Can We Legally Reduce an Employee's Bonus During a Unit Transfer? Seeking Advice

Dear Seniors,

In a case where we are proposing to transfer an employee from one unit to another unit, which is in the commissioning stage and has not yet started, the employee is currently receiving a CTC that includes a bonus based on company performance, costing around Rs. 2500 per month.

In the event of this transfer, can we reduce this amount from his CTC since there is no production started at the new unit? If we suggest reducing the bonus amount (Rs. 2500 per month), can the employee claim this bonus amount or request it in another form? Are there any legal implications in decreasing his current earnings? If so, please provide the reference of any relevant section or rule.

By making a decision on this matter, we can have a clear understanding for an amicable solution to such transfer issues in the future.

Hoping for an urgent reply from all seniors,

Regards,
Atul

The word "bonus" may create trouble for you since the bonus cannot be retained or forfeited. Therefore, you may explore the opportunity to reduce wages in other components.

Dear Atul,

There are three kinds of transfers:

1. Transfer to a bigger scope job which results in a promotion - salary needs to be upgraded to correspond to the enlargement.

2. Transfer to a smaller scope job which is deemed as a demotion - salary will be reduced accordingly. However, such terms and conditions need to be clearly communicated to the employee at least 3 months before this transfer. If he accepts these new terms and conditions, a new employment letter of offer needs to be issued to him for his endorsement with copies filed in his personnel file. In this situation, you must also plan for the situation where the jobholder refuses to accept the lower package. What's next? Termination?

3. Lateral transfer - a transfer from different functions/units but still performing the same grade job. In this situation, your organization must have some forms of grade structure or hierarchy structure in place to be effective.

From the above, how best to describe the said transfer in your organization, and what are the objectives?

I have, however, these questions for you to ponder:

1. Was this transfer initiated by the company or the individual?

2. If the transfer is initiated by the company and the performance of the individual is not questionable, why deduct Rs 2500/-pm to penalize the individual?

3. There may be "no production" yet, but a lot of work needs to be done when you are a "pioneer" in a new unit. Does this not create an "offset" effect at the most?

Put yourself in his shoe; you should be able to derive some objective and balanced policy & procedure from there.

Regards,

Autumn Jane

Hi there!

Thanks a lot for your prompt response.

Actually, the last sentence you have made is really worth it, and personally, I fully agree with this.

The case is as follows:

1. We are in the stage of expansion. Accordingly, we have been allotted land, and construction of the factory is ongoing. It will take another two to three months to complete the machine erections/installations, etc. Probably, production will start soon after the machine work is completed.

2. The employee who is proposed to transfer to the new location is currently looking after accounts activities. His CTC includes the amount (declared as 'Company Performance Bonus') approximately Rs. 2500/- per month.

3. Now, management wants him to transfer and raises the point that due to non-production for the next three months, we are not obligated to pay the Company Performance Bonus to him in his transfer case, even though he is being transferred in the same cadre, grade, designation, or profile as his existing one.

4. It may be a question of decreasing his earnings as this amount is purely based on the company's performance; he may not have the right to demand it.

5. Furthermore, whether he will be ready or not ready for his transfer, he or anyone else should be treated in the same way.

Hence, I need a strong point that comes under legal provisions, which may include such a case. So, with this legal conclusion, I can again put up this matter strongly.

Of course, no human being will be ready to reduce his present remuneration, whatever the reason may be, and I feel that he should not be transferred as a punishment.

Please revert with your remarks/suggestions.

With regards,

Atul

Dear Atul,

I am not familiar with the legal aspects and employment act for India, so I will leave it to other seniors to advise you accordingly. But from an HR perspective, here is some additional information that may be useful for you.

1. As long as it is not a guaranteed/fixed/contractual bonus, it can be reduced and/or taken away.

2. If it is clearly stated and communicated that it is a Company Performance Bonus, then the quantum can be reduced and/or taken away after proper administration of the performance management system. I do, however, have an additional question to ask - did the jobholder stop work, or is he still performing his job in the current location while the construction is continuing for the next 3 months? If he is still performing his job, why cut his pay?

3. Administratively, the situation is much easier because it is a transfer within the same cadre, grade, designation, and profile. While he will be able to transition into his job (technical aspect) quite easily, there's another aspect that's usually overlooked, and that's emotional/mental hardship that comes with being transferred away from a familiar place, away from the usual clique, longer traveling distance to work, etc. This hardship, coupled with a reduction in CTC, is really a double whammy for him.

4. Lastly, you have mentioned that the company is undergoing expansion. An expansion would translate into increased activities and volumes, which require the commitment of all employees. Shouldn't the company be looking at compensating the staff more because the workload has increased instead of cutting it? Or should the company temporarily cut CTC but reinstate it to the equitable level when the time is right?

Regards,

Autumn Jane

Dear Autumn Jane,

Whatever you have explained is absolutely correct. Your first statement is also accurate. It is not guaranteed or fixed, so it could be revoked, and communication could be done in this regard with the concerned party.

On a humanitarian ground, we need to consider his emotions as well. Due to only the transfer of his services, he is losing an amount that may affect his performance, mental well-being, job satisfaction, and ultimately his peace of mind. Therefore, I am trying to compensate for this amount in another way, and a proposal for this change is now being presented to top management. I am also looking into the legal aspects so that the case would become mandatory. I hope to do my best, and I wish that the management would also grant it.

I am thankful to you for your support and the valuable information you have provided me. May I know where you are from and what your profession is? Just for my information only. It's great to be connected with you.

Thank you.

Atul