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Signing Bonus

The Signing Bonus clause contains two principal elements: (a) bonus amount; and (b) date of payment.

The clause may also include a clawback provision requiring repayment of a prorated amount in the event employment terminates for before a specific period. In order to ensure repayment and prevent disputes, employers may either pay the bonus in installments or offset periodic payments by the repayment obligation.

Where the clause lacks a clawback provision, the employee will likely be able to keep the bonus even if employment terminates shortly after agreement is signed.

Signing Bonus.[Upon execution of this Agreement,] Employer shall pay to Employee an initial signing bonus of [signing bonus amount].

Signing Bonus with Clawback

(a) Bonus. Employee shall receive a signing bonus in the amount of [signing bonus amount], less all applicable withholdings, payable within [number of days] business days of the execution of this Agreement.
(b) Repayment. In the event that Employee voluntarily terminates his employment with Employer for any reason whatsoever or Employee's employment with Employer is terminated by Employer for "Cause" before the first anniversary of this Agreement, Employee will repay to Employer an amount equal to [signing bonus amount] multiplied by the fraction, the numerator of which is 365 less the number of days during which Employee was employed by Employer, and the denominator of which is 365. Such repayment shall be made by Employee in full within ninety (90) days of his termination of employment with Employer.
(c) Offset. Employee hereby authorizes Employer to immediately offset against and reduce any amounts otherwise due to him for any amounts in respect of the obligation to repay the sign-on bonus.

Signing Bonus Payable in Installments with Clawback

(a) Bonus. [Upon execution of this Agreement,] Employer shall pay to Employee an initial signing bonus of [signing bonus amount].

(b) Installments. Employer shall pay a signing bonus in three installments as follows:
(i) [installment 1 amount] shall be paid within ten days after the parties' execution of this Agreement,
(ii) [installment 2 amount] shall be paid on [installment 2 payment date], and
(iii)[installment 3 amount] shall be paid on [installment 3 payment date]
(each individual payment, an "Installment Signing Bonus Payment" and the date each individual payment is scheduled to be made, an "Installment Signing Bonus Payment Date").

Notwithstanding the foregoing, (i) Employee must be employed by Employer on the Installment Signing Bonus Payment Date to be eligible to receive the corresponding Installment Signing Bonus Payment, and (ii) in the event Executive's employment terminates for any reason prior to [installment 3 payment date], Executive shall repay to the Company within thirty days following such termination a prorated portion of the immediately preceding Installment Signing Bonus Payment paid to Executive, based on the number of days Employee was employed from such immediately preceding Installment Signing Bonus Payment Date to the date of termination, provided that Executive shall have no obligation to repay in whole or in part the initial Installment Signing Bonus Payment.

Signing Bonus for Legal Expenses

Employee shall receive a signing bonus in the amount of [SIGNING BONUS AMOUNT] to be paid on the Effective Date. Further, a maximum of [MAXIMUM LEGAL EXPENSE REIMBURSEMENT] shall be reimbursed to Employee for legal expenses incurred during the negotiation of this Agreement upon presentation of transaction receipts.

2. Discussion

Bonus Clawback

"If a bonus has already been paid and there is no provision for clawback in the executive's service contract, the company cannot require the bonus to be repaid except in an extreme case where perhaps there are allegations of fraud." Clawback of executive bonuses; an effective solution. Paul Randall and Barbara Allen, Ashurst, January 2009.

See also, Lloyds Banking Group to claw back bonuses?

Drafting Clawback Provisions

"In drafting clawback provisions, employers also should consider the following:

  • The repayment obligation generally should be stated clearly in writing and signed by both parties;
  • A clawback provision set forth in an agreement that is executed at the time the bonus payment subject to the clawback is made likely will be easier to enforce than a clawback provision set forth in a separation agreement that is negotiated at the time of termination of employment;
  • Applicable state wage and hour laws should be reviewed (such as New York State's Labor Law);
  • The type of compensation to which the clawback relates (i.e., cash, incentive, or equity-based compensation);
  • If the clawback provision is set forth under a bonus plan or program applicable to a group of employees participating in the program, there should be consistency in administering and applying the repayment provisions;
  • There may be an advantage in reserving to the employer the discretion to determine the manner and timing of the repayment obligation; and
  • Any release of claims should exclude the repayment obligation."
Bonus Compensation And Clawbacks: What Employers Need To Know, June 12, 2009, Epstein Becker & Green

See, Clawback Sample Policies (CSCMicrosoftWyeth)

See also, Advisory—How Effective Is Your Clawback? Scott E. Landau, Bradley A. Benedict, February 3, 2010, Pillsbury Winthrop Shaw Pittman LLP

White & Case newsletter states that "[r]ecovering money from employees, though, is particularly difficult outside the US—especially in Denmark, France, Japan, Korea, Sweden and much of Latin America." April 2007.

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