Navigating Workplace Bonus and Incentive Schemes: An Overview of Australian Employment Law

In the dynamic landscape of Australian workplace law, the intricacies of bonus and incentive schemes have garnered increasing attention, especially regarding their fairness, implementation, and regulation. Understanding the nuances of these schemes is pivotal for both employees and employers to ensure a balanced and equitable work environment.

In various industries, employees may encounter diverse remuneration methods, often blending base salaries with performance-driven elements such as commissions and bonuses. Sales professionals frequently receive a base salary along with a percentage of sales proceeds or bonuses linked to specific targets. Similarly, executives and professionals might be eligible for discretionary cash payments or share allocations, linked to individual performance, divisional achievements, or overall organisational success.

While these incentive schemes offer an avenue for recognising and rewarding exceptional performance, the discretionary nature of such rewards necessitates a balance between employer prerogative and employee rights. It’s crucial to note that though employees might not possess an explicit right to receive a bonus, employers are bound by an implied obligation not to wield discretion arbitrarily or irrationally, as upheld in landmark cases below:

In the case of Silverbrook Research Pty Ltd v Lindley [2010] NSWCA 357 the Court found that the employer breached the service agreement by not reviewing the employee’s remuneration or assessing her entitlement to an annual bonus. The court ordered the employer to pay the employee $74,000 in damages for the loss of the bonus opportunity, which was later reduced to $25,834.87 after an ex-gratia payment of $48,165.13 was considered.

More Broadly, the case of Mckeith v Royal Bank of Scotland [2016] NSWCA 36 discussed promises from an employer. The NSW Court of Appeal found that if a promise could be established, it could in some circumstances be found to be a binding contractual offer. Hence if an employer makes a promise for a bonus, depending on the circumstances, it may crystallise as an entitlement. In O’Sullivan Partners (Advisory) Pty Ltd v Foggo [2012] NSWCA 40 the court found that a discretionary bonus payment to the employee could not be revoked once decided.

You may also ask, if these bonus payments are so discretionary, wouldn’t this open the floodgates for dodgy behaviour?

In response to concerns, namely over excessive executive bonuses and termination payouts, Australia’s regulatory landscape has witnessed notable interventions. The Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Act 2011 was implemented following the Productivity Commission’s comprehensive report. This Act introduced a ‘two-strikes’ rule, enabling shareholders to trigger a board spill if a company’s remuneration report receives 25% disapproval at consecutive AGMs.

However, what is an excessive bonus? Few cases explore the meaning of an excessive bonus, however the Case of Hewlett Packard Australia Pty Ltd v Subasic [2021] ACTCA 3 saw the court rule in favour of an ‘overperforming’ employee who had sought to enforce her incentive program. In that case the employer had capped the bonus amounts and claimed discretionary powers to do so, however the Court found that this was contrary to their duty to act in good faith.

Chamberlains Law Firm is experienced with assisting employers and employees with understanding their rights and obligations under bonus and incentive schemes. Our experienced team of legal professionals is equipped to offer comprehensive guidance on navigating the complexities of workplace law and ensuring that employees receive their rightful dues within the bounds of the law. Contact Chamberlains Law Firm today for further information.