Performance Unit Award Agreement – An Overview
A Performance Unit Award Agreement is a legal document that outlines and defines the terms and conditions for payments based on performance. Whenever a company wishes to grant an award of performance units to its employees under a specific plan, the company and its employees sign an agreement. The award of performance is often subject to certain rules and regulations, which are made explicit in a Performance Unit Award Agreement. In consideration the mutual covenants contained in a Performance Unit Award Agreement, the company in question and its employees consent to abide by the provisions regarding the following elements.
1. Prime Elements of the Agreement The first thing that a Performance Unit Award Agreement explains is the number of performance units that have to be granted to the employees. The exact number of units may vary depending upon the situation. An agreement for this purpose must describe each and every possible situation and how it will affect the total number of the performance units. The next important thing is the term of the units, including the starting date and the closing date. The method of ascertaining the aggregate value of the performance units should also be explained clearly in this agreement. There are two important things to be considered – benefit amount and the benefit payment. Benefit amount refers to the aggregate value of the performance units. As per the plan, the employees may also be entitled to a benefit payment, which most often is equal to a certain percentage of the benefit amount. The specified percentage is more commonly referred to as “the earned percentage”. A Performance Unit Award Agreement should make clear the provisions regarding performance amount, performance payment, and the earned percentage. The drafter
has to be very careful while describing these elements. The agreement should also explain whether the benefit payment would be paid as a lump sum or in several installments.
2. Provisions Regarding Termination Of Employment An agreement for a Performance Unit Award should describe the action to be taken in case an employee entitled to performance unit award is terminated from employment. In most cases, the action depends upon the actual cause of termination. For example, if the termination is caused because of disability, death, or retirement, the total amount of the award may be reduced in proportion to the period of time during which he/she was employed after the introduction of performance unit award plan of the employer. Some companies may like to offer the full amount to the employees in case the termination is caused by disability or accident. However, a company may not be willing to pay anything if the cause of the termination is something other than retirement, death, or disability, such as resignation, fraud, and other things like that. Whatever the case may be, the provisions must be clearly explained in the agreement.
A Performance Unit Award agreement may also have certain provisions for introducing specific modifications in the terms and conditions. In most cases, it is done only after both the parties (the company and the employees) give the modifications in writing. Both the parties must sign the document, as a proof that they are accepting the changes.
Besides the above salient elements, a Performance Unit Award Agreement may also include an array of other factors, which vary from one company to another.