Bonus cut: Do internal company targets suffice?

The case: Only 49 per cent of the target bonus paid

An employee working as Manager Finance had a bonus based on two factors: individual performance and company targets. For 2022, the employer rated her individual performance at 100 per cent. Because of the company’s financial factor, however, it paid only EUR 8,012.37 gross against a target bonus of EUR 16,351.78. The company targets had not been communicated to the claimant during the year (Federal Labour Court, 10 AZR 28/25, paragraphs 2 to 8).

The Federal Labour Court ordered the employer to pay a further EUR 8,339.40 gross plus interest. The difference claimed had been rounded down by one cent. The court decided the merits itself after the employee had lost in both lower courts. The award concerned damages under this specific bonus scheme, not a general payment for every HR mistake (operative part; paragraphs 13 to 16 and 44).

Employees must receive the targets

First, distinguish the remuneration model. Under unilateral target-setting, the employer determines the targets using equitable discretion. Agreed targets are negotiated jointly. A percentage share of actual revenue or profit is a different model again. The company factor in this case depended on specific targets to be set in advance (paragraphs 17 and 24).

Section 315(2) of the German Civil Code requires a declaration to the other contracting party. Setting targets only within management therefore did not fulfil the obligation. Employees must be able to align their work with them. The court required a declaration specifically addressed to the claimant; the works agreement did not remove that notification requirement (paragraphs 25 to 26).

The incentive cannot be restored after the target period ends

The deadline for setting targets generally follows from the contract and applicable collective rules. Whether late target-setting remains possible depends on its purpose and the circumstances. Once the target period has ended, it can no longer serve its incentive function. In the case before the court, the company targets were communicated at a staff meeting only after the financial year had ended (paragraphs 19, 31 and 38).

Damages require, in particular, a breach of duty, responsibility for that breach and loss. The legal basis was sections 280(1) and (3), 283 sentence 1 and 252 of the German Civil Code. The employer could not excuse its failure by saying it considered notification legally unnecessary. The employee’s failure to ask for the targets did not reduce her claim either: under this unilateral target-setting arrangement, the employer had to take the initiative (paragraphs 28 to 31 and 47).

Why a poor financial year is not enough on its own

When estimating loss, the court generally assumes that achievable targets communicated in time would have been met. Particular circumstances may rebut that assumption; the employer must substantiate and, where necessary, prove them. A general reference to a poor financial year was insufficient in this case. Among other things, the employer had not adequately explained its original forecast and subsequent developments (paragraphs 34 to 41; section 252 of the German Civil Code and section 287 of the Code of Civil Procedure).

This means neither automatic achievement of 200 per cent nor an automatic entitlement to the contractual maximum bonus. In this case, the court used 100 per cent and credited the payment already made. Our assessment: the bonus basis, individual factors, amounts already paid and substantiated counterarguments must be assessed together (paragraphs 35 and 44).

The limit: Earlier judgments may bind the assessment

A later judgment shows why late target-setting does not support every additional monetary claim. On 20 May 2026, the Federal Labour Court dismissed an appeal because earlier proceedings had conclusively determined which target value was binding and that the remuneration owed had been paid. The employee could not subsequently recover the same economic increase as damages using a lower target value. His claim was admissible but unfounded (10 AZR 88/25, paragraphs 13 to 28).

This judgment does not overturn the notification principle. It concerns the binding effect of the specific earlier proceedings. Existing judgments and the precise basis of earlier claims should therefore be disclosed from the outset (section 322(1) of the Code of Civil Procedure).

What HR teams should check now

Our practical recommendation is a documented process for each bonus period. Approval within the budgeting process does not replace evidence of which targets were communicated to the affected employees and when. Employees should collect the same documents when having a reduced bonus payment reviewed.

• Check the employment contract, bonus plan and works agreement to identify the precise remuneration model.
• Record who is responsible for setting targets and the agreed deadline.
• Document the targets, calculation, recipients and notification date in a verifiable way.
• Collect records of deviations, payments and any judgments already issued.
• Have outstanding remuneration claims and applicable deadlines reviewed promptly.