should the Company refuse to pay it.

Whatever terms and conditions are decided on, it is important the Company acts consistently in its approach. Once the rules of the scheme have been decided, these should be confirmed to everyone who is eligible. The Company need to designate someone or a department, responsible for managing the scheme so employees can go to them when they have queries or concerns.

If an individual is not on target to reach their goal and receive the bonus it is important that they are aware of this throughout the bonus period so that is does not come as an unexpected surprise at the end of the period and they have been given reasonable opportunity and support to achieve what is required. This will help to prevent a dispute and would be the responsibility of the line manager.

If you would like to discuss further you can drop Carly an email on
Don’t forget advo have a benefits advisory service. One of our account managers would be happy to talk to you if you are interested in reviewing your existing employee benefits or wish to start from scratch, to help you decide the best options suitable for your business and search the market for you.