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39 (134) 2019
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Human Resources

Reinvention of retention schemes to keep employees loyal

By Monika Krzyszkowska-Dąbrowska, attorney-at-law, head of employment practice, Linklaters
Header krzyszkowska d browska monika press

 

In the current HR market situation, employers must implement various measures to attract and retain employees.

It has become a challenge to assure the loyalty of the most valuable workers. To strengthen the employee’s relation with the company, various motivation structures are designed which incentivise the employee to remain in the employ of the company for a certain time to receive additional reward.

Retention bonus schemes that fall outside statutory regulations

Bonus structures are not specifically regulated under the Polish Labour Code. Yet they are subject to applicable employment law regulations, in particular those governing remuneration and equal treatment of employees. Employers are free to implement various internal incentive plans, but these should be reviewed for their compliance.

From a legal perspective retention bonuses are recognised as admissible practice within the employer’s remuneration rules. Such was the ruling of the Supreme Court of 29 June 2005 (I PK 272/04). In the past, they were occasionally offered by employers to top key employees, to assure that they would not want to terminate employment on their own initiative or on specific occasions where the cooperation with the employee was perceived as indispensable for the employer. This included as work on specific projects, interim periods during restructuring or mergers or given specific competencies of the employee. Currently, retention bonuses have been reinvented and enhanced as an additional motivation factor to bind an individual to the company for longer. The application of retention bonuses today is more common, and not restricted solely to top key employees. Respective provisions may be included in specific regulations, usually applicable to a broader number of on-target employees or as individual agreements or contractual clauses in case of more tailored solutions.

Bonuses or discretionary awards

Proper configuration of any bonus scheme is crucial to minimize the risk of unsolicited employee claims. Bonuses constitute an element of remuneration that the employee may claim if defined conditions are met – this was ruled by the Polish Supreme Court of 20 January 2005 (I PK 146/04). Awards, on the other hand, are voluntary payments awarded solely upon the discretion of the employer for recognition of the employee’s contribution, without any conditions set in advance (ruling of Polish Supreme Court of 21 September 2006, II PK 13/2006, ruling of the Appeal Court in Poznań, III Ap 7/18, dated 8 August 2018). Usually, the retention benefits are characterised as bonuses granted upon the applicable publicised rules. The employee may claim payment if they are met. Thus, such bonuses are not voluntary and may not be assumed to be a discretionary award, although it cannot be excluded that while granting an award, the fact that an employee remains in the employ of the employer may also be a decisive factor. This, however, requires the application of an entirely different legal approach.

How to construct retention bonus schemes securely

The retention bonus may be constructed in particular (most frequently) as a one-off benefit, paid after the employee remains in the employment for a certain period of time. Alternatively, it can be paid as a continuous payment with differentiated amounts, depending on the length of employment or as a bonus related to completion of a certain project by a defined date (as explained in the ruling of Polish Supreme Court of 15 March 2016, II PK 20/15). It may also be paid as an award in recognition of the employee’s length of employment (as in the Supreme Court's ruling of 23 May 2014, II PK 273/13).

An important element of the conditions is the obligation on the employee that they do not terminate employment upon their initiative for a certain period of time. The referred condition may be a part of a broader bonus structure as a negative condition for the acquisition of right to the bonus. If the condition would occur, the employee would be excluded from the bonus payment. It has been confirmed that remuneration regulations may validly provide the bonuses are due only to the employees who do not terminate employment (resolution of the Supreme Court of 10 June 1983, III PZP 25/83).

Nevertheless, the condition cannot deprive the employee of the right to a bonus that is based on the employee’s work, thus it could not be found applicable in all situations. Under the general rules, the employee cannot waive remuneration for work. Consequently, in a situation where all bonus conditions are met and the only one missing would be that the employees employment terminated prior to certain agreed date, the employee could potentially claim the payment. For these reasons, clauses which state that bonuses are due upon the fulfilment of predefined conditions and payable only in case of the employees remaining in the employ of the company on a certain date may be deemed invalid. The employees could claim payment of either the entire bonus or its pro-rated amount, depending on the circumstances and the exact wording of the bonus clauses.

Another important issue is the selection of the employees for retention bonus purposes, which should be done by applying the general equal treatment rule. In practice, this means that there should be a business rationale behind offering the retention bonus to only certain individuals to avoid related claims.

Other specific retention schemes

There are other various possible schemes through which the employer may finance the employee’s training or other services in exchange for remaining in the employ of the employer (as explained in the  ruling of Supreme Court of 28 July 1999, I PKN 180/99, as well as of 21 November 2011, II PK 48/11), which includes covering the costs of education, training or the costs of an apartment.

Summary

In view of the applicable case law, various retention schemes can be introduced by the employers in favour of the employees. However, if inappropriately designed from a legal perspective, there is a risk that they may not attain the desired goals and bring about certain complications for the employers.

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