--- name: prompt-pack-bonus-commission-plan description: Use when drafting a bonus or commission plan for sales, executive, or employee roles covering eligibility, performance metrics, calculation methodology, payment timing, pro-ration, clawback, and discretionary elements. Employment practice area with MENA-specific attention to WPS (Wage Protection System) requirements, gratuity interaction, and Sharia-compliant commission structures in KSA and UAE. license: MIT metadata: id: prompt-pack.bonus-commission-plan category: prompt-pack practice_area: employment priority: P2 intent: [drafting, bonus-commission-plan] related: [prompt-pack-board-resolution, heuristic-always-state-jurisdiction-first, kb-employment-law-mena, prompt-pack-agreement-legal-draft-review, persona-sme-founder] source: Louis — HAQQ Legal AI (github.com/sboghossian/mini-claude-for-legal) version: "1.0" --- # Bonus / Commission Plan ## When to use this Use this skill when drafting: - A **sales commission plan** for sales representatives, account executives, or distribution staff — specifying how commission accrues on sales performance - An **annual bonus plan** for executives or employees — specifying the performance targets, calculation, and payment conditions - A **combined plan** for roles with both a base-plus-commission and a performance-bonus component These documents can be: - A standalone plan document (attached to or referenced in the employment contract) - A section within the employment contract - A company-wide policy applicable to a defined group of employees Triggers: new hire package design; annual plan cycle; IPO/equity compensation planning; existing plan review or compliance audit. --- ## Prompt template > Draft a bonus/commission plan for [sales/executive/employee] roles at [Company]. Include eligibility, performance metrics, calculation methodology, payment timing, pro-ration rules, clawback provisions, and discretionary elements. Use [[conversation-clarifying-questions]] to elicit `[bracketed]` inputs before drafting. --- ## Required inputs | Input | Why it matters | |-------|---------------| | Company name and jurisdiction | Employment law determines whether bonus/commission is a contractual entitlement or discretionary | | Role type (sales/executive/employee) | Commission plans differ structurally from bonus plans | | Performance period | Annual; quarterly; monthly — affects pro-ration and payment timing | | Target on-target earnings (OTE) | The economic target for the plan | | Performance metrics | Revenue, margin, units, KPIs — the basis for calculation | | Discretionary vs. non-discretionary | Critical legal distinction — see below | --- ## Document structure ### 1. Eligibility Define who is covered: - Job grades, roles, or individuals by name (for executive plans) - Commencement of employment: "Employees who join before [date in the plan year] are eligible on a pro-rated basis; employees joining after [date] are not eligible for the current plan year" - Employment status at payment date: typically, eligibility requires active employment at the payment date; employees who resign before the payment date forfeit the bonus (address this explicitly — see jurisdictional notes) **MENA trap**: in UAE and KSA, a bonus that has been paid consistently for several years may be treated by labour authorities and courts as a contractual entitlement (part of the basic wage), not a discretionary reward. To preserve discretion: - State clearly in the plan (and in the employment contract) that the bonus is **discretionary** and does not form part of basic salary - Add a non-reliance statement: "The payment of a bonus in one period does not create any entitlement to a bonus in any subsequent period" - Vary the bonus design or amount periodically to prevent crystallization as a custom ### 2. Performance metrics #### 2.1 Commission plans (sales roles) Define the commission structure clearly: **Simple commission**: - Commission rate: [X%] of net revenue - "Net revenue" definition: gross sales price minus returns, discounts, taxes, and excluded items (list excluded items — e.g., pass-through expenses, government fees) - When commission is "earned": on invoice date, on payment by customer, on product delivery — specify; "on payment" is most defensible for businesses with long payment cycles **Tiered commission**: | Revenue target | Commission rate | |---------------|----------------| | 0 – 100% of quota | [X%] of revenue | | 101 – 120% of quota | [Y%] of revenue above 100% | | 121%+ of quota | [Z%] of revenue above 120% | **Quota definition**: set the individual's quarterly/annual quota and the process for adjusting it (quota relief for territory changes, product changes). #### 2.2 Bonus plans (executive/employee roles) Define the performance framework: **Company-level metrics** (examples): - Revenue vs. budget: [50% weight] - EBITDA vs. budget: [30% weight] - Strategic KPIs (e.g., customer NPS, project completion): [20% weight] **Individual-level metrics** (examples): - Individual performance rating (1–5 scale): [50% weight] - Specific objectives (SMART objectives set at start of year): [50% weight] **Target bonus**: [X%] of base salary at 100% performance; [Y%] at threshold (minimum payout); [Z%] at stretch (maximum payout). State the threshold below which no bonus is payable. **Worked example** (include in the plan): > If target bonus is 20% of base salary (USD 100,000 = USD 20,000 target): > - 80% achievement → 50% of target bonus = USD 10,000 > - 100% achievement → 100% of target → USD 20,000 > - 120% achievement → 150% of target → USD 30,000 (capped at 150%) ### 3. Calculation methodology State the formula with no ambiguity: For commission: ``` Commission = (Actual Sales Revenue × Commission Rate) – Previous Period Commission Paid ``` For bonus: ``` Bonus = Base Salary × Target Bonus % × Performance Multiplier Where Performance Multiplier = weighted average of company and individual metrics, as calculated per the schedule ``` Define rounding (to the nearest currency unit; to 2 decimal places for percentages). Define currency: is the bonus denominated in USD and paid in local currency? At what exchange rate? ### 4. Payment timing - **Commission**: typically monthly or quarterly; state the payment date (e.g., 15th of the month following the calculation period) - **Bonus**: typically annually; state the payment date (e.g., by March 31 for the preceding calendar year) - **Accrual**: state whether bonus/commission accrues during a performance period even if not yet paid **MENA payroll compliance — UAE WPS (Wage Protection System)**: - All UAE mainland and most free zone employers must pay salaries via the WPS - If a bonus forms part of "wage" (basic salary) under UAE Labour Law, it must be paid through WPS - Discretionary bonuses paid above basic salary: can be paid outside WPS cycle but must be reported - **Wage Protection Law reminder**: UAE Decree-Law 33/2021 includes "commissions" in the definition of "wage" if they are contractually agreed and recurring; this has implications for gratuity calculation (see below) ### 5. Pro-ration rules - **New joiners**: pro-rated based on the number of months employed during the plan period; define the start date (first full month vs. actual start date) - **Leavers during the plan period**: address three scenarios: 1. Resignation before payment date: typically forfeited; but see jurisdictional notes 2. Termination without cause before payment date: consider pro-rated entitlement 3. Termination for cause: forfeited - **Parental leave and sick leave**: define whether time on leave is included or excluded from pro-ration calculations (employment law may impose a minimum) **UAE employment law note**: an employee who resigns and has accrued commission on sales made (where commission was earned on the transaction date, not the payment date) may have a legal claim for accrued commission. Define "earned" commission carefully. ### 6. Clawback provisions A clawback allows the company to recover previously paid bonus/commission if: - The financial results on which the bonus was based are restated downward - The recipient is found to have engaged in misconduct contributing to the overstatement - For sales commission: the customer cancels or returns the goods/services after commission was paid **Format**: ``` Clawback trigger: [financial restatement within 3 years; misconduct finding; customer cancellation within 90 days] Clawback amount: [pro-rated reduction in bonus / full repayment / net-of-tax amount] Recovery mechanism: deduction from future payroll; demand for repayment Time limit for exercise: [2 years] from original payment ``` **MENA employment law note**: wage deductions in UAE are subject to Article 25 of Decree-Law 33/2021 — deductions are limited to specified purposes and amounts. A clawback that results in deduction from wages must comply with these limits. For material clawback amounts, the employer may need to bring a civil claim rather than deducting unilaterally. **KSA**: Saudi Labour Law does not readily permit wage deductions; clawback is better implemented as a contractual repayment obligation with a civil remedy than a payroll deduction. ### 7. Gratuity interaction (MENA) This is a critical MENA-specific issue: **UAE**: end-of-service gratuity under Decree-Law 33/2021 is calculated on "basic salary" only. Commission and discretionary bonuses are generally excluded from the gratuity calculation base. However, if commission is **contractually promised and recurring**, UAE courts and the Ministry of Human Resources have sometimes included it in the gratuity base. **Drafting mitigation**: state clearly in the plan and employment contract that commission/bonus is not part of "basic salary" for the purpose of gratuity or end-of-service benefit calculations. **KSA**: same principle applies under Saudi Labour Law. Severance (end-of-service award) is calculated on the last basic wage; recurring contractual bonuses included in "basic wage" by Saudi courts in some cases. **Lebanon**: NSSF contributions are based on total remuneration including bonuses; this affects the employer's cost calculation. ### 8. Discretionary elements State which elements are discretionary (subject to board or management approval) and which are formula-driven: - "The bonus amount calculated under section [X] is subject to final determination by the Board/Remuneration Committee, which may apply a positive or negative adjustment of up to [X%] based on qualitative factors" - "The Company reserves the right to modify, suspend, or terminate this plan at any time on [30/60/90] days' notice, without this constituting a breach of any employment obligation" The notice period for modifying or terminating the plan is important — in UAE and KSA, altering a contractual commission structure unilaterally without notice can trigger a constructive dismissal claim. ### 9. Taxes - The plan should state that bonus/commission payments are subject to applicable income tax (relevant for EG where income tax applies; LB where income tax applies; and globally for expatriate employees with home-country tax obligations) - The company is responsible for withholding applicable taxes - UAE, KSA: no personal income tax on employment income for local nationals and most residents --- ## Jurisdictional notes ### UAE - WPS compliance: bonuses paid as part of regular payroll must flow through WPS - Gratuity: Decree-Law 33/2021 — gratuity is 21 days per year of service for the first 5 years; 30 days per year thereafter; based on basic salary only unless commission is recurring/contractual - Labour Court: if a commission plan is ambiguous, UAE courts tend to interpret in favour of the employee ### KSA - Saudi Labour Law does not permit pure discretionary bonuses in practice if they have been paid consistently — document the legal basis (performance, not custom) - Commission plans: state clearly in the employment contract and plan that commission is performance-linked and non-recurring as a right ### Lebanon - NSSF contributions on all remuneration (including bonuses) at employer rate - Income tax (impôt sur le revenu) withheld from all employment income ### Egypt - Income tax applies at progressive rates on employment income including bonuses - Social insurance contributions on regular bonuses included in the contribution base --- ## Common mistakes - No definition of when commission is "earned" vs. "paid" — creates disputes on termination - Clawback mechanism incompatible with local wage-deduction rules - Plan treated as contractual without the discretionary savings clause - Gratuity impact not addressed — employer discovers at end-of-service that regular commissions inflate the gratuity base - No quota/target definition — a commission plan without a defined quota is unworkable --- ## Related skills - [[kb-employment-law-mena]] — UAE, KSA, LB, EG employment law reference - [[heuristic-always-state-jurisdiction-first]] — employment law is strictly jurisdiction-specific - [[persona-sme-founder]] — SME context for designing employee compensation packages - [[prompt-pack-agreement-legal-draft-review]] — reviewing an employment agreement or existing bonus plan