April 2026
Variable remuneration has become, over recent decades, one of the central instruments of human resources policies. Bonuses, performance‑based incentives, remuneration linked to individual performance or corporate results are commonly presented as effective mechanisms to align interests, boost productivity and attract and retain talent in increasingly competitive environments. However, alongside this widely accepted business narrative, the legal reality paints a far more complex — and in many respects contradictory — picture.
In some cases, far from operating as a clear and effective incentive, variable pay has become a recurring source of litigation. This raises the question of whether it still fulfils the motivational function traditionally attributed to it, or whether, on the contrary, it is gradually evolving into a form of remuneration which, subject to multiple conditions and judicial protection, is increasingly tending towards consolidation as enforceable salary.
Disputes relating to variable remuneration now often concern core aspects of its design. Among the most frequent issues is the impact of termination of the employment contract for any reason — not only before the payment date, a matter largely settled by recent case law — but also situations where the employee leaves the company before the end of the relevant calendar year, particularly in annual incentive schemes. The requirement to remain “in service” on a specific date — typically 31 December — has been subject to extensive judicial scrutiny, with courts increasingly questioning such clauses where the employee has effectively contributed to the achievement of objectives over a significant part of the year. This has led to debate — not always straightforward — as to whether pro‑rata payment based on time worked during the year is permissible or not.
In recent years, following the entry into force of Law 15/2022 of 12 July, this issue has been compounded by the overlap between the incentive accrual period and situations of temporary incapacity, maternity, paternity or other forms of protected inactivity. Case law has progressively developed a kind of “remunerative immunity”, requiring employers in certain cases to neutralise the negative impact that such situations may have on the receipt of incentives. From the perspective of equality and non‑discrimination — particularly in situations linked to work‑life balance — this approach appears coherent. From an incentive logic, however, it introduces a clear tension, as it partially disconnects variable pay from actual performance or effective presence at work. This makes careful design of remuneration systems essential: illness cannot be used to penalise the payment of variable pay, but nor can effort be rewarded where it has not been made due to absence during a period of temporary incapacity.
The use of subjective evaluation criteria is also particularly problematic. Schemes based on qualitative assessments, behavioural competencies or discretionary appraisals by line managers — common in business practice — are increasingly being challenged by the courts when they lack sufficient objectivity, documentation or verifiability. The risk of arbitrariness — and, in some cases, indirect discrimination — has led to increasingly intensive judicial scrutiny of both the design and implementation of such plans.
As a result, the courts are no longer limiting themselves to verifying whether the incentive has been correctly calculated. They are increasingly examining the suitability of the system itself, the reasonableness of the objectives, the proportionality of the distribution and the adequacy of the information provided to the employee.
In this context, the need to introduce objectivity into variable remuneration has become unavoidable. Systems based on opaque formulas, shifting objectives or criteria unilaterally redefined by the employer are at risk of being challenged and invalidated by the courts as incompatible with the principles of legal certainty.
This requirement for objectivity significantly narrows the employer’s margin of flexibility — which is, in practice, necessary in this area — and forces a redefinition of many remuneration models. Paradoxically, the more legal safeguards are built around variable pay, the more its operation comes to resemble that of fixed remuneration, thereby losing some of its essential incentivising character.
To this scenario will likely be added a new cycle of litigation arising from the transposition of the Pay Transparency Directive. Increased obligations concerning information, justification and pay comparison will have a direct impact on variable remuneration systems, particularly where there are significant differences between employees or groups.
The requirement to explain pay‑setting criteria, justify pay differentials and ensure equal pay for work of equal value will subject incentive schemes to additional scrutiny, not only on an individual basis but also at collective level. Bonus plans will no longer be assessed exclusively through a contractual lens but will increasingly be examined from a workforce‑wide perspective, with direct implications for the gender pay gap and the internal coherence of remuneration policies.
Far from reducing conflict, transparency — essential though it is from a rights‑based perspective — may intensify it if variable remuneration systems are not carefully designed, a point of critical importance in the current legal landscape.
All of this leads to a necessary reflection: does variable remuneration still function as a genuinely motivational tool?
The judicial trend towards protecting entitlement, neutralising risks arising from circumstances beyond the employee’s control and requiring ever‑higher levels of objectivity and transparency is producing a form of quasi‑consolidation of variable pay. Not a formal consolidation, of course, but rather the creation of an increasingly robust salary expectation, the loss, modification or withdrawal of which is often difficult to justify before the courts.
In this context, incentives lose part of their genuine variability and, with it, some of their motivational potential. The risk is clear: a variable salary that barely varies, generates high administrative costs and becomes a permanent source of legal disputes may ultimately be rejected by employers — to the detriment of employees themselves.
Finally, it is important to emphasise that variable remuneration remains a relevant tool in people management. However, it requires professional, carefully measured design, supported by proper legal advice and underpinned by a sufficient degree of objectivity. Jurisprudential and regulatory developments compel us to reconsider its real function and to accept that it cannot simultaneously pursue a strong motivational purpose while achieving the highest standard of legal protection without falling into contradiction.
The challenge is not to eliminate variable remuneration, but to design it properly, with a clear understanding of its limits. Otherwise, what was originally conceived as an instrument of flexibility and motivation risks becoming one of the most stable — and costly — sources of legal uncertainty in employment relationships.
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