Creado 28/09/2010 23:07

Variable salary component

Variable salary components

Problem: Employer fails to renew the target agreement?

Often the employee is faced with the question of what happens if my contract has a variable salary component which is predicated on a particular target agreement to be renewed on a yearly basis but the employer fails to do so?

If the employment contract stipulates that the variable salary component is based on a target agreement, then the employer has a legal obligation to make a new offer and negotiate those targets. The employer has to make a reasonable assessment about the prospective targets that are to be met to qualify for the salary component. The employer not only violates that obligation if he refuses to make an offer at all but also if he comes up with unreasonable targets that are unrealistic to meet. If this is the case, the employee has a claim for damages for lost revenue.

This is even the case if the contract designates a particular target for one year and further says that this target remains in place until being replaced by a subsequent target agreement. This does not obviate the obligation of the employer to still offer and negotiate a new target for the next year.

The employee should approach the employer in time and ask him for negotiations on new target agreement doing so in a way which allows him to prove it later if necessary.


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