Annual Salary, Incentives, and Bonuses

Employment Attorneys Representing Residents of New York City, Westchester and Fairfield

When negotiating executive compensation, significant issues can arise in connection with annual salary, incentives, and bonuses. Most executives would prefer to have a guarantee of a particular salary for at least a certain amount of time. For many executives, a term of guaranteed employment with a salary, incentives, and bonuses makes the most sense, but often executives do not want to be bound by a very long term unless there is the ability to exit with significant financial protection. Sometimes an automatic renewal provision is appropriate. At Phillips & Associates, our New York City executive compensation lawyers can advise you on what is optimal for your situation.

Negotiating an Annual Salary

Generally, an employer and an executive can agree on a base salary. However, even after this salary is agreed upon, it is necessary to determine whether built-in raises should be negotiated and what the best triggers would be for your professional circumstances. Executives often want to make sure that there are increases when the contract term is longer and that the salary will not be decreased during the term of employment set forth in the agreement, while the employer may not want to have a raise built into the agreement.

An experienced employment attorney can provide advice about whether a salary offered by an employer is in line with the salary paid to others in similar situations. In addition to trying to include language that builds in salary increases over the term of employment, an attorney can make sure that the amount of salary and the payment periods are set forth clearly.

Sometimes people with protected characteristics may face salary offers that are lower than those of colleagues without protected characteristics. For example, if you are a woman who is asked to serve as the Chief Technology Officer of a software company, you may not be offered the same salary as a man who previously served or other similarly situated male officers. An employment attorney can negotiate for a better salary or may be able to represent you in case it is later revealed that there has been sex discrimination.

Executive compensation issues may also arise under section 162(m) of the Internal Revenue Code. This law provides that employers cannot deduct your compensation if you are a covered executive of a publicly traded company, and compensation is greater than $1 million each year. When compensation is performance-based, it is not subject to this $1 million deduction limit.

Incentive Plans and Bonuses

Often, executives receive incentive compensation. Many larger companies and publicly traded corporations have incentive compensation plans. These plans will specify when an executive can earn a particular bonus. An experienced employment lawyer can make sure that you understand how the plan works and act accordingly. It can be important to limit an employer's discretion over these incentives by requesting a guaranteed minimum bonus. When an employer has total discretion over the bonus, there is not much protection for an executive, even if the language of the contract specifies that company performance or the executive's performance dictates the amount of the bonus.

Instead, the incentive should be carefully spelled out and tied to concrete performance metrics. For example, it may be appropriate to attach a bonus to profits, revenue growth, or the generation of a set number of clients. If you are sufficiently senior, it may be appropriate to attach the bonus to your overall earnings before interest and taxes. When a target is not tied to a particular metric, the employer may not be bound to pay it.

Executives performing similar work should receive similar salaries, incentives, and bonuses. However, some employers do perpetrate pay discrimination based on illegitimate reasons, such as race, sex, national origin, religion, disability, pregnancy, or age. Federal laws like Title VII of the Civil Rights Act, the Equal Pay Act, the Americans with Disabilities Act, and the Age Discrimination in Employment Act prohibit pay discrimination. State and local laws also prohibit pay discrimination based on protected characteristics.