Targets set too late: damages for the bonus

A bonus needs targets set in good time

A bonus tied to targets only works if the targets are set in good time. If they never arrive, or arrive so late that they can no longer provide any incentive, the employer owes damages. That is what the Federal Labour Court (BAG) decided in its judgment of 19 February 2025 (case no. 10 AZR 57/24). The case concerned a unilateral target setting, where the employer determines the targets on its own, unlike a target agreement, which both sides negotiate together.

The claimant was employed until 30 November 2019 in a role with managerial responsibility. His employment contract provided for variable remuneration. The details were governed by a works agreement: by 1 March of each year, the employer had to set the targets, 70 per cent company targets and 30 per cent individual targets. The amount of the bonus depended on the extent to which the employee met those targets.

The case: targets only in October

2019 went differently. On 26 September 2019, the managing director told the managers that, for the individual targets, an achievement level of 142 per cent would be assumed for the year. That corresponded to the average for all managers over the previous three years. The claimant received concrete figures for the company targets, including weighting and target range, for the first time on 15 October 2019. He received no individual targets at all for 2019.

The employer paid him variable remuneration of EUR 15,586.55 gross for 2019. That was not enough for the claimant. Had the targets been set in good time and been reasonable, he calculated, he would have met the company targets by 100 per cent and the individual targets by 142 per cent. He therefore claimed a further EUR 16,035.94 gross in damages.

Targets set too late: no incentive left

The employer considered its target setting timely and reasonable. Even if it were not, the claimant could at most demand that a court set the targets retrospectively, and that option ruled out damages. The loss had also been calculated incorrectly. The labour court dismissed the claim; the Cologne Regional Labour Court upheld it. The employer appealed to the Federal Labour Court and lost there too.

The court found a culpable breach of contract, that is, a breach for which the employer was responsible. It had not set any individual targets and had only communicated the company targets in binding form when around three quarters of the year had passed. Targets are meant to motivate and provide an incentive. After three quarters of the year, they can no longer do so.

For the same reason, retrospective setting of the targets by a court was not an option either. What remains is damages: the employee receives the money he would have earned had the targets been set in good time and been reasonable.

How the loss is calculated

How large is a bonus for targets that never existed? The court makes an estimate. The starting point is the variable remuneration promised if the targets were met. The next question is what level of achievement could have been expected had the targets been set in good time and been reasonable. Here the court assumed 100 per cent for the company targets and 142 per cent for the individual targets.

The employer had itself named the figure of 142 per cent, as the three-year average for its managers. Anyone who announces such a figure must expect to see it reappear in a judgment later on. The employer had not put forward any special circumstances arguing against those assumptions. So the claim remained at the EUR 16,035.94 gross sought.

No contributory fault on the employee's part

One objection suggests itself: should the employee not have asked where his targets were? The Federal Labour Court says no. Where target setting is omitted or delayed, the employee is generally not contributorily at fault for failing to cooperate. The initiative lies solely with the employer: it must set the targets, and the employee does not have to ask for them. The claim was therefore not reduced.

What this means for employees

Anyone with a target-based bonus should know two dates: the deadline for setting the targets and the day the targets actually arrived. The deadline is set out in the employment contract, in a works agreement or in a bonus scheme; in the case decided, it was 1 March. If the targets never arrive, or arrive so late that they can no longer provide any incentive, the bonus is not lost. Here that was the case after three quarters of the year. The bonus is replaced by a claim for damages in the amount that could have been expected had the targets been achievable.

The employer cannot then fall back on the argument that a court could set the targets later. Nor can it hold against the employee that he did not follow up. It still makes sense to keep everything connected with the bonus: the bonus scheme, communications about targets with their dates, and the statements for the variable remuneration. Anyone wanting to quantify the loss also needs some basis for the expected level of achievement, for example earlier years or average figures such as the 142 per cent here.

Two caveats belong here. The decision concerns unilateral target setting, that is, targets the employer sets on its own. Whether an employee has to push for meetings himself in the case of a target agreement did not have to be decided here. In addition, employment contracts and collective agreements may contain limitation periods after which claims lapse. Checking such deadlines is therefore one of the first steps.