And speaking of skin in the game brings me to the case of Chandrashekarappa v Wipro Ltd, the Employment Appeal Tribunal considered whether an employer was liable for unlawful deductions from wages where an employee had established an entitlement to a bonus before the employer attempted to apply a cap to the amount payable.

Mr Chandrashekarappa was employed as a Practitioner Sales Farmer in the Cloud and Infrastructure Services (CIS) Division of Wipro Ltd.

The employer’s incentive arrangements were set out for each financial year in what was known as the Variable Pay Plan. The VPP encompassed Sales Incentive Policies (SIPs) which provided for varying bonus entitlements depending on occupation and individual circumstances. Following each VPP,  SIPs were then issued on an individual basis. In addition, the employer also paid ad hoc bonuses that were not subject to any documented scheme or process. Incentive payments were calculated in US dollars but paid in the relevant employee’s local currency.

In March 2020, Mr Chandrashekarappa attended a VPP presentation, which took the form of a slide deck. One slide contained a footnote stating that a kitty of up to 1% of new invoicing in the first 12 months could be paid to CIS role holders who contributed to deal wins, subject to Sector Lead Head (SLH) approval. This was known as a “kitty bonus”.

Before the VPP presentation, Mr Chandrashekarappa’s line manager, Mr Garg, told him that if he secured a contract with the John Lewis Partnership, he would receive the new kitty bonus and that it would “probably make him one of the highest-paid sales people globally”.

On 26 June 2020, Mr Chandrashekarappa concluded the JLP deal. On 1 July 2020, Mr Garg asked Mr Desai (Senior VP and Global Head) to approve payment of the kitty bonus to Mr Chandrashekarappa. Mr Desai approved the request almost immediately, replying, “I am ok. Go ahead.” Mr Garg then referred the matter to Mr Khosa (Head of HR), with the message, “pls inform the relevant folks”, although at that stage there was no mention of the bonus amount because the first year's invoicing from JLP was not yet known.

On 14 July 2020, Mr Garg wrote to Mr Desai and Mr Khosa with suggested wording for a congratulatory email to Mr Chandrashekarappa, which was intended to accompany payment of the kitty bonus. Mr Desai replied that he would only send the email once more senior managers had approved the bonus. Mr Khosa stated that he was “getting the details on mechanics of the payout so that we can set clear expectations”. On 15 July 2020, Mr Khosa was advised by Ms Ramachandran, who dealt with compensation and benefits, that payment of the bonus was subject to approval from the Head of DOP and CIS and a cap of US$150,000.

On 20 October 2020, Mr Chandrashekarappa received draft figures showing the calculation of his bonus, although these made no mention of the US$150,000 cap. Reference to the cap was subsequently made in the new H2 SIP Plan, which he was able to access on 23 October 2020, and in an email from Mr Garg confirming management approval of the bonus on 15 December 2020.

The bonus, calculated on the basis of the capped sum of US$150,000, was paid to Mr Chandrashekarappa in February 2021. He did not question his entitlement to the kitty bonus until July/August 2021. JLP’s first-year revenues were not known until December 2021, when it was established that, without the cap, his bonus would have been £516,082.

Mr Chandrashekarappa brought a claim in the Employment Tribunal for unlawful deductions from wages, arguing that he was entitled to the full amount.

The ET dismissed the claim. It held that the key issue was whether the kitty bonus had crystallised into a quantifiable legal entitlement, subject only to calculating the value of the invoicing, when Mr Desai approved the 1% payment on 1 July 2020. The ET found that it had not. It reasoned that, although Mr Desai had indicated his willingness to approve the payment, his reference to requiring further approval from more senior managers demonstrated that he did not consider himself to have the final authority to authorise the bonus. Accordingly, the ET concluded that Mr Chandrashekarappa did not acquire a legal entitlement to a quantified or quantifiable bonus until 15 December 2020, when the decision was formally communicated to him.

Mr Chandrashekarappa appealed to the Employment Appeal Tribunal, arguing that he acquired a legal entitlement to a quantifiable bonus on 1 July 2020 when Mr Desai approved Mr Garg’s recommendation that he receive the full 1% of JLP’s revenues. He contended that the employer could not subsequently impose further approval requirements or apply the US$150,000 cap, as neither formed part of the scheme communicated in March 2020.

The EAT allowed the appeal and held that Mr Chandrashekarappa was entitled to 1% of JLP’s first 12 months’ revenues, less the sterling equivalent of the US$150,000 already paid. It found that the ET had erred by failing to consider the effect of the March 2020 VPP presentation and Mr Desai’s approval on 1 July 2020. Once Mr Desai approved Mr Garg’s recommendation, Mr Chandrashekarappa acquired a legal entitlement to the kitty bonus, subject only to calculating JLP’s first-year revenues. The employer could not subsequently introduce additional conditions, including further management approval or the US$150,000 cap, as these did not form part of the original bonus arrangements.

In conclusion, this decision highlights the importance of ensuring that bonus and incentive arrangements are clearly documented and communicated before they are approved or become contractually binding. The case serves as a reminder that, once an employee has acquired a legal entitlement to a bonus, additional conditions or limitations cannot be imposed retrospectively unless they formed part of the original scheme. Employers should therefore ensure that any approval processes, eligibility criteria and payment caps are clearly incorporated into bonus documentation and communicated to employees before any entitlement arises, thereby reducing the risk of unlawful deductions from wages claims.