Formula-based bonus

Many employers will provide for formulaic bonuses which are likely to be contingent on a number of factors. For example, deals completed, orders received, contracts signed, fees invoiced, the profit on a trading account, appraisal/performance, the employer’s performance. Invariably, if the formula is based on remuneration due to the employer (e.g. from orders received), a key factor will be if and when the employer has received the money or benefit in question.

It is increasingly common for bonuses to be dependent on a number of different factors such as graded performance and the employer’s and/or a department’s profit. This means that often an individual will be able to anticipate what level their bonus will be at. If there is a set formula and the sums are not paid within the relevant time period then the individual may need to seek legal advice.

A formula-based bonus may be capped at a certain amount although a cap can alter the incentive and be counterproductive for the employer.