Compensation, Benefits and Incentive Plans in Bangladesh

by Barrister Tahmidur Rahman | Sep 13, 2026

Private Client & EmploymentReward structures that work locally8 min read

Compensation, Benefits and Incentive Plans in Bangladesh

Compensation, benefits and incentive plans advice for employers in Bangladesh and multinational groups with Bangladeshi staff, covering salary structures, bonuses, commissions, share and phantom plans, provident funds, gratuity, workers' profit participation, executive contracts, tax, foreign exchange approvals and reward disputes.

Compensation, Benefits and Incentive Plans in Bangladesh: incentive plans with TRW & Co
Matter planPrivate Client & Employment
  1. Objectives and current position
  2. Design and approvals
  3. Implementation and communication
  4. Review and disputes
Overview

Designing incentive plans for Bangladeshi employees

Reward is one of the most visible ways an employer competes for talent in Bangladesh, and one of the most common sources of disputes, tax queries and regulatory problems. Incentive plans that work well in London, Singapore or New York can create unexpected obligations when applied to staff in Dhaka or Chattogram, because local labour law, tax rules and foreign exchange controls take a different approach. We advise local companies, multinationals, start-ups and investors on designing and documenting compensation, benefits and incentive plans that are attractive, affordable and lawful in Bangladesh, and on fixing schemes that no longer comply.

The legal framework starts with the Bangladesh Labour Act 2006, as amended, and the Bangladesh Labour Rules 2015, which govern wages, deductions, festival bonuses, leave, termination benefits, provident funds for workers, group insurance and the Workers' Participation Fund and Welfare Fund for qualifying companies. Many protections apply to 'workers' as defined in the Act, while managerial and administrative staff are often governed mainly by contract and company policy. The Income Tax Act 2023 determines how salary, allowances, perquisites, recognised provident funds, gratuity funds and share awards are taxed. We map each element of the reward package against these rules.

Long-term incentive plans raise particular legal questions. Shares or options in a foreign parent company may require Bangladesh Bank approval, because resident employees acquiring foreign securities is a capital account transaction under foreign exchange law. Local share plans in a Bangladeshi company must work within the Companies Act 1994 and, for listed companies, securities regulation. Phantom shares, cash-settled awards and deferred bonuses can sometimes achieve similar commercial aims with fewer approvals. We help clients choose the structure that fits their objectives, their shareholding and the realistic regulatory route, working with our corporate team where share issues are involved.

Benefits also need careful handling. Recognised provident and gratuity funds can offer tax advantages but require proper trust deeds, rules and approval from the tax authorities, and they must be administered by trustees according to those rules. Health insurance, transport, housing, mobile and meal allowances need consistent policies that match how they are reported for tax. Changes to established benefits can be challenged by employees and trade unions if handled poorly. We review existing schemes, identify gaps and risks, and plan changes, including consultation where needed, so that reward reforms do not become employment disputes.

Reward work connects closely with our private client and employment practice, which handles related matters such as expatriate packages, executive service contracts, restrictive covenants and terminations. Barrister Tahmidur Rahman and Barrister Remura Meheruba Mahbub advise on transactions, investment and foreign exchange aspects, and Adv Syed Wahid leads litigation, including Labour Court claims and appeals. We coordinate closely with tax advisers, payroll providers and counsel in the UK, US, UAE, India and Singapore for global incentive plans, so that the Bangladesh element of global incentive plans is implemented correctly rather than adopted by default.

01 · What we handle

Core workstreams

  • Reward structure and policy review
  • Bonus and commission plans
  • Share, option and phantom plans
  • Provident, gratuity and pension schemes
02 · How it runs

Four clear stages

  1. 01Objectives and current position
  2. 02Design and approvals
  3. 03Implementation and communication
  4. 04Review and disputes
03 · Start here

Talk to a partner

Consultations in Dhaka or by video. Scope, team and fees are agreed in writing first.

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How we help

How we help with reward and benefits

Workstream 01Private Client & Employment

Reward structure and policy review

  • Objectives and current position
  • Design and approvals
  • Implementation and communication
  • Review and disputes
Workstream 02Private Client & Employment

Bonus and commission plans

  • Objectives and current position
  • Design and approvals
  • Implementation and communication
  • Review and disputes
Workstream 03Private Client & Employment

Share, option and phantom plans

  • Objectives and current position
  • Design and approvals
  • Implementation and communication
  • Review and disputes
Workstream 04Private Client & Employment

Provident, gratuity and pension schemes

  • Objectives and current position
  • Design and approvals
  • Implementation and communication
  • Review and disputes
Workstream 05Private Client & Employment

Executive and expatriate packages

  • Objectives and current position
  • Design and approvals
  • Implementation and communication
  • Review and disputes
Workstream 06Private Client & Employment

Workers' participation fund and disputes

  • Objectives and current position
  • Design and approvals
  • Implementation and communication
  • Review and disputes
01

Reward structure and policy review

We review salary structures, allowances, bonuses, commission plans, overtime arrangements and benefit policies against the Bangladesh Labour Act 2006, the Labour Rules 2015 and tax requirements. We identify where practice differs from written policy, where employees may have acquired contractual rights through custom, and where the structure creates unnecessary tax cost or legal risk. Our report gives management practical priorities rather than a long list of theoretical issues, with a sensible order for fixing them.

02

Bonus and commission plans

Short-term incentive plans are only effective if employees understand them and the employer can administer them fairly. We draft bonus and sales commission rules covering eligibility, targets, discretion, clawback, timing of payment, treatment of leavers and changes to the plan. We also advise on the relationship between discretionary bonuses and statutory festival bonuses, which must not be confused, and on how plan terms are communicated to staff so that incentive plans motivate rather than cause grievances.

03

Share, option and phantom plans

We advise multinational groups and Bangladeshi companies on employee share plans, options, restricted shares, phantom shares and cash-settled awards. This includes the Bangladesh Bank approval route for participation in a foreign parent's plan, local company law steps for share issues, tax at grant, vesting and sale, and local plan rules or sub-plans that adapt global incentive plans to Bangladeshi requirements and remove avoidable compliance risks for employer and employee alike.

04

Provident, gratuity and pension schemes

We draft and review trust deeds and rules for provident and gratuity funds, advise on recognition by the tax authorities, and support trustees in administration, investment and dispute questions. We also advise on the statutory provident fund and compensation provisions for workers, gratuity calculations on termination or retirement, and the conversion or closure of legacy schemes during restructuring, sale or merger of a business, including transfer of balances and trustee responsibilities.

05

Executive and expatriate packages

We prepare service agreements and offer letters for senior executives and expatriates, covering base pay, incentives, housing, schooling, travel, tax equalisation, notice and restrictive covenants. For foreign nationals we coordinate work permit requirements, remittance of salary abroad under foreign exchange rules and tax registration, so that the package can actually be paid and remitted as promised without breaching Bangladeshi rules. Long-term incentive plans for expatriates are aligned with their visa and tax position.

06

Workers' participation fund and disputes

We advise companies on whether the Workers' Participation Fund and Welfare Fund applies, how contributions are calculated, trustee board governance, distribution to eligible workers and reporting. We also act in disputes about unpaid bonuses, commissions, provident fund balances, gratuity and fund entitlements, whether before the Labour Court, in negotiations with trade unions or through settlement agreements with individual employees. Early advice often resolves these disputes before formal proceedings begin.

RecognitionThe Legal 500Asia Pacific ranks Tahmidur Remura Wahid (TRW) Law Firm for dispute resolution in Bangladesh.
Cross-border reach6 jurisdictionsMatters coordinated with counsel in the UK, US, UAE, China, India and Singapore.
Bar and admissionsDhaka and LondonBarristers and advocates in Bangladesh, with a solicitor of England and Wales (non-practising).
HeadquartersDhakaHouse 410, Road 29, Mohakhali DOHS. Consultations in person or by video.
Who leads this work

Partner-led, on every matter.

Private Client & Employment matters at TRW are led by partners, supported by associates, with one responsible lawyer from first advice to final outcome.

Meet the firm →
01

Can Bangladeshi employees join our global share incentive plans?

Often they can, but not automatically. Because acquiring shares or options in a foreign company is a capital account transaction for a Bangladeshi resident, participation in foreign share incentive plans generally requires Bangladesh Bank approval or must fit within a permitted framework. The approach also depends on whether employees will pay to acquire shares, whether awards are cash-settled, and how sale proceeds and dividends will be repatriated. We review the plan rules, advise on the realistic approval route, prepare the application, and suggest local alternatives such as phantom or cash-settled awards where approval is unlikely or slow.

02

Is a festival bonus the same as a performance bonus?

No. Festival bonuses for workers are a statutory entitlement under the Bangladesh Labour Rules 2015, linked to religious festivals and calculated according to the rules, subject to qualifying service. Performance bonuses and other incentive plans are contractual or discretionary, depending on how they are documented. Employers sometimes merge the two or describe all bonuses as discretionary, which creates disputes and potential non-compliance. We review bonus documents, separate statutory and discretionary elements clearly, and draft plan terms that preserve flexibility where it is lawful while giving employees a fair understanding of what they can expect.

03

Can we change incentive plans or withdraw a benefit that employees already receive?

It depends on whether the benefit is contractual, statutory or genuinely discretionary, and on how long and consistently it has been paid. Benefits that have become part of the terms of employment, through contracts, policies or established practice, cannot usually be removed unilaterally without risk of claims or industrial action. Statutory benefits cannot be reduced below the legal minimum. We review the history and documents, advise on lawful options such as consent, replacement benefits or prospective changes, and plan communication and consultation so that changes to incentive plans are accepted rather than contested.

04

How are employee share awards taxed in Bangladesh?

Tax treatment depends on the type of award, when the employee obtains a benefit, whether shares are listed and how the plan is structured. A benefit received by reason of employment is generally taxable as employment income, and later gains on sale may raise separate questions. Employers also have withholding and reporting obligations for salary and perquisites. Because the Income Tax Act 2023 and annual Finance Acts change the details, we work with tax advisers to confirm the current treatment and document the plan so that both employer and employee comply with their obligations and avoid penalties.

05

Do we have to set up a provident fund?

For many establishments, the Bangladesh Labour Act 2006 requires a provident fund for workers in defined circumstances, and other employers set up funds voluntarily as a valued benefit. A recognised provident fund requires a trust deed, rules, trustees and approval from the tax authorities to obtain tax benefits, and contributions must be paid into the fund and invested according to the rules. Poor administration exposes trustees and the employer to claims. We advise on whether a fund is required, draft the documents, assist with recognition and review existing funds for compliance and governance, including investment practice.

06

What is the Workers' Participation Fund and does it apply to us?

The Workers' Participation Fund and Welfare Fund regime under the Bangladesh Labour Act 2006 requires qualifying companies to allocate a percentage of net profit to funds for the benefit of eligible workers, administered by a board of trustees, with a portion transferred to a government welfare foundation. Whether it applies depends on the company's size, paid-up capital or fixed assets and status, and some sectors have specific arrangements. Non-compliance has led to many disputes. We assess applicability, set up or review governance, and advise on calculation, distribution and settlement of historic shortfalls, which buyers often raise during due diligence.

07

How should incentive plans treat employees who leave?

Leaver provisions are one of the most disputed parts of incentive plans. Plans should state clearly what happens to unpaid bonuses, unvested awards and deferred amounts when an employee resigns, is dismissed, retires, dies or leaves through redundancy, and whether good and bad leaver categories apply. These terms must work alongside statutory termination benefits under the Bangladesh Labour Act 2006, which cannot be excluded. We draft leaver rules that are clear and defensible, and advise on individual departures where significant sums, unvested awards or restrictive covenants are involved, including settlement agreements and releases.

08

Can we pay part of an expatriate's salary abroad?

Foreign nationals working in Bangladesh with proper work permits can generally remit a portion of their salary abroad through banks, subject to foreign exchange rules, tax compliance and documentation requirements. Paying salary offshore from a foreign group company for work performed in Bangladesh can raise tax, permanent establishment and foreign exchange issues. Tax equalisation and split payroll arrangements need careful design. We review the proposed arrangement with tax advisers, confirm the documents banks will need, and draft contract terms so that the expatriate's package can be delivered lawfully and reliably throughout the assignment.

How a matter runs

From first call to resolution.

  1. 01

    Objectives and current position

    We discuss what the reward programme must achieve, review existing contracts, policies, funds and incentive plans, and identify legal, tax and foreign exchange issues affecting each element of compensation in Bangladesh. We agree priorities and a realistic timetable with HR and finance.

  2. 02

    Design and approvals

    We recommend structures, prepare plan rules, sub-plans, fund documents and contract terms, and handle Bangladesh Bank, tax authority and corporate approvals needed before the programme or change is launched, so that incentive plans start on a sound legal footing.

  3. 03

    Implementation and communication

    We help prepare employee communications, consents, award documents and consultation materials, and support HR and finance teams on payroll, tax withholding, fund contributions and record keeping from the first payment cycle, answering practical questions as they arise.

  4. 04

    Review and disputes

    We review plans periodically as the law, the Finance Act and the business change, advise on leavers, corporate transactions and restructurings, and resolve disputes through negotiation, settlement or the Labour Court where necessary, protecting the employer's reputation with staff.

“Demonstrates an extraordinary command over both domestic litigation and international arbitration.”

The Legal 500 Asia Pacific, Bangladesh: Dispute resolution, client feedback

FAQ

Questions, answered.

Still unsure? Email info@trw.co with a short outline of the matter.

Are incentive plans regulated in Bangladesh?
There is no single statute for incentive plans, but several laws apply together: the Bangladesh Labour Act 2006 and Labour Rules 2015 for wages and statutory benefits, the Income Tax Act 2023 for tax, foreign exchange law for foreign shares and remittances, and company and securities law for share issues. A plan must comply with each of them. We review plans against all relevant rules before launch. Many problems with incentive plans in Bangladesh arise because a global template was adopted without checking how these laws interact, especially for foreign shares and statutory bonuses.
Can a private Bangladeshi company offer employees share options?
Yes, a private company can structure employee share arrangements, but there is no detailed statutory ESOP code for private companies, so the plan must be built carefully within the Companies Act 1994 and the company's articles. Shareholder approvals, transfer restrictions, valuation and exit mechanics need attention. We draft plan rules and corporate documents, and advise founders on dilution and investor consent requirements. Start-ups often promise equity informally in offer letters, which can cause disputes during fundraising, so we recommend documenting incentive plans properly from the outset.
Do managers receive the same statutory benefits as workers?
Not always. Many protections in the Bangladesh Labour Act 2006 apply to 'workers' as defined, and employees in mainly managerial or administrative roles may fall outside that definition, with their rights depending on contract and policy. The distinction depends on actual duties, not job titles. We advise on classification and draft contracts that make benefits clear for each category of staff. Misclassification can lead to claims for overtime, termination benefits and Workers' Participation Fund entitlements, so it deserves careful attention when incentive plans are designed.
Should incentive plans include clawback provisions?
Clawback and malus provisions can be useful, particularly for senior staff and regulated businesses, allowing awards to be reduced or recovered in cases of misconduct or misstatement. However, recovering amounts already paid can be difficult in practice and may be challenged if the terms are unclear. We draft proportionate provisions that are clearly agreed in advance and realistic to enforce. Deferral of part of an award is often a more practical protection than trying to recover money already paid to an employee.
How do mergers and acquisitions affect employee incentive plans?
A sale, merger or restructuring may trigger vesting, cancellation, rollover or cash-out of awards, depending on the plan rules, and may affect provident and gratuity funds and Workers' Participation Fund obligations. Buyers should review these liabilities during due diligence. We advise both sellers and buyers on the treatment of incentive plans and employee benefits in transactions and draft transitional arrangements. Clear communication with employees during a deal reduces uncertainty, protects retention and avoids claims that promised awards have been lost without fair compensation.
Are sales commissions part of wages?
Whether commission counts as wages for particular statutory purposes depends on the Bangladesh Labour Act 2006 definitions and the terms of the arrangement. This can affect calculations of termination benefits, overtime and other entitlements. Clear plan drafting reduces uncertainty. We review commission structures and advise on how they interact with statutory calculations and payroll processes. Commission disputes are common after resignations, so plans should clearly state how deals in progress are treated when an employee leaves.
What records should employers keep for reward programmes?
Keep signed contracts, plan rules, award letters, target documents, performance assessments, payment records, tax withholding records, fund accounts and trustee minutes. Labour inspectors, tax authorities and courts may ask for them, and good records are the best defence in a dispute. We help employers set up practical record keeping that HR and finance teams can maintain consistently. Records also help management evaluate whether incentive plans actually achieve their commercial goals.
How can TRW help with a reward project?
Contact us through our contact page with a brief description of the plan or issue, the number of employees involved and any launch date. We will confirm scope and fees in writing, then review the documents. We can work alongside your group HR, reward and tax teams, and with foreign counsel, as part of a wider programme. For urgent disputes or regulatory queries, tell us the deadline so that we can prioritise the work.

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