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Movie mogul Samuel Goldwyn is widely (mis) quoted as saying that "A verbal contract isn't worth the paper it's written on."

I'm completely with Ann on this. Any variable plan had better be well-documented, because if it isn't, you can be absolutely certain that something will turn around and bite you.

I'll add a couple of observations to Ann's framework:

Somewhere around the "plan design" section, it's a good idea to lay out precise definitions of various terms used in the document ("Base Salary means....").

When I create these documents, I use the spelling and grammar review function in Word to ensure that what I have is as close to 10th grade (or lower if possible) reading comprehension level. I also try to have a nonexempt employee read the document and then tell me in their own words what they have just read.

Right on the money, Tony, thank you! Completely agree about the "glossary" or definition of terms. Critical element of a plan document.

And yes - review and correct for readability. Plain English, no compspeak and minimal lawyerese!

Thanks for the comment!

Ann, I'm also in the same camp with you when it comes to stellar plan documentation.

I've found that in addition to the points you've included, providing a couple of realistic examples (in the Plan Administration part of the document) showing how the plan delivers under an "exceeds" scenario and a "partially meets" scenario usually adds clarity that, otherwise, seems to always be missing, even in the best written plan documentation.

Aren't formal plan documents for bonus plans a requirement for Proxy statements for public companies?

Excellent point, Jim - thanks for making it. Nothing helps dispel any remaining fog around how a plan works and how awards are earned than a couple of realistic examples.

Good to have such great company in the documentation zealothood camp!


They may well be, particularly for executives/management of public companies - but there are plenty of other employees (in privately held and nonprofit organizations, below the top management ranks, etc.) where documentation is not required and often given scant, if any, attention. It's more to these situations that I am directing my post.

Thanks, however, for noting this. My practice purposefully avoids executive compensation in the publicly held realm, so can't answer your question definitively - but I suspect another reader will be able to do this.

I was reading and nodding until I got to the signature section. Unless there is a requirement to do so, I stay away from that. It's a little wasteful and paternalistic... right?


Interesting question - thanks for raising it.

Wasteful and paternalistic? I'm not sure I agree. Part of the reason I include a section like this more and more is that my clients are running into situations where participants, in claiming that awards are owed them when they are not, will claim that the plan document was not shared with them or that they did not understand it. From my perspective, it not only provides some level of protection to the employer - it also makes the point to employee participants that they should take the steps necessary to get crystal clear on plan rules if they don't understand any of them.

Some organizations will have places for employer and employee signatures, to make the point that it is a mutual action and agreement, rather than a paternalistic one.

That's my take anyway. Would love to hear what others think on this question. Wasteful and paternalistic? Smart and necessary? Does it depend?

Gets a bit cumbersome in a company with thousands of employees. You have to make sure everyone signs that they have received it and then later when changes are made. If you have a good way to send it to them by name, such as e-mail, or make them aware of where they can view a copy, that should be sufficient. ERISA requirements for benefit plans operate this way.

No reason you couldn't automate it.

But all such measures are - ultimately - lawsuit protection. The need for them is largely a function of your organization's demographics and culture.

I'm a bit late but wanted to jump on board. Plan document is so so essential. And with today's technology it doesn't need to be cumbersome. Online tools can make the process clean and easy.

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