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Bonuses and incentives

Last updated March 2021

This chapter outlines the potential legal risks in designing and implementing bonus and incentive schemes, and how you might avoid them.

What are bonuses and incentives?

Bonuses and incentives are variable remuneration, as opposed to fixed remuneration.

Definition: Variable Remuneration

Variable remuneration is not guaranteed or certain, and the amount varies according to the individual employee and business performance and outcomes.
Definition: Fixed Remuneration

Fixed remuneration refers to amounts of remuneration that are guaranteed and certain, such as salary and superannuation. Fixed remuneration is usually paid as cash but some fixed remuneration might constitute benefits, including those subject to fringe benefits tax, and other allowances.
Important: A guaranteed or upfront cash payment beyond normal remuneration for incoming or outgoing employees (sometimes referred to as a ‘golden handshake’) is often described as a bonus or incentive. However, the amount of these is not variable. An example is a ‘sign on’ bonus.

You might pay variable remuneration to employees to encourage them to perform and behave in a way that is consistent with your interests.