Employment Terms
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Compensation Upon Termination
#Compensation upon termination defines the rules and procedures governing how a departing participant's earned and unearned incentive compensation is handled when their employment ends, whether through voluntary resignation, involuntary termination, retirement, disability, or death. These provisions must address several key questions: What is the cutoff date for crediting new transactions? Are commissions paid on deals that close after the termination date but were in pipeline during employment? How are pro-rated bonuses calculated? What happens to unvested equity or deferred compensation? Are draws or advances recovered from the final payment? Does the termination reason (voluntary vs. involuntary vs. for cause) change the payout treatment? State and local laws impose varying requirements — California requires immediate payment of all earned wages (including commissions) upon termination, while other states allow payment on the next regular pay date. Failure to comply with termination payment laws can result in penalties, interest, and litigation.
A sales rep in Illinois gives 2 weeks' notice on March 10, with a last day of March 24. Per the plan, her March commissions are pro-rated through March 24 (24/31 = 77.4%). She has $28,000 in credited deals for March; her pro-rated commission at 8% is $1,734. She also has a $4,500 recoverable draw balance. Per plan rules for voluntary termination, the draw is deducted from her final payment. The company has 13 days (next regular pay date) to issue her final check of $1,734 minus the $4,500 draw recovery — since the draw exceeds her earnings, she owes $2,766, which the company writes off per its forgiveness policy for voluntary departures in good standing.
Section 17.1 — Compensation Upon Termination: (a) Voluntary Resignation: Participants shall be paid earned incentive compensation for all transactions credited through their last day of employment, pro-rated for partial periods. Pipeline transactions not yet closed shall not be credited. Outstanding draw balances may be deducted from the final payment. (b) Involuntary Termination Without Cause: Same as voluntary, except pipeline transactions closing within 30 days of termination shall be credited at 50%. (c) Termination for Cause: All unpaid incentive compensation shall be forfeited. Final payments shall comply with applicable state wage payment laws.
Termination Compensation Processing Report — lists departed participants, termination type, last active date, final earned commissions, draw recovery amounts, pipeline credits (if applicable), compliance deadline, and payment processing status.