Award subject to plan: Overview, definition, and example
What is award subject to plan?
An "award subject to plan" refers to a situation where an award, such as a bonus, stock option, or compensation, is conditional upon the terms and provisions outlined in a specific plan. This plan, often an incentive plan or employee benefits plan, sets the criteria that must be met for the recipient to receive the award. The award is not granted automatically, but rather it depends on the recipient fulfilling certain conditions, such as achieving specific performance goals, remaining employed for a certain period, or complying with other terms of the plan.
This structure is commonly used in corporate settings, where rewards like bonuses or stock options are tied to both individual and company performance, incentivizing employees or stakeholders to meet specific goals or benchmarks.
Why is award subject to plan important?
An award subject to plan is important because it aligns the interests of the recipient with the objectives of the company or organization. By making the award contingent upon meeting certain criteria or achieving specific milestones, companies can motivate employees or partners to perform at their best and contribute to the company’s success.
For employers, this structure ensures that rewards are earned based on merit or performance, rather than being given without clear justification. For employees or recipients, understanding that their rewards are tied to a plan encourages them to meet goals and standards, knowing that their efforts will be recognized and rewarded.
Understanding award subject to plan through an example
Let’s say a company offers stock options as part of its employee incentive plan. The stock options are awarded to employees, but the actual ability to exercise the options and receive the shares is subject to the terms of the plan. These terms might include:
- Performance goals: The employee must achieve certain sales or productivity targets.
- Time requirements: The employee must remain employed with the company for a specified period, such as three years.
- Other conditions: The company might require the employee to maintain a certain level of conduct or compliance with company policies.
If the employee meets all the criteria specified in the plan, they will be able to exercise the stock options and receive the shares. However, if the conditions are not met, they may forfeit the award.
Example of award subject to plan clause
Here’s an example of how an award subject to plan might be referenced in a contract:
“The employee shall be eligible to receive a performance-based bonus under the Company’s Incentive Plan, subject to the achievement of performance targets as outlined in the Plan. The bonus shall be awarded upon the completion of the Plan’s specified conditions, and the Company reserves the right to adjust or withhold the award in accordance with the Plan’s terms.”
Conclusion
An award subject to plan is a conditional reward structure that ensures recipients meet specific criteria before receiving the benefit. This approach helps companies incentivize desired behaviors, align individual efforts with organizational goals, and create a performance-driven culture. For recipients, it encourages a focus on achieving goals while understanding the terms and conditions that must be met to earn the reward.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.