Many employees focus almost entirely on the severance payment when facing a termination or being offered a severance agreement (Aufhebungsvertrag). What often gets overlooked: variable compensation, bonus, profit sharing (Tantieme) and commission can make up half of the annual income in some roles - and are therefore at least as important in negotiations as the severance itself. Anyone who does not know these rights, does not secure them, or asserts them too late may lose far more money than expected.
This article is aimed at executives, senior employees and highly qualified professionals who have received a termination or have been presented with a severance agreement - and who want to understand what really applies to variable compensation in the context of executive termination and executive severance.
What actually counts as variable compensation?
The term "bonus" is often used as an umbrella term in everyday language. Legally, however, there are significant differences - and these determine whether you have a claim or not.
Bonus is a generic term for additional components of compensation on top of the fixed base salary. In practice, a variety of labels are used: bonus, profit sharing (Tantieme), premium, performance allowance or variable compensation. The label itself is not decisive - what matters is the substance of the arrangement.
In essence, case law distinguishes between:
- Performance-based bonus: Linked to individual target achievement or company performance. It is treated as compensation - it remunerates the work performed.
- Profit sharing (Tantieme): Often paid to executives and senior employees, typically based on company profit or EBIT. It can be structured as a short-term incentive (STI) or long-term incentive (LTI, over several years).
- Commission: Variable compensation directly linked to individual performance (revenue, deals closed), particularly in sales.
- VSOP / virtual participation programmes: Common in start-ups and growth companies. In 2025, the Federal Labour Court (Bundesarbeitsgericht, BAG) strengthened the compensation character of virtual stock options and significantly restricted forfeiture clauses.
| Compensation type | Legal character | Entitlement upon termination | Key risk |
|---|---|---|---|
| Performance-based bonus | Remuneration character | Pro-rated (pro rata) - as-of-date clauses are often ineffective | Voluntariness reservation may exclude entitlement |
| Profit-sharing bonus | Remuneration or equity character | Pro-rated, if performance-related - case-dependent in LTI structures | If the termination agreement is silent on it, the entitlement may be unclear |
| Commission | Remuneration character | Surplus commissions from completed transactions remain | Proof of performance required |
| Bonus / 13th month pay | Loyalty or remuneration character depending on agreement | Proportional, in terms of remuneration character; may be forfeited for a pure loyalty bonus | A cut-off-date rule may be permissible |
| VSOP / virtual options | Remuneration character (BAG 2025) | Vested shares remain - broad forfeiture clauses are often invalid | Complex - always examine individually |
Are you still entitled to a bonus after termination?
In many cases, yes - at least on a pro rata basis. The key issue is whether your bonus has the nature of remuneration (Vergütungscharakter).
The pro rata principle: Time-based entitlement
If an employee leaves during the reference period, they are regularly entitled to a pro rata bonus (pro rata temporis), provided the bonus has the character of remuneration. If, for example, the employee works eight out of twelve months of the financial year, they are entitled to 8/12 of the bonus. This also applies in the case of a termination by the employer and is central when discussing a bonus after termination.
To calculate the pro rata amount, the special payment is based on the past period of employment and a performance forecast. For the pro rata bonus, it is assumed that the employee would have maintained the same level of performance until the end of the year.
Cut-off date clauses: Often invalid
Your employer may refer to a clause stating that the bonus is only payable if the employment relationship still exists on a specific cut-off date - for example, on 31 March of the following year. This is a common pattern. But:
The BAG differentiates according to the nature of the bonus: If the bonus is purely remuneration (it compensates the work performed during the reference period), a cut-off date clause is invalid because it unreasonably disadvantages the employee (BAG, 18.01.2012 - 10 AZR 612/10). If the bonus is purely a loyalty reward for staying with the company, a cut-off date clause may be permissible. For mixed forms, it depends on which aspect predominates.
In practice, most bonuses have the character of remuneration, which means cut-off date clauses are often invalid.
The Federal Labour Court clarified again in its decision of 15 November 2023 (10 AZR 288/22): Employees can be entitled to bonus payments even after they have resigned themselves, if the bonus has already been earned through work performed. Employers may not introduce rules that impermissibly restrict these rights.
Reservation of voluntariness: A real exclusion of claims
Unlike a cut-off date clause, an effective reservation of voluntariness can actually exclude a legal claim. Such a reservation can in principle be valid, but it must not contradict a specific bonus promise in the employment contract. If the contract, on the one hand, promises a bonus and, on the other hand, contains a broad reservation of voluntariness, this reservation is invalid.
In addition, the following applies: A company practice - payment without reservation over at least three years - can create a legal entitlement that the employer can no longer unilaterally abolish.
Special rules for target agreements
If your employer has not concluded a target agreement with you for the current year, this is not a free pass to withhold payment. Where no specific agreement has been made and it was not clearly recognisable to you which targets you had to meet, prevailing case law allows you to claim damages for the lost bonus. This can generally be claimed up to the amount of a bonus at 100 percent target achievement.
Important: As an employee, you must point out the missing target agreement to your employer in order to avoid being blamed for contributory negligence and to assert your claim in full.
Interactive calculator: How high could your pro rata bonus be?
The following calculator gives you an initial indication of your potential pro rata bonus entitlement after termination. Important: It does not replace a legal review of your specific contract clauses.
What applies to commission and profit sharing after termination?
Commission: Secure overhang commission
Commissions are another form of variable compensation that directly reflect individual performance. In the event of termination, the following applies: You can assert your rights to so-called overhang commissions even after the end of the employment relationship. This is particularly relevant in disputes about commission after termination.
This means: If you initiated or concluded a deal that gives rise to a commission, these claims generally remain in place - even if the employment relationship ends. You should therefore carefully document all completed deals and customer contacts before you leave the company.
Profit sharing for executives: Complex, but not lost
Especially for executives, out-of-tariff employees and senior managers, compensation is far more than just base salary. Stock options, virtual participation schemes (VSOP), bonuses and profit sharing (Tantiemen) often account for a substantial share of the total compensation package.
For multi-year LTI profit sharing, the following applies: If the profit share is primarily performance-based, a pro rata participation for the period up to the date of leaving may be considered - at least if there is no effective clause providing otherwise. This can be a central lever in executive termination and executive severance negotiations.
Warning: Limitation periods run independently of the ongoing separation process. Many employment contracts contain clauses stating that claims expire if they are not asserted in writing within a certain period (often 3 months after they become due) and, where applicable, sued. This also applies to bonus, commission, and profit-sharing claims—even if a termination agreement is still being negotiated. Therefore, do not wait.
The critical risk: Severance agreements and settlement clauses
For executives and specialists with high variable compensation, the following situation is one of the most expensive pitfalls of all:
The most dangerous clause in the termination agreement: A formulation such as "By signing this agreement, all mutual claims arising from the employment relationship and its termination are settled" can also cover outstanding bonus entitlements, commissions, and profit-sharing payments - even if these are not mentioned in the contract. Anyone who signs here, without bonuses and variable compensation being explicitly regulated, risks significant financial losses.
How real this risk is can be seen from a typical scenario: An executive signs a severance agreement (Aufhebungsvertrag) containing a broad settlement clause without addressing the outstanding annual bonus. Later, they try to sue for the bonus. Courts often interpret general settlement clauses very broadly. The bonus claim may then be deemed settled - even if it is not explicitly mentioned in the agreement.
What must be addressed in the severance agreement?
If you receive a severance agreement, the following points relating to variable compensation should be explicitly clarified:
- Current financial year: Is the pro rata bonus for the year of departure regulated? With what amount or according to which formula?
- Previous financial year: Is there an outstanding bonus from the previous year that has not yet been paid?
- Commissions: Which commission claims for completed or ongoing deals are still outstanding?
- Profit sharing / LTI: Are current profit-sharing periods covered and regulated?
- VSOP / options: Which vested interests exist and how are they treated?
The negotiated pro rata bonus should already be fixed as a specific amount in the severance agreement - instead of waiting until the usual payment date, which is often not until the spring of the following year. This protects you from later disputes about the amount.
Garden leave and variable bonus
Many separations involve a period of garden leave. The good news: Garden leave generally has no impact on bonus entitlements that have already been earned. The pro rata entitlement for the period of active employment remains in place.
However, make sure that the terms of the garden leave - especially if it is offset against holiday or overtime - do not unintentionally affect other claims. This should also be carefully reviewed as part of the severance agreement.
You can find more on what to consider in a severance agreement in our article Have your severance agreement reviewed: What really matters in terms of severance, waiting periods, garden leave and legal expenses insurance.
Limitation and forfeiture periods: The most underestimated trap
Warning: Limitation periods run independently of the ongoing separation process. Many employment contracts contain clauses stating that claims expire if they are not asserted in writing within a certain period (often 3 months after they become due) and, where applicable, sued. This also applies to bonus, commission, and profit-sharing claims—even if a termination agreement is still being negotiated. Therefore, do not wait.
Many employment contracts contain two-stage forfeiture periods - for example: "Claims shall lapse if they are not asserted in writing within three months and, if rejected, brought before the courts within a further three months." Such clauses are generally permissible, must not cover statutory non-waivable claims, and must be transparent and comprehensible. If you miss these deadlines, your claim can actually lapse - even if, on the merits, you would have had a right.
This has immediate consequences for your strategy: Do not wait until the severance agreement is finalised. If your bonus will soon fall due or is already due, you must keep an eye on the contractual forfeiture period.
Variable compensation as a negotiation lever
Executives often think first of the severance payment when negotiating a separation package. But variable compensation can significantly increase or decrease the overall value of a settlement.
What can typically be negotiated in the context of bonus after termination and profit sharing termination:
- Pro rata bonus for the current year (basis: target achievement forecast or a pragmatic assumption of 100% target achievement)
- Full bonus for the completed financial year that has not yet been paid
- Clear regulation of commission and open customer-related claims
- Treatment of ongoing LTI tranches or VSOP entitlements
- Due date of bonus payments: Make sure payments fall due before unemployment benefits (ALG) start, to avoid offsetting issues under §§ 157, 158 SGB III
What this means for your position: If your employer faces significant litigation risk (for example, because the termination is legally vulnerable), legitimate variable compensation claims provide another argument to negotiate a global package. You can find more on the strategic big picture in our article Termination as an executive or senior manager: How to assess severance and severance agreements strategically.
Legal expenses insurance: Does it also cover bonus disputes?
If you have legal expenses insurance that includes employment law coverage, the question arises: Will the insurance also cover disputes about variable bonus, commission or profit sharing?
In many cases, yes - but it depends on the specific insurance contract. The following is important:
- Ask early: Submit the coverage request before instructing a lawyer to take legal action.
- Specify the subject matter of the dispute clearly: Bonus claims in connection with a termination, commission after termination, or a severance agreement typically fall under employment law coverage.
- Pre-contractual disputes: If the claim arose before the insurance policy began, the insurer may refuse coverage.
Our article Legal expenses insurance in case of termination: What the insurer pays and how to obtain coverage confirmation explains everything you need to know.
What you should do now: A practical checklist
If you have received a termination or a severance agreement is on the table, you should quickly clarify the following points regarding your variable compensation:
- Review and save your employment contract and all appendices (bonus plan, target agreement, VSOP documents)
- Identify outstanding bonus entitlements for the current and the previous financial year
- Check forfeiture periods in the employment contract - from when does the period for due claims start to run?
- Have cut-off date clauses and reservations of voluntariness reviewed for validity
- Copy and secure commission records for completed or ongoing deals
- Have the severance agreement reviewed before signing to ensure all elements of variable compensation are addressed
- Settlement clause in the severance agreement: Do not sign a broad settlement clause without explicitly carving out open variable compensation claims
- Legal expenses insurance: Keep your policy handy and prepare a request for coverage
Conclusion: Bonus is compensation - and belongs in the negotiation
In some executive positions, variable compensation accounts for more than half of the total compensation. Anyone who negotiates only the severance payment in the context of executive termination or executive severance - and leaves bonus, profit sharing and commission unaddressed - often gives away a substantial portion of the potential result.
The key points at a glance:
- Performance-based bonuses are compensation - cut-off date clauses are often invalid for these bonuses.
- Pro rata temporis: For the months worked, you are usually entitled to a pro rata share.
- Reservations of voluntariness can exclude a claim - but not always and not without limits.
- Severance agreement: Broad settlement clauses also cover variable compensation. Have these clauses reviewed before you sign.
- Forfeiture periods run regardless of ongoing negotiations - act in good time.
- Legal expenses insurance: Clarify coverage at an early stage.
The employment law advisory services at Vectocon provided by Christopher Hutz, specialist lawyer for employment law, focus precisely on these economically relevant issues: termination, severance agreements, bonus and commission disputes, and separation structuring for executives and highly qualified professionals. We do not just check whether you can sue - we assess what is economically sensible in your specific situation of variable compensation termination.
Frequently asked questions: Bonus after termination
Do I still have a claim to my annual bonus after termination?
Basically yes - at least pro-rated. If your bonus has a compensation character (it remunerates the work you have performed), you are entitled to a pro-rated bonus for the months you have worked. Cut-off clauses that completely exclude this entitlement are frequently invalid with performance-based bonuses according to the jurisprudence of the Federal Labour Court. What matters is the specific design of your employment contract.
What happens to my bonus if I am released from duties?
A release from duties generally has no effect on already earned bonus claims. The entitlement to a pro-rated variable remuneration remains. However, with a lawful release from duties, for which the employment contract provides the appropriate authorization, it can be more complicated - especially if bonus clauses are expressly tied to active work performance. A legal review is advisable.
Will I lose my bonus if I sign a severance agreement?
Yes, that is a real risk. Many severance agreements contain blanket settlement clauses that declare all mutual claims settled. This can also cover outstanding bonus claims, commissions, and profit-sharing bonuses - even if they are not explicitly mentioned. Therefore, be sure to have your variable pay claims expressly secured or excluded in the severance agreement before you sign.
Can my employer deny the bonus through a voluntary waiver?
An effective voluntary waiver generally excludes a legal claim to the bonus. However, there are important limitations: The waiver must not conflict with a concrete bonus commitment in the employment contract. Additionally, a company practice - paying without reservation for at least three years - may have created a legal entitlement that the employer cannot unilaterally remove. Here as well, an individual assessment is decisive.
What happens to commissions after termination?
For completed deals in which you, as an employee, earned commissions, your commission claims generally remain - also after termination. These so-called tail commissions can still be asserted after the end of the employment relationship. It is important to secure the relevant evidence and to keep an eye on exclusion deadlines.
When does my bonus claim expire?
Many employment contracts contain two-stage limitation periods: Claims must first be asserted in writing within a certain period (often three months after becoming due) and, if necessary, then brought within another period. If these deadlines are missed, the claims can expire permanently - regardless of whether they would be substantively justified. Therefore, be sure to secure claims in a timely manner, even if negotiations are ongoing.
Does legal protection insurance cover a dispute about the bonus after termination?
It depends on your insurance contract and the specific dispute. Many legal protection insurances with employment protection cover disputes about variable pay claims related to a termination. Check your policy early and clarify the coverage question—ideally before the first attorney's letter.
