Sometimes, employers may attempt to withhold executive bonuses after an executive is terminated. An employer may do this to reduce expenses or because they feel the bonus was unearned.
Whether an employer can withhold an executive’s bonus lawfully depends on state law and the language of the employment agreement. The following executives often receive bonuses as part of their compensation package:
- Chief Executive Officer (CEO) often receives the largest bonus package, tied to overall company performance, stock value, and strategic goals.
- Chief Financial Officer (CFO) may receive bonuses linked to revenue, profitability, cost control, and financial targets.
- Chief Operating Officer (COO) may be rewarded for operational efficiency, production goals, and execution of company initiatives.
- Chief Technology Officer or Information Officer (CTO/CIO) may earn bonuses based on product development, innovation, and technology milestones.
- Chief Marketing Officer (CMO). Compensation connected to sales growth, market share, and campaign performance.
- President and Vice Presidents whose bonuses reflect the results of their business units.
- Sales and Revenue Executives may receive substantial commission-based or quota-driven bonuses.
- Managing Directors and Partners in finance, private equity, and professional services.
- Other C-suite and senior leaders, including chief human resources officers
In some cases, a bonus is a discretionary perk the company can withhold. In others, it is earned compensation that the employer is legally required to pay.
Earned Bonuses Are Treated as Wages
California’s definition of wages generally includes bonuses.
A nondiscretionary bonus is one promised in advance and tied to identifiable conditions, such as meeting sales targets, hitting performance metrics, or completing a set period of service.
Once you satisfy those conditions, you have earned the bonus; California law generally does not allow an employer to make you forfeit wages you already earned, even if you are later fired.
A discretionary bonus is awarded purely at the company’s choosing, with no set formula or promise. A genuinely discretionary bonus is far easier for an employer to withhold.
“Employed on the Payout Date” Clauses
Executive bonus plans often require you to be employed on the payout date to receive the bonus. California courts scrutinize these clauses based on whether the bonus is discretionary or nondiscretionary (see section above).
If the bonus is discretionary, such a condition may be enforced. But if the bonus is deferred compensation you already earned through your work, a forfeiture clause may not hold up. You may still be entitled to payment on a pro-rata basis, especially if you were terminated without cause before the payout date.
Importantly, being fired for cause can affect what your plan or employment agreement requires the company to pay.
California’s Wage Payment Protections
California requires earned, unpaid wages and bonuses to be paid promptly when your employment ends. If an employer willfully fails to pay you on time, it may owe waiting time penalties under Labor Code Section 203, which can equal up to 30 days of your wages. These penalties incentivize employers to pay what they owe.
How to Protect Your Rights
If you are an executive who believes an earned bonus is being withheld after a termination or wrongful firing, you should take a few key steps:
- Preserve your employment agreement, bonus plan, and any communications about your compensation
- Record the conditions you satisfied and when you met them
- Do not sign a severance agreement or release before you understand what you may be giving up
- Act promptly to comply with the deadlines that apply to wage claims
If a San Diego employer has withheld your bonus after firing you, contact an experienced California employment attorney at The Armstrong Law Firm to review your agreement and protect your rights.