Should We Pay a Performance Bonus to an Employee Who Left Before Year-End?

Hi, we have a performance-linked bonus included in our CTC. This is equivalent to one month's gross salary, and we said it is payable at the end of the year along with their appraisal. An employee left the company in December 2010, and while doing the final settlement, the company did not take the bonus into the F&F.

The Question Is:

1) Should the company pay this bonus since it is a part of the CTC? If yes, what is the basis? If "NO," what is the basis for not paying it?

You should pay a bonus as it is linked with performance, and the employee has worked during the period.

First of all, including the performance bonus in the salary is completely wrong and should not be done. However, I believe if the same was included in the salary CTC, it should be paid in F & F.

Performance-Linked Bonus Consideration

If it is the case of a bonus, then it should be paid at least a minimum of 8.33%. Here, the case is a performance-linked bonus. The management has every right to deny the performance-linked bonus as the bonus is based on the performance of the employee. Since the employee has resigned from the post, his performance has not been taken into consideration, as the bonus is intended to encourage the employee to perform better in the next year.

Therefore, there is no need to make a payment of the performance-linked bonus.

With warm regards,

S. Bhaskar
[Phone Number Removed For Privacy Reasons]

When it is clearly defined as a performance-linked bonus, it is not applicable to a person who resigned from the services during that period.

Regards,
W.L.N

Hello SrikarBala, Please mention what is the basis of giving performance-linked bonuses to the employees? If it is based on certain criteria, what are they? Based on these criteria, you can measure how much the employee has contributed towards achieving the same and pay accordingly.

I would also like to know, before answering your query, how long the employee has worked in the organization since you started this performance-linked bonus. However, the company should pay his/her bonus for the time he/she worked in the organization.

Regards, Archna

Hello All, I hope you have figured it out by now. My vote goes to what S. Bhaskar said. Some key things to note would be the performance prior to leaving; if it was a sales resource, were all targets met, not met, or did he outperform all expectations? If the resource left on the 1st and appraisals are done on the 15th, what did his managers have to say? I've seen most employees start producing positive outputs 3-6 months into their role, so if they leave before 1 year, then there is not much of a return on investment.

What did you go with?

Regards, Rizeq.com

Criteria for Bonus Payment

- Employee met (or exceeded) all or part of the requirements established at the beginning of the period, such as performance, sales, suggestions implemented, personal/professional improvement, and the like.

- Bonus is based on the individual's meeting/exceeding the requirements, not the overall performance of the company.

- Employee made an effort to, and did, meet/exceed expectations for 99% of the bonus year.

- Bonuses are paid on past performance, not future expectations, especially where no goals have been set/negotiated for the next year.

Bonus should be pro-rated based on goals met (+1), exceeded (+1x), or not met (-1x), depending on whether or not the employee had control over the critical aspects of the goal.

I don't think that the employee should be penalized for leaving the company in the latter part of December, assuming that the bonus year is the same as the calendar year. Even if he did leave in the first week of December, the company accrued a benefit from his efforts and achievements throughout the year. I believe the employee is due compensation in the form of a bonus for his positive contributions, especially when the company has derived a current and possibly a future benefit.

Regards,
PALADIN

Performance-Linked Bonus and Statutory Bonus

As PLB is part of CTC, it is not a part of the Statutory Bonus. On this point, whether such a bonus should be paid or not is at the discretion of the management.

Considerations for Performance Bonus

However, the Performance Bonus not only considers the performance of the individual but also takes into account regularity and dedication towards the organization. Leaving the job in the middle of the performance cycle will lead to fluctuations, as finding a replacement will take some time to assume the responsibilities. Additionally, leaving mid-term will also impact the performance of others.

In this context, such employees should not be entitled to a Performance Bonus.

Regards,
Bhanu

Thank you so much for your valuable feedback.

Performance-Linked Bonus Clarification

Archana: I think it is a performance-linked bonus. Hence, the employee should have been with the company at the time of appraisal for this to be effective, even though it is part of the CTC. The company, while giving the offer, has informed them that it is a performance bonus and can vary from 0-100%.

To my knowledge, I think the performance bonus is paid to an employee if they are on board at the time of disbursement of the same.

All respected individuals, please confirm.

Hi, Srikar, I understand that it's a performance-linked bonus, but my query is: has this employee completed one year in the organization? Please understand that if the person in question has completed one year of service and has earned some bonus (which may not necessarily be 100% and it can't be 0% either), then he/she is eligible for that bonus. The performance-linked bonus, which is a part of CTC, is to be paid if the person has completed one year, no matter when the company distributes it. However, it depends upon the company policy.

Regards,
Archna

As shown in the CTC of the employee, and since it is linked to the performance of the employee, the company has to pay it. It is not necessary to pay during the full and final settlement. As and when the company reviews the budget and performance, it can be paid during that time.

For example, if Mr. A is leaving the company in March and the performance appraisal system is in May, it can be paid in May.

Regards

Dear Srikarbala, Please check whether the company policy states that the performance bonus is payable only to employees who were on the payroll at the time of disbursement. If this is defined as such, you can deny payment. Also, ensure that the performance bonus was communicated to the employee during the appointment stage, as outlined in the appointment letter, specifying that salary bifurcation is based on the agreed terms.

If this is not the case, there is no obligation to make the payment. However, if the bonus terms were agreed upon during the appointment and have been included in the salary breakdown, then settlement may be necessary.

Ultimately, the decision rests with you unless the individual proceeds with legal action.

Please let me know if you need further assistance or clarification.

I am going through the same situation currently. I belong to a big Indian IT MNC. I resigned a week after the completion of our appraisal cycle. I have worked a lot, and my managers (appraiser and reviewer) agree with this in my performance appraisal with their statements and points awarded. However, now I see my appraisal closed with the lowest ratings, which will definitely deny me my Performance Bonus. I wanted to know if I can take legal action against them. Can I take this to the Labour Commissioner?

I have been awarded Employee of the Quarter twice, and I have all the proofs of appreciation for my good work. Please advise me.

Thanks & Regards,
SP

I have read the comments mentioned above. My question is, does management have the right to deny a performance-linked bonus from the previous year? In my case, I left the organization in September 2014, and my PLB for the previous year (April 2013 to March 2014) is pending. The management is denying payment, stating that I left prior to the declaration of appraisals. However, it was not mentioned in the terms of appointment that the bonus is payable only after appraisals.

Kindly suggest what I should do.

Hi, this is in reference to the variable pay, which is a part of my CTC. The company's performance cycle is from April to March, and the payout is in July. As per the contractual agreement, I am eligible for a performance-linked bonus of 80% of my CTC and 20% based on the company's performance. I understand that the company's performance will only be established once the books close in March '19. I have been employed with the organization since 2008. I left the organization in mid-December '18.

My question is:

Since I have been meeting expectations from April '18 to December '18, am I eligible for the bonus payout? If yes, what would be the approach? Please let me know if any additional details are required.