Singapore: Recent case on discretionary bonuses

The High Court of Singapore has confirmed the proposition that discretionary bonuses are exactly that: discretionary. Employees do not have a contractual entitlement to a discretionary bonus.

In the case of Seow Hock Hin v MF Global Singapore Pte Ltd [2014] SGHC 42 the Plaintiff claimed a contractual entitlement to accrued bonuses totaling USD$224,624.19. He argued that where deductions for a specified purpose were made from a bonus pool, if the specified purpose ceased to exist (or attracted a lower liability), write-back sums should be added back into the bonus pool and distributed accordingly.

The High Court disagreed: the Defendant was only obliged to distribute the sum it had declared. The fact that the actual deduction the Defendant needed to make from the bonus pool for the specified purpose was significantly lower than anticipated mattered not; the Defendant retained an absolute discretion to declare the bonus amount and the Plaintiff had no entitlement to a sum that had not been declared.

By deciding the case on the basis of declaration, the High Court avoided grappling with the thornier issue of whether a sum deducted for a specified purpose could only be withheld from the bonus pool for that specified purpose.

Actions for employers

Employers should ensure that discretionary bonus clauses are drafted in the broadest possible terms, allowing employers the discretion not only to determine whether a bonus should be paid, but also how it is to be calculated, and deductions for a specific sum and purpose should be avoided where possible.

Article written by Fatim Jumabhoy.