Bonus, shares and pension in a settlement agreement

Bonus

Start with the scheme rules and your contract. The usual questions are:

• Is the bonus contractual or discretionary?
• Do you have to be employed, and not under notice, on the payment date?
• Has the performance period ended, and were the targets met?

If the period has ended and the bonus is only unpaid because of timing, argue for payment in full. If you are leaving part-way through the year, a pro-rata payment is the usual request. If your notice is being paid in lieu and you would have still been employed on the bonus date had you worked it, the bonus forms part of your notice loss.

A discretionary bonus is not something the employer can refuse on a whim. Courts expect discretion to be exercised honestly and rationally.

Commission

Ask for a schedule of deals closed and in the pipeline. Agree in the document how commission on sales completed after you leave will be treated.

Share options and long-term incentives

Each plan has its own rules, and the settlement agreement cannot override them. What it can do is record how the company or its remuneration committee will use any discretion the rules allow.

• Good leaver or bad leaver. Redundancy, ill health and retirement are often automatic good leaver reasons. A negotiated exit may need the committee to decide. Get that decision confirmed in writing before you sign.
• Vesting. Good leavers commonly keep a time pro-rated share of unvested awards, still subject to performance conditions.
• Exercise window. Vested options may lapse within weeks or months of leaving. Diarise the date.
• Tax-advantaged plans. Leaving can change the tax treatment of EMI and other approved options. Take tax advice before exercising.
• Malus and clawback. Check whether paid awards can be recovered after you leave.

The waiver in the agreement will usually cover claims for loss of share rights, so anything not expressly preserved is lost.

Pension

• Contributions during notice. If notice is paid in lieu, ask whether employer pension contributions are included.
• A contribution as part of the package. A payment from your employer direct into your registered pension is not taxed and does not count towards the £30,000, within your annual allowance. See tax on settlement agreements.
• Defined benefit schemes. Check whether redundancy or leaving over a certain age triggers an unreduced early pension. These rights can be valuable and are easy to overlook.
• Accrued rights. Benefits you have already built up are yours and are carved out of the waiver.

Other benefits to check

• Private medical insurance, and whether cover can continue for a period or be converted to a personal policy.
• Income protection or permanent health insurance. Cover usually ends with employment. If you are unwell, read sickness and ill health before agreeing anything.
• Life assurance, which stops on your leaving date.
• Company car, phone and laptop, and whether you can keep or buy them.
• Outplacement or career coaching. Outplacement counselling provided by the employer can be tax-free.
• Repayment clauses for training fees, relocation costs or enhanced maternity pay. Ask for these to be waived.

About this guide. This page is general information, not legal advice, and reflects the law and published government plans on the date shown above. Frederick George is a legal referral service, not a law firm. For advice on your own circumstances we will introduce you to an SRA-regulated solicitor.