When considering the appropriate treatment of incentive compensation payments during a leave of absence, we think about what is fair based on what the sales person is actually being paid for in a given performance period. Are payments that would normally be made during the leave period related to work performed prior to the start of the leave? Or do those payments relate to work that would have been typically been performed during the leave? The following examples illustrate these two cases:
- The incentive plan pays “now” for work completed “before” – A sales person works for months to craft a deal. The deal closes a week after the sales person begins a leave of absence. The sales person completed most if not all of the work to close the deal prior to the start of the leave. We would expect the sales person to be paid an incentive for this deal. Whether the incentive paid is 100% of the calculated incentive or a prorated amount would most likely depend on who else was involved in closing the deal and what role they played. Bottom line, the sales results may have come to fruition during the sales person’s leave of absence, but they were driven by significant work completed before the leave began.
- The incentive plan pays “now” for work completed “now” – A sales person has ongoing responsibility for a group of accounts within a geographical territory. The sales person calls on accounts regularly and maintains ongoing relationships that drive a flow of business. For every month, the sales person is paid an incentive based on the aggregate performance of the accounts in their territory vs. an assigned goal (perhaps a revenue goal). If the sales person begins a leave of absence in the middle of a month, we would expect the sales person to be paid a prorated incentive based on the number of days of active work during the month. Most likely a manager or peer is covering the territory while the sales person is on leave. The “covering rep” may or may not be receiving additional compensation for their effort.
Of course, the above are only general guidelines and not legal advice. Talk to your legal adviser to evaluate any proposed approach in light of applicable laws. Some countries outside the US, as well as some states in the US (California and New York come immediately to mind), have very specific guidelines about incentive payments. These guidelines often vary based on the type of incentive and the amount of pay at risk.