Quick Hits
- Courts and labor authorities outside of the United States often look at how compensation is paid in practice, and local statutory entitlements can override the plan terms entirely.
- Bonus terms that are consistently applied year after year can become contractual entitlements that are difficult to change or withdraw.
- In some countries, such as China, offering actual equity can be impractical or restricted, and companies often use phantom equity (cash-settled awards) as a workaround.
- Referencing U.S. parent equity in a local employment contract can create joint employment or co-employer risk.
- Commissions may need to be factored into vacation pay, termination and end-of-service payments, and other leave entitlements—often based on average earnings over a reference period.
The Fundamental Differences Between Compensation Plans
In the United States, plan documents and at-will employment give employers considerable flexibility. Internationally, that flexibility often disappears.
The key international principle is this: What a plan document says is not always what local law will enforce. Courts and labor authorities often look at how compensation is actually paid in practice, and local statutory entitlements can override the plan terms entirely.
U.S. employers generally have broad discretion to design, amend, and terminate incentive plans, and well-drafted plan documents are usually enforced as written. Internationally, the picture is different. Many jurisdictions treat variable pay as part of the employee’s remuneration, protect acquired rights, and require that variable pay be included in the calculation of statutory entitlements. A plan that works in the United States may create unexpected liabilities when rolled out globally without local review.
Bonus Plans: The Payout Date Is Not Always the Deciding Factor
Many U.S. bonus plans require that the employee be actively employed on the payout date to receive a bonus. In a number of jurisdictions outside the United States, that condition may not be enforceable—or may be enforceable only in limited circumstances. Where a bonus is viewed as compensation for work already performed during the bonus period, employees who leave before the payout date, particularly where the employer terminates the relationship, may be able to claim the full bonus or a pro-rated portion of it, notwithstanding the plan language.
A related risk is the concept of acquired rights or implied terms. Where a bonus has been paid consistently, on the same basis, year after year, courts in many countries may treat it as an established term of employment—even where the plan describes it as discretionary. Once that happens, it can be difficult to reduce, change, or withdraw the bonus without employee consent, consultation, or a compensatory payment. Clearly and repeatedly communicating the discretionary nature of bonuses, having a new bonus plan issued every year, varying the criteria where appropriate, and documenting that each award is a one-time decision can be helpful tools in avoiding the presumption that bonus terms are immovable.
Equity: Who Issues the Stock, and Where It Is Mentioned, Matters
Equity awards are a core part of compensation for many U.S. companies, but they do not always translate abroad. In some countries, offering actual equity to local employees is restricted or impractical due to exchange controls, securities rules, or registration requirements. China is a common example. In these jurisdictions, companies often use phantom or ghost equity as a workaround—awards that track the value of the company’s stock but are settled in cash rather than shares. Phantom plans raise their own issues, including tax treatment, payroll withholding, and whether the cash payments become part of the employee’s salary for other purposes.
In addition, which entity is issuing the stock—whether the parent company or a subsidiary—is an important matter for U.S. employers. Equity is typically granted by the U.S. parent, while the employee is employed by a local subsidiary. If the local employment contract promises or describes the parent’s equity awards, the employee may argue that the parent is a joint employer or co-employer—potentially exposing the parent to local employment claims and making the equity award part of the employee’s contractual remuneration. In some cases, it may be advisable not to refer to equity in the employment contract at all, and instead to reference it only in a separate side letter or award agreement issued directly by the U.S. parent, making clear that participation is governed by the parent’s plan and is not part of the local employment relationship.
Commission Plans: The Ripple Effect on Other Benefits
Commission plans can have consequences well beyond the commission payment itself. In many jurisdictions, commissions are treated as part of the employee’s regular remuneration and must be taken into account when calculating vacation pay, termination indemnities, end-of-service payments, and other leave entitlements. The calculation is often based on the employee’s average earnings—including commissions—over a defined reference period, such as the preceding three or twelve months.
The practical consequence is significant: An employer that budgets only for the commission payments themselves may materially underestimate the true cost of a commission plan, and may face underpayment claims for vacation pay or severance if the local rules are not followed. Employers should understand these rules before offering commissions in a new jurisdiction, and build them into payroll processes from the outset.
A 2026-Ready Strategy
U.S.-based multinational employers rolling out global compensation plans covering employees working outside the United States may want to ensure those plans:
- are reviewed locally to confirm whether payout-date and active-employment conditions are enforceable;
- clearly document the discretionary nature of bonuses to reduce acquired rights risk;
- confirm whether equity can be offered in each country and use phantom or cash-settled alternatives where it cannot;
- keep equity references out of local employment contracts where appropriate, using a side letter from the U.S. parent to manage co-employment risk; and
- account for the impact of commissions on vacation pay, termination and end-of-service payments, and other leave entitlements before commission plans are introduced.
Compensation plans have local rules. Payout conditions, past practice, equity restrictions, and statutory benefit calculations can all override the terms of a well-drafted U.S. plan.
A global compensation template cannot absorb the complexity of international employment law. A global compensation strategy can.
Ogletree Deakins’ Cross-Border Practice Group will continue to monitor developments and will post updates on the Cross-Border and Employee Benefits and Executive Compensation blogs as additional information becomes available.
Shirin (Aboujawde) Gudgin is a shareholder in the New York office of Ogletree Deakins, and a partner in the firm’s London office.
Peg Ventricelli, a practice assistant in the Stamford office of Ogletree Deakins, contributed to this article.
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