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Managing your incentive scheme (1): Set your objectives

This article is the first in a series of articles about how to manage your incentive schemes.

It is quite common for employers to award objectives-based bonuses to its employees, to get them more involved and motivated to perform according to expectations. The employees will be rewarded only if the objectives are met.

For this reason, it is important to establish precisely the objectives that determine the payment of the bonus.

Under French law, objectives-based bonuses can be provided for by a collective bargaining agreement; company custom; unilateral commitment; or (most frequently) the employment contract. The employment contract may simply refer to a separate remuneration plan.

To be valid, the incentive scheme must meet the following conditions, determined by French case law:

  • The objectives must be made known to the employee at the beginning of the reference period. For example, if the objectives are annual, they have to be communicated to the employee at the beginning of the year.
  • The objectives must be realistic and compatible with the market, i.e. they should be reasonable;
  • The objectives must be also achievable by the employee, meaning that the employer has to give the employee all the necessary means to achieve the objectives set.

In case of litigation concerning the validity of the objectives-based bonus, French employment judges will evaluate if these conditions are met. If it is not the case, the employer may be ordered to pay the full amount of the bonus to the employee.

For all companies based in France, according to the “Loi Toubon”, the documents communicated to the employees mentioning the compensation scheme have to be in French, otherwise, in case of litigation, the employer may be ordered to pay the full amount of the bonus to the employee. These documents may be communicated in English, but only if a French translation is made available to the employees. The only two exceptions are when the document is received from a foreign country, or is intended for foreigners.