Offering Staff Incentives

Peninsula Team

June 01 2012

How do you word incentive pay within someone's terms and conditions so that you can withdraw such a scheme in the future? For example as a company we like to reward staff when the company reaches target however there may be occasions when we will hold back such payments. Do we need to include this within terms and conditions?

The specific wording you use to convey an incentive scheme is key when providing yourself with the flexibility to withdraw it at a later stage.  Therefore, you must be extremely careful with the terminology you use. 

In order to give yourselves this flexibility, you should ensure that you make it expressly clear that any incentive pay you offer is made on a discretionary basis and not on a contractual basis.

If something is made a contractual term, employees then have the right to expect it.  You cannot vary a contractual term without agreement from employees, therefore you should be certain when offering something on a contractual basis, that you will be able to consistently fulfil those expectations. If you subsequently do not honour the payments, an employee is entitled to bring a claim of breach of contract, or, if the breach is sufficiently serious, a claim of constructive dismissal.

Because you know that sometimes you may not be able to fulfil the incentive pay scheme, or you simply may not wish to, then you must set out in an incentive pay policy that any incentive pay offered is a discretionary basis.  You must also make clear that you reserve the right to withdraw or amend the scheme at any time without prior notice.  This way, you are not establishing any expectations that the extra payment will be made. 

Should employees subsequently raise a question about their entitlement to incentive pay, you can remind them you have expressly reserved the right to change or withdraw the scheme as you feel appropriate.  It is advisable to express in a policy what events may lead to the non-payment of the incentive pay, and you also want to consider regular briefings to employees to keep them abreast of progress.  Although this isn’t necessary, being up front and open about any non-payment may make employees feel more involved and prevent queries from staff.  

Similarly, you should include details surrounding performance in reaching certain targets and you must clearly outline what these targets are.  The more specific these details are the better, as yourself and your employees will have a greater understanding of the criteria in relation to incentive pay.  By stating clear definitions of the features of the incentive, confusion can be avoided amongst your employees. 

For any further information, please call our 24 Hour Advice Service on 0844 892 2772.

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