What are Discretionary Bonuses?
Discretionary bonuses do not confer the employee a contractual right to a bonus, rather, payments are made at the employer’s own discretion and on the employer’s own terms. Nor do they generally give rise to any legitimate expectation of a future bonus.
There exist two types of discretionary bonuses:
- Absolute discretion: the terms or entitlement to the bonus payment is entirely left to the employer’s discretion. An employee cannot easily claim a right to any bonus where the terms confer absolute discretion on the employer, unless if the employer exercised their discretion in an irrational or capricious manner. It will be irrational or capricious, for example, to make a decision on bonus based on discriminatory factors.
- Partial discretion: the employee has an express entitlement to participate in a bonus scheme, with the amount being within the employer’s discretion. For example, a contract of employment might state that employees will be considered for a bonus. In such cases, the employee has the right to a rational and non-perverse exercise of discretion by the employer as to the amount of the bonus.
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