What This Form Does

This Bonus Plan establishes a structured framework for discretionary and performance-based bonus compensation at your startup. It replaces informal promises and ad hoc year-end decisions with a documented plan that sets clear expectations, defines measurable performance criteria, and creates legally defensible payout mechanics.

The plan covers individual performance bonuses, team and company-wide bonus pools, milestone bonuses tied to specific business events (product launches, fundraising closes, revenue targets), retention bonuses, and sign-on bonus structures with repayment obligations.

Why Startups Need This

Bonus disputes arise when employees believe they have earned a bonus that the company considers discretionary. Without a written plan clearly reserving discretion, courts in many jurisdictions will look at past practice, oral promises, and offer-letter language to determine whether a bonus obligation exists. A well-drafted bonus plan preserves the company’s flexibility while giving employees transparency into how bonus decisions are made.

The template also addresses the interaction between bonus compensation and equity — critical for startups where total compensation packages blend cash bonuses with stock options, RSUs, or profits interests. Clear documentation prevents double-counting arguments and ensures bonuses complement rather than conflict with equity incentive plans.

Key Provisions

Eligibility & Enrollment. Defines which employees participate, minimum service requirements, and how new hires and internal transfers are handled mid-cycle. Includes provisions for contractor exclusion that reinforce proper worker classification.

Performance Metrics & Weighting. Establishes the framework for setting individual, team, and company-level performance goals. Includes both quantitative metrics (revenue, ARR, NRR, customer acquisition) and qualitative assessments, with defined weighting and scoring methodologies.

Bonus Pool Funding. Addresses how the aggregate bonus pool is determined — whether as a percentage of revenue, EBITDA, or a board-approved budget — and how individual allocations are calculated within the funded pool.

Payout Timing & Method. Specifies when bonuses are calculated, approved, and paid. Includes provisions for interim payments, quarterly installments, and deferred bonus structures with vesting schedules.

Proration. Covers partial-year participation due to hiring, promotion, leave of absence, or role changes. Includes special rules for parental leave and disability that comply with anti-discrimination requirements.

Clawback & Repayment. Provides for bonus recovery in cases of financial restatement, misconduct, or early departure within a defined period. Sign-on bonus repayment schedules include declining-balance mechanics that reflect time served.

Separation Treatment. Defines whether departing employees receive prorated bonuses, forfeit unpaid amounts, or are subject to good-leaver/bad-leaver distinctions. Includes state-specific carve-outs for jurisdictions that treat earned bonuses as wages.

2025–2026 Emerging Provisions

Fundraising Milestone Bonuses. Addresses bonus triggers tied to successful financing rounds, with mechanics for determining the measurement date, handling bridge financing, and preventing manipulation of closing timelines.

AI-Driven Performance Scoring. Establishes guardrails for companies using AI tools to evaluate employee performance for bonus purposes, including transparency requirements, human-override provisions, and bias-audit obligations.

Remote & Hybrid Workforce Adjustments. Provides for geographic pay differentials in bonus calculations and addresses multi-state tax withholding on bonus payments for distributed teams.

How to Use This Template

Download the .docx file and complete all bracketed fields. Start with the Matter Control Sheet to define plan period, eligible roles, performance metrics, and payout timing. The plan should be adopted by board resolution (or manager action for LLCs) before the performance period begins to preserve the company’s discretion arguments.

Distribute the plan to eligible participants and obtain signed acknowledgments. Review the plan annually — both to update performance metrics and to ensure continued compliance with evolving state wage-payment laws.

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This template is provided for informational and educational purposes only and does not constitute legal advice. Consult a qualified attorney licensed in your jurisdiction before using any legal document. Montague Law provides this resource as part of the largest free open-source startup legal template library.