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March 27, 2010
Legal Liability for Paying Incentives in Your Organization

In a BLR webinar entitled ‘Incentive Pay: Best Practices for Designing and Managing Pay-for-Performance Plans’, Dan Kleinman discusses the legal liability for paying incentives in organizations. He provides the following details regarding a company’s legal liability for paying incentives:

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  • Generally, employers have been held legally liable for paying bonuses expressly promised to employees as incentives
  • Once workers have satisfied the criteria set forth by their employer to qualify for the bonus, courts will typically order the employer to pay
  • Bonuses that are absolutely discretionary are not usually viewed as implied contracts but, those offered to induce employees to achieve a desired goal are likely held to be enforceable
  • One way to reduce this liability is to adopt a workplace policy that is shared with all employees on a regular basis and which states that bonuses are awarded entirely at the discretion of management, are not intended to be binding on the company, and may be withdrawn at any time

Dan Kleinman is the principal of Dan Kleinman Consulting (www.dankleinmanconsulting.com), a California-based compensation and human resource consulting firm. He has served as an independent consultant for a broad spectrum of companies, providing compensation, performance, organizational planning, and reward-system design services. Dan Kleinman can be reached at info@dankleinmanconsulting.com.

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