Variable Remuneration: Whoever Fails to Communicate Company Targets in Time Owes the Full Bonus (Federal Labour Court, 10 AZR 28/25)

The case concerns a manager who, in addition to her fixed salary, was entitled to variable remuneration based on internal company key figures, the specific targets of which, however, were not brought to her attention by the employer for the relevant period. The Federal Labour Court (Bundesarbeitsgericht, BAG) ordered the employer to pay full damages in the amount of the lost bonus on account of the failure to communicate these company targets.

The BAG's judgment of 22 April 2026 (10 AZR 28/25) noticeably sharpens the duties and risks in the law of variable remuneration to the detriment of unprepared companies. First, the court makes clear that the burden of initiative for setting targets lies exclusively with the employer, so that employees have no duty to object or to enquire if management remains inactive. Purely internal board resolutions or earnings targets defined in the books of the management are expressly not sufficient, since company targets are an obligation to deliver actively and must be communicated transparently to bonus-eligible employees. Because targets by definition have a motivational and performance-steering function, a retroactive determination after the end of the performance period is impossible, so that the omission turns into a definitive breach of duty. If the company cannot prove in a dispute that the targets were disclosed in time, the court's estimate of damages applies in the employee's favour, which – absent other indications – regularly assumes hypothetical target achievement of 100 %. An economically poor financial year does not relieve the employer of this strict liability after the fact.

Entrepreneurs must therefore mandatorily record the determination of variable remuneration parameters as a strategic deadline in their own calendar and document the receipt of the target specifications in a timely and legally secure manner. The timely and verifiable communication of variable bonus targets is not a matter of bureaucratic discretion but a financial liability trap.

Whoever does not actively communicate the targets before the start of the performance period ends up paying the full bonus – even if the company is making losses or the employee never actively demanded that targets be set.