26 Jan Common Misconception: bonuses, promotions, or salary must be determined equitably between employees
Many employees believe that when other colleagues are granted bonuses, promotions, or a salary increase, that it is “unfair” and possibly a breach of their rights. An employer can decide to grant more compensation or a better role to one employee over another at their discretion. Even if the employee who is paid less believes this is unfair, it is not a breach of their legal rights unless it can be deemed discriminatory based on their race, gender, ethnicity, sex etc.
An employee’s salary is not always the only compensation they are receiving, and many employees are actually compensated very differently. An employee’s pay when entering the company or organization, could have been greater than the company’s previous hire or one employee could have gotten a promotion earlier than another colleague, etc.
The differences in compensation are provided in varied incentive plans. Incentive plans are provided by employers because they can then hire skilled employees and may drive employees to be more competitive at the workplace. These incentive plans also vary greatly between companies and organizations. Large companies may be be quicker to provide added compensation than smaller companies.
Some common types of incentive plans employees may receive from their employer may include bonuses, profit sharing, commissions, stock options, or referral programs.
Bonuses are the most common incentive plan that employers provide. The reason it is so popular is because bonuses do not have to be monetary. Bonuses can be provided through vacation days, gifts, events, parking spaces, etc. Bonuses are provided more frequently because there are more opportunities for employers to supply this type of compensation. For example, when hired, employees sometimes receive a signing bonus in addition to their salary when the employment relationship commences.
Profit sharing is a type of compensation when the employer legally promises the employee that they may share a portion of the company’s profits once retired. The employee may collect the company’s quarterly or annual earnings, and may only be granted by the employer. It is also up to the discretion of the employer to provide a profit-sharing plan that works well for them. If the company is not making sustainable profits for a year, the employee may not collect the percentage of their profit for that period.
Commission incentive plans are very common in sales jobs. In addition to a salary, when a sale is made, a pre-determined percentage of that sale is paid as a commission.
When provided with a stock option, an employer will provide the employee with the opportunity to buy shares of the company. This type of compensation is more common in larger companies that have a high probability for success.
Lastly, a referral program is when employees can be rewarded compensation if they refer an employee that would add value to the company they currently work for. For the employer, this is a great way to maximize workplace culture and expand the network of the recruiting pool.
If you have any questions about incentive plans or added compensation that you are or should be receiving, please contact KCY at LAW by filling in an online consultation request or contact us by phone at 905-639-0999 to book your consultation today.