Variable pay covers performance-based salary components in addition to fixed pay, such as a target bonus, commission, profit share (Tantieme) or gratuity (Gratifikation). Where the employer has a right to determine the amount, it must exercise that right at fair discretion (billiges Ermessen, § 315 BGB). Discretionary and revocation clauses, as well as cut-off date and repayment clauses, are subject to standard-terms review (§§ 307 ff. BGB) and, under Federal Labour Court case law, are valid only within narrow limits.
At a glance
- Performance-based pay components alongside fixed pay: Zielbonus, Provision, Tantieme, Gratifikation
- Where the employer has a right to determine the amount, it must exercise that right at fair discretion (billiges Ermessen, § 315 BGB); the decision is fully reviewable by the courts
- Discretionary and revocation clauses (Freiwilligkeits- und Widerrufsvorbehalte) are subject to standard-terms review (§§ 307 ff. BGB) and valid only within narrow limits
- Cut-off date and repayment clauses are heavily restricted under BAG case law, above all where the bonus also rewards work already performed
- Closely linked to the target agreement (Zielvereinbarung): if the employer fails to set targets in time, a claim for damages can arise
Legal guardrails
- Fair discretion (§ 315 BGB): if the employer sets the amount unilaterally, the decision must reasonably weigh both sides' interests; otherwise it is non-binding and is replaced by the court
- Standard-terms review (§§ 307 ff. BGB): contract clauses must be clear and comprehensible (transparency requirement) and must not unreasonably disadvantage employees
- Discretionary and revocation clauses: blanket or contradictory reservations are usually invalid; ongoing salary cannot be placed under an open-ended reservation
- Cut-off date and repayment clauses: a bonus with a pay character cannot depend solely on the employment still existing on a given date; repayment clauses are permitted only narrowly
FAQ
Is there an entitlement to the bonus at all?
It depends on the design. If the bonus is firmly promised or tied to measurable targets, there is usually an entitlement. If the contract instead gives the employer discretion, the claim arises only once that discretion is exercised, though the exercise is reviewable. A claim can also arise from repeated, unreserved payment (betriebliche Übung, established practice).
What does "fair discretion" mean?
If the employer sets the amount unilaterally, it must reasonably balance both sides' interests. An arbitrary or extraneous decision (for example a reduction to zero without reason) is inequitable and therefore non-binding; in a dispute the court sets the amount itself.
Are discretionary and revocation clauses valid?
Only to a limited extent. They are measured against the standard-terms review. Contradictory combinations of a binding promise and a simultaneous discretionary reservation are non-transparent and invalid. Ongoing pay and amounts already earned cannot be validly revoked.
Can the bonus be tied to a cut-off date?
Only within limits. Under BAG case law, a bonus that rewards work performed cannot fail simply because the employment no longer exists on a particular date. Pure retention bonuses with no link to work performance may more readily be tied to remaining in post.
Last updated: August 2026
This article provides general information and is not a substitute for legal advice in individual cases.
