Variable compensation: Why the "discretion" regarding bonuses can be costly for foreign skilled workers

In the current political debate surrounding Germany's modernization, the shortage of skilled workers is a frequent and heated topic. The federal government under Chancellor Merz regularly emphasizes how crucial highly qualified immigrants are for the country's economic stability. However, while political discussions focus on visa acceleration and digitalization, true integration and appreciation often unfold in the details of everyday work life – more precisely, in the employment contract . For many highly qualified expats who come to Germany as engineers, IT specialists, or managers, the salary package is the decisive factor . Variable compensation systems are the norm. But what happens when the promised reward for hard work is suddenly reduced to a mere formality for superiors? A recent ruling by the Hessian State Labor Court (LAG Hessen) demonstrates that German companies can no longer hide behind vague formulations when drafting bonus clauses.

In our legal practice, we repeatedly observe that top foreign executives, in particular, sign contracts containing clauses regarding "discretionary bonuses." They trust in the fairness of their German employers. However, the Hessian Regional Labor Court (LAG Hessen) clarified in its decision of May 9, 2025 (Case No. 14 SLa 681/24) : The unilateral determination of a bonus at "discretionary discretion" is invalid under the law governing standard business terms and conditions. This is a landmark ruling for the German corporate landscape and an important signal for all employees who expect fair and transparent compensation for their performance.

When the law fills the contractual gap: From arbitrariness to fairness

The problem with many bonus agreements lies in their one-sidedness. If a contract states that the supervisor determines the amount of a special payment at their own discretion, this deviates from the legal principle of Section 315 Paragraph 1 of the German Civil Code (BGB) . The law requires that performance-related decisions be made according to "reasonable discretion ." The word "freely" suggests unlimited decision-making power, which is simply not permissible under German labor law to protect the weaker party – the employee. The court considered such formulations to constitute an unreasonable disadvantage under Section 307 of the German Civil Code (BGB).

For highly qualified professionals from abroad, this legal nuance is of enormous importance. The invalidity of the clause does not mean that the bonus entitlement is completely forfeited. On the contrary, it creates a gap in the contract that must be filled by law. The invalid "free" decision is replaced by the obligation to determine the bonus at the employer's reasonable discretion, as stipulated in Section 315 of the German Civil Code (BGB) . This means that the employer must now objectively justify their decision and adequately consider the employee's interests. If they cannot do so, or if a court deems the determination unfair, the court may set the bonus amount itself. Particularly with uncapped bonus entitlements, which are common in management positions, this can lead to unexpectedly high and costly back payments for companies.

What does "cheap discretion" mean for career planning?

As a law firm that deals daily with the concerns and needs of international talent, we expressly welcome this development. "Fair discretion" is not merely a buzzword, but a verifiable legal concept. It requires a consideration of all relevant circumstances of the individual case. These include individual performance, the achievement of agreed targets, and also the principle of equal treatment compared to colleagues.

We are particularly critical of the practice where employers use the company's economic difficulties as a pretext to reduce bonuses to zero, even when the employee has exceeded their personal targets. According to the principles of fairness, entrepreneurial risk cannot be unilaterally shifted onto the employee. If achieving agreed-upon targets was objectively impossible or prevented by external factors despite full commitment, this should generally not negatively impact compensation. This legal certainty is essential for expats, who have often relocated their entire lives to Germany. They did not come here to find themselves at the end of a successful year begging before a supervisor who invokes "discretionary power."

Documentation as a protective shield for employees

The decision of the Hessian Regional Labor Court underscores that employers now face a significantly higher documentation burden . They must explain which parameters led to the bonus calculation. We therefore strongly advise our clients to meticulously document all successes, performance reviews, and feedback throughout the current year. This documentation will be invaluable in any potential legal proceedings, as the court can only consider the circumstances that are presented to it.

A transparent bonus is not just a financial aspect, but a sign of a genuinely welcoming culture. In times of intensified competition for top talent, German companies can no longer afford to squander valuable trust through legally questionable and opaque compensation systems. Those who want to retain skilled workers must fairly share their company's success with them and must not exploit legal loopholes as a cost-cutting measure.

Conclusion: A victory for transparency

The ruling by the Hessian Regional Labor Court (LAG Hessen) is a clear wake-up call. Clauses that allow for bonuses to be determined "at the employer's discretion" are legally worthless and pose an enormous financial risk for employers. This is good news for highly qualified foreign workers: they now have stronger recourse to have unfair bonus decisions reviewed in court. A bonus is not charity, but a contractually guaranteed component of wages that is subject to fair scrutiny.

How we, as a law firm, can support you with Visaguard

As a specialized law firm in immigration and employment law, we not only guide you through the complexities of visa applications, but also safeguard your professional future in Germany. We review your employment contracts for invalid bonus clauses before you sign them and vigorously represent your interests if your employer attempts to reduce agreed-upon benefits under the guise of "discretion." With our expertise behind you, you can focus on what matters most: your career and your life in Germany. Trust a firm that prioritizes legal certainty for international talent.

→ Book an appointment now and receive a response within 48 hours