Law guide: Workplace

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Performance-related pay

Performance-related pay

Contents

A company may introduce a performance-related pay scheme to encourage you to work harder. The better you – or your team – carry out your work, the more your employer pays you.

What is performance-related pay?

Performance-related pay is a way of rewarding employees for higher performance.

There are a number of reasons why your employer might introduce this type of pay scheme. They may:

  • Be keen to keep current staff
  • Want to compete for new talent
  • Be seeking a fairer way of distributing wages

In order for performance-related schemes to work, they should be based on clear, measurable targets agreed by both employer and employee. You will normally find out about these targets from your contract of employment and performance appraisal meetings you have with your manager.

Short-term schemes

Short-term schemes usually offer bonus payments or commission on sales achieved. Payments vary and these schemes are normally used just to encourage staff to improve their own performance.

Long-term schemes

Long-term schemes offer rewards like share options, and can help to encourage loyalty to the organisation and its aims.

What to do if you have problems

If you don't receive bonus or commission payments which you believe you're owed, check your contract of employment, written statement of key employment terms, or staff handbook to see how your bonus is paid. Ask your employer if you need more information.

Sometimes it is agreed that bonuses will be paid out at your employer's discretion. In other words, it is up to your employer to decide who will get bonuses and how much the bonus will be. When this happens, your employer must exercise that discretion in a justifiable manner.

If you think a mistake has been made you should:

  • Speak to your employer to see if there has been a misunderstanding
  • Ask your employer to set out in writing how they have calculated your pay
  • Keep copies of any letters and notes of any meetings

There are three ways that the law might cover a case of unpaid bonuses:

  • Breach of contract
  • Unlawful deductions from wages
  • Unlawful discrimination

Deductions from wages / breach of contract

Any right to a bonus will normally be included in your contract of employment. It may not always be written down; it can be verbally agreed or understood to be there due to normal business customs.

If a bonus or commission is included in your contract, non-payment is a breach of contract unless there's another term stating differently.

Failure to pay a bonus or commission that you are entitled to could also amount to an unlawful deduction of wages.

You are entitled to claim both breach of contract and unlawful deduction from wages, but you won't get back more money than you've lost. Deductions from wages claims are often easier to make.

Discrimination

Your employer must not discriminate against particular groups of people - for example, by giving smaller bonuses to women. Ideally your employer should have some guidelines setting out the normal range of bonus to give.

What happens if you quit your job?

You should check your contract very carefully to see when your employer is allowed to withhold your pay. Normally, you are entitled to be paid everything you earned up to the point you finished.

If you are forced to resign as a result of your employer refusing to pay you, you might be able to make a constructive dismissal claim.

Unless you can prove you were constructively dismissed, you will not get paid for any notice that you don't work. Your future commission payments will depend on the terms of your contract.