Financial incentives and how to retract them

Peninsula Team

January 23 2015

The wording of incentive schemes and where you place them is important if flexibility is needed at a later stage.

Financial incentives contained within contracts of employment become contractual terms that employees have the right to expect and receive. It is risky to remove or vary a contractual term without the agreement of the employees and they are unlikely to agree the removal of incentives which are favourable to them. Therefore, if you are including incentives in contracts it should be made sure that these incentives can be kept to. If contractual incentives are not adhered to at any time the employee can bring a tribunal claim for breach of contract or, if the breach is sufficiently serious, resign and bring a claim for constructive dismissal.

If you are already aware that you may wish to retract incentives in the future, or there may be cause to believe that the incentives cannot be kept to, the incentive scheme should be set out in an incentive pay policy where the wording clearly and explicitly states that these are offered on a discretionary basis. This policy must also state that the right to withdraw, amend or suspend the scheme at any time without prior notice remains with you, the employer. This will allow you the discretion to retract financial incentives and also set realistic expectations with your employees on whether they will receive these or not.

The policy can also contain any events or scenarios which would lead to the incentives being retracted. By adding this you are giving your employees prior knowledge of retraction and potentially lessening any objection to the removal. You may also consider regular communication with staff to keep them aware and up-to-date of any potential changes to the financial incentives. This is not necessary but, again, will make employees feel involved and prevent any disputes or confusion about their incentive situation.

In line with this you can publicise the details surrounding what performance level, individual targets or company targets are needed to be reached to introduce, increase or suspend the financial incentives. By having clear definitions of this you are creating something for the workforce to work towards and will give a greater understanding of the policy as a whole.

If you need any clarification on this issue then contact the Peninsula Advice Service on 0844 892 2772.

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