When a bonus isn’t actually a bonus

This Texas case could be called “A Tale of Two Bonuses.” An employee received one from his employer but not the other. The reason why is instructive.

Bonus #1 vs. bonus #2

Nicholas Scarsella went to work for Texstars under a written employment agreement. Here is the language of the first bonus, which Scarsella didn’t receive. This is referred to as a performance bonus:

Your annual salary will $275,000...Your target bonus opportunity will be 50% of your base salary. The actual bonus payout can be greater or lower depending on your individual performance and the Company’s performance.

Now for the language of the second bonus, which Scarsella did receive. This one is called a sales bonus:

You will receive a sale bonus at the time the company is sold. Assuming you are successful in achieving operating performance in line with the earnings power of the company, we would expect the company’s sale value to be $20-$35 million at the time of sale...For reference, if purchased for $40 million, your sale bonus will be a percentage of the net transaction proceeds, gross proceeds, or enterprise value less any direct transactional expenses.

Why did Scarsella receive one bonus and not the other?

The money is in the details

Words matter, and they matter a lot. Never forget: Doctors use scalpels, and lawyers and HR pros use words. In the first bonus, the language is permissive, but in the second bonus, the language is mandatory on whether he will receive the bonus.