In a bonus offer or letter, Katherine Blostein, attorney and associate with Outten and Golden, LLP in New York, likes to see a few terms that actually say it is guaranteed bonus. The amount, she says, should be qualified by words such as "a minimum guarantee," or "an amount equal to a certain amount of dollars."
The offer should also describe what portion of the bonus will be paid in cash and what will be allocated to deferred compensation, such as granted stock options or any other form of deferred compensation, says Blostein.
Blostein says that if the company isn't willing to commit to a certain percentage or number, there should be at least a representation that the employee will be treated the same way as other similarly-treated employees at the person's level.
Regarding when the payout should occur, Blostein says that is definitely should be specified in the offer letter itself or on the plan when the bonus should be received. It is important, she notes, because any bonus, whether it's guaranteed or not, should be paid to the employee within 2 1/2 months of the end of the company's end of fiscal year. If not, the employee might be subject to deferred tax issues and thus possible tax fines.
It is important to get the correct language in the offer letter to protect the bonus and a reason the employee might not get it is if they're terminated for cause or if they resign voluntarily, notes Blostein. In terms of death or disability, typically, an employee should get the entire guarantee or at least a pro rata portion of it dated to the termination. If the terms are not written down, the company can make an argument that the person wouldn't be entitled to it, Blostein adds.
One term that is important is the form selection and choice of law, which states where an employee would be able to bring a dispute over their offer letter or contract and what state law would govern that dispute, Blostein says. It is important, she says, because the employee needs to know where they'd be filing a lawsuit or proceeding if they want to enforce the terms of the contract. For financial services employees in particular, it's important to know that most of the time the offer letter or contract they're asked to sign will require mandatory arbitration, Blostein points out.
"All terms of an offer letter should be carefully reviewed by the employee and their attorney, especially if there's a guarantee because that needs to be protected," says Blostein.
Katherine Blostein is an associate in Outten & Golden’s Executives & Professionals Practice Group in New York. For more information about her, click here. She spoke with the Employment Law Channel, part of The Legal Broadcast Network, providing online, on-demand legal video content.