Retention Bonus Dilemma: Should We Prorate for an Employee We Had to Let Go?

Hello Seniors, I have a situation where I could use your inputs and experience. Recently, my company terminated an employee due to business reasons. He was eligible for a retention bonus at the end of the year; however, he was not able to complete the year. Now, he is demanding that we pay him the retention bonus prorated for the period he has served, albeit less than a year, as it was the company that initiated the separation. I believe he is not eligible for the prorated retention bonus as he has not completed the one-year period, which is a prerequisite for the entitlement. Can some of you please share your views on this?

I assume the following:

1. I think the word "prerequisite" itself solves the case here. Moreover, if the same requirement is clearly drafted in either the EE service rule or the HR manual, there is no question of prorata.

2. Many companies do not pre-define the same requirement in manuals but rather prefer to deal with situations on a case-by-case basis. For instance, management decides on a similar case while considering factors such as the type of employee, performance and attitude, amount of retention bonus, and the reason for termination. I believe that elaborating a bit more on the business reasons you have mentioned will bring a different insight to this case. However, this approach should generally not be implemented as it discourages standards and the concept of "one rule for all."

Conclusion

On a very simple and straightforward thought, a retention bonus is a consequence of having stayed in a company for a predefined time period. If an employee leaves before that, he/she should not be eligible for it. To strengthen your case, it is always advisable to have your retention bonus and eligibility criteria clearly predefined.

Thanks

Thank you for your reply. We have very clear and precise verbiage in our Appointment Letter as well as Employee Handbook; nevertheless, I felt the need to get an expert opinion on this matter. The argument the employee put forth was that since the retention bonus is a fixed component, it should be prorated for the period he has completed. However, since he didn't qualify the condition, we have denied the prorated retention bonus to him.

Kind Regards,
Mariam