- A key aspect will be the purpose, focus and expected duration of the appointment. The terms offered need both to reflect those points, and any mechanisms (whether the carrot of a bonus or equity stake, or the stick of a clawback or other penalty provision) need to be consistent as well.
- Salary - While it is well recognised that base pay is not the only reason why quality candidates will be motivated to perform, it is always a ‘hygiene’ factor. It is important to have up-to-date, reliable data on comparable roles in similar sectors.
- Pension contributions – with the advent of tapering provisions, many high earners and those with substantial pension pots are less interested by pension terms offered by new employers. They will often
look at other forms of deferred pay – whether through bonus, incentive plans or stock options.
- In terms of granting equity, business owners should take care to ensure that they don’t grant or promise equity in a hurry, and then regret this over time. Consideration of a phantom or shadow equity scheme may be more appropriate.
- As to cash bonuses, there needs to be clarity around objectives, triggers, payment terms and conditions. There is a still a misguided preference amongst many employers for ‘wholly discretionary’
bonuses. Such arrangements are often more problematic than they are worth and they are ripe for challenge either on the basis of unreasonable or discriminatory exercise.
- There are other practice points to consider. For instance, does the employee receive a pro rata element for an incomplete year? Employers need to make sure that the bonuses don’t encourage ‘dysfunctional’ behaviour, and there is always the risk of schemes having unintended consequences. To what extent does the bonus depend only on the individual’s performance/behaviour? Is there a risk of ‘double coutning’ with two or more people all claiming a bonus in respect of a single outcome; sharing mechanisms can be helpful, but need to be carefully worded.
- In terms of insured benefits (such as life cover, private medical and dental care, permanent health cover) it is critical that the documentation is worded so that the extent of the employer’s obligation is to pay the premium, rather than provide the benefit. Equally, the employer should ensure that the benefit terms can be varied, or in extreme cases withdrawn, so that the extent of its obligations to the employee do not exceed the cover actually provided.