Calculating bonuses in mediation is tricky business: Fisher
By Rob Lamberti, AdvocateDaily.com Contributor
Setting a value for bonuses or potential future income during mediation in a dismissal case can be tricky for mediators, but there are a few templates available to make the process manageable, says Toronto employment mediator and arbitrator Barry B. Fisher.
“The issue is people often have compensation other than their base salary, including stock options, bonuses or commissions,” says Fisher, principal of Barry Fisher Arbitration & Mediation.
Their values are often determined in mediation before the end of the company's business year, so an estimate has to be made, he tells AdvocateDaily.com.
“As a mediator or as a lawyer, I can help a client predict what a judge might do,” says Fisher, “but I can’t say if a company is going to turn a profit this year. When you’re outside your comfort zone in predictability, it’s harder to mediate.
“There are methods, but the mediator and the lawyers should agree to close that uncertainty and come up with a process to do it. It may mean it’s not resolvable that day.”
Fisher says one advantage of using mediation to resolve the issue is he is able to use a number of formulas to help him assess it, while the courts usually rely on two approaches in determining value.
A court could assess the award based on the amount paid to others in the layoff year, and by the time a case reaches court, it would be clear what that bonus is, he says. If the amount can’t be easily determined because the company was sold or shut down, a court will rely on an average based on bonuses awarded to employees going back about three years, Fisher says.
He frequently uses the "forward-looking method," Fisher says, where bonuses are paid out of a bonus pool, which expands or contracts depending on the company’s annual earnings. This method allows a mediator to make an award based on comparing the percentage increase or decrease in the current year’s bonus pool with the previous year, he says.
Fisher cites two of his recent cases, as examples. In one, a company said bonuses would be cut by 50 per cent because sales were down, and in the other, a firm that regularly paid bonuses claimed it couldn’t in the current year.
“In both cases, rather than argue about what might happen in the future, we ended up adjourning the mediation until the uncertain was certain,” he says.
“It didn't take long. In the first case, sure enough, company sales were down 50 per cent,” Fisher says. “So, when we came back for mediation, there was no dispute about what the bonus would be.”
He says by adjourning the matter for a short time, it allowed an overall sales picture to develop and it removed that issue from the table.
In the other case, the plaintiff argued that the company would pay bonuses, despite a bad year, in order to retain staff.
“Again we adjourned until after bonuses were paid and the company could produce statistics of what it paid out,” Fisher says.
Another method he uses to determine value is what he calls the “tag along.”
“This works when the payment is far into the future, where we won’t know what the bonus is going to be for a year and no one wants to adjourn the case that long,” Fisher says. “So, we agree on everything else. Rather than adjourning to a later date, we agree to a formula.”
He says bonuses are often based on company and personal results. In tag-along scenarios, the parties agree on what a former employee would be paid for satisfactory performance.
“You can’t leave the employer any discretion, there has to be a mathematical formula,” Fisher says. “What's virtually impossible to mediate is mathematics. I don't try to mediate things that are going to be concrete within a reasonable time frame.
“There are methods that you can use in mediation, and the negotiation will eliminate the guesswork,” he says. “The problem with guessing is that someone is going to be deeply resentful later on. You don’t have to guess the future when we’re talking about events within the calendar year.”