Bonus (Incentive) Protection Guideline

Purpose

To keep compensation equitable for an employee who is currently in an incentive (bonus) program and is moved — for development or for reasons beyond their control — into a position with a lower bonus target or a non-incentive role. The program "protects" the difference in bonus opportunity for a defined period so that a career-building lateral move does not reduce the employee's expected total compensation.

Eligibility

• Available to employees currently on an approved incentive plan who are transferred or promoted to a similarly graded (or lower) position with a lower bonus target, or to a non-incentive position, for career-development reasons or circumstances beyond their control.
• Not available where the move is due to performance reasons.

How protection works

• The employee's new, lower bonus target is used for ongoing incentive purposes, and the difference between the prior and new targets is paid as a separate protection amount.
• The protected percentage is based on the employee's prior position's bonus target (the target objective, not an average of past actual payouts).
• Example: an employee with a 20% target bonus who moves to a developmental role with a 15% target — 15% remains at-risk under the new role and the 5% difference is protected.

Protection period

• Protection runs for a defined period (for example, up to two years). If the employee is reassigned to another incentive-eligible role during the period, protection ends; if reassigned to a non-incentive role, continuation through the original period is reviewed case by case.
• Extensions beyond the standard period require a documented business justification, reviewed case by case, and may be declined.

Payment and administration

• Calculate the protection payment as the employee's base salary prior to the move × the protected target percentage. Payments are typically made on a periodic basis (e.g., quarterly), pro-rated for partial periods, and are not adjusted for base-salary increases received during the protection period.
• Protection payments are compensation (supplemental wages) — withhold at the applicable supplemental rate, show them as a separate line item, and confirm whether they count toward retirement/pension-eligible earnings.
• Initiate protection with a written request that captures the employee, the current vs. proposed position / grade / salary / target percentage, the protection start and end dates, and the reason.

Best practice and compliance (added)

• Apply the guideline consistently across comparable situations to avoid discrimination or pay-equity concerns, and document the rationale for each arrangement.
• Coordinate with payroll/tax on withholding and reporting, and confirm current supplemental-wage tax treatment.