As a vice president of the company you hired a promising new sale rep and offered them hefty bonuses if they reached the goals set for the new territory. All of the representatives had performed well; The incentive system you'd put in place had worked well.
But however, it became all to clear that the company had seriously underestimated the time it took to build new business relationship and the cost associated with the new expansion, a mistake that was already eating into profit margins.
Chiet financial officer of the company advised you that the company's lawyer built enough contingency clauses into the sales reps contract that you're not obligated to pay those bonuses you promised.
Would you? recommend strongly to the president that the company pay the bonuses as prmised. The legal contracts and financial situation dont matter. Be prepared to resign if the bonuses are not paid as you promised. Your word and a motivated sales team mean everything to you.
To inspire continued confidence in management, to be honorable and to maintain morale, the bonus should be paid. Unless the staff was told explicitly that performance would only be part of the consideration for bonus in addition to company performance, there is no reasonable or honorable way to hold back the bonus.
There is still a call for honorable behavior in business and in social life, regardless of profit margins.
I agree with the sentiments of #7 above wholeheartedly. Sometimes a manager has to look at the overall situation, and even if it costs a few employees if a decision saves a company it sometimes has to be made... regardless of the negative feelings or publicity.
Yes, I would suggest that the bonus be paid as promised. Every company needs an established, competent, and happy sales force in order to grow the business, service existing accounts and capture new accounts. If sales people feel that the company has taken advantage of them by not keeping promises and paying bonuses they might quit and go elsewhere.
Paying the bonus would depend on the future payment structure of the company and whether or not bonuses would be employed. If a future incentive structure was to include bonuses and the company had a reputation for not paying the bonuses the incentive would be unlikely to succeed. Why work hard for a bonus you are unlikely to receive?
If, however, you were likely to never use bonuses again AND there was a legal way out it you might consider not paying the bonuses. While not idea, if paying out the bonuses results in the financial instablity of the company then they have to be revoked. Then fire the person responsible for misleading the company.
If the quotas/sales goals were met, I would strongly suggest paying the bonuses. It is the right thing to do ethically and morally. Of course, this isn't likely to be the course the business will elect to take. The bottom line often plays more of a role than anything else in business. From a financial standpoint, the employees will be better off if the company stays in business than if they receive their bonuses. While I would not feel good about being unable to fulfil my promises, corporations often don't feel the same.
I would recommend paying the bonus. If it would be possible to offer a reduced bonus initially, this might be a compromise allowing the company to give a show of good faith to the sales reps without quite as severe an impact on the company's bottom line at this time.
Broken promises and profit margin: This becomes the bottom line of your question. It's great for the profit margin that the CEO chose to legally find loopholes that can negate the promises he made to his employees, who probably bought his smiling rhetoric in good faith. But this boss dishonestly misled the people he hired--as soooo many administrators do--and the employees will have to decide whether to stick around (which most will do because of the present economy) and await another shafting, or to look elsewhere for a better opportunity with that true rarity: a boss who can be trusted.
Ethically, you are under no obligation to pay the bonus. The sales reps signed up for the job knowing what they were expected to do. In that sense, they share the responsibility for missing the fact that the goals were too high. As a matter of practicality, it would probably be a good thing to recommend payment. Doing so is likely to make for a more motivated workforce that would end up helping the firm economically in the long run.