Are Companies Allowed to Pay 0% Performance Bonuses and Withhold Retention Benefits? Seeking Advice!

Dear Seniors,

Greetings of the day! With reference to the above subject, please let me know your valuable input and suggestions for the following.

As per the appointment letter, the company is supposed to give Rs. 60,000 as a retention incentive and Rs. 60,000 as a performance bonus. They have not mentioned any rule for these two in the appointment letter. After completion of 1 year, they have paid 100% retention amount and 0% performance bonus. After 4 months, they fired the employee with 3 months' salary.

1. Is the employee eligible for 4 months of retention benefit?
2. Can any company give a 0% performance bonus?

If there are any rules, please provide me with a copy of the same.

Looking forward to your valuable earliest response.

With Thanks and Regards,
Apekhya

Dear Apekhya,

Things like 'Retention Incentive' and 'Performance Bonus' are not mandatory, driven by any statute of the central or state governments. Hence, unlike PF or Payment of Wages, for example, there cannot be any common rules and regulations about them.

Thus, I believe there cannot be a direct yes or no answer to both your questions.

Generally, companies resort to non-payment of performance bonuses due to one or more of the following reasons:

- Poor performance
- Termination of service of an employee on grounds of indiscipline, unethical behavior, background check failure, etc.
- The company itself did not achieve its financial or other set objectives

But from what you have said, I feel it could have been due to reasons mentioned in (a) or (b).

Hope I have answered your query.

I thought my response would be more complete only with the below points as well...

Retention Incentive:

1. An employee should complete 'X' number of years/months before being eligible for retention incentive.
2. An employee should get a minimum performance rating to be eligible for this incentive.

Regarding Performance Bonus, some companies give 100% to those who secure the highest performance rating and a lesser percentage for those getting lesser rankings. For example, 100% for those rated 5, 90% for those rated 4, etc. (where 5 is the highest and 1 is the least in performance ranking).

Another method that is used is the highest rating (in the example given above, 5) will be given 100%+ x%. Here, 'x' will be determined by various factors like the company's revenue target, unit's function on various parameters like customer satisfaction, productivity, safety, innovation, etc.

Of course, there is also a debate that always goes - should the performance bonus be part of CTC or should it be over and above CTC.

Regards,
Chandru

Thank you very much for the valuable input. In this case, the performance of the employee is good, but as the company doesn't have much business in India and that employee is one of the highly paid salaried individuals, they terminated that employee. They don't have performance rating criteria, so it is very difficult to prove the eligibility for a bonus. The company also lacks certain agreements/rules for retention incentives. The clause clarified to the employee during the joining period was that if they completed 1 year, they would be eligible for a retention amount. I believe the employee should receive the retention. What's your view? Please suggest.

Regards,
Apekhya

Dear Apekhya,

This is a typical 'grey area' scenario we face very often in HR. In your first posting, you mentioned that the person received a 100% 'Retention Incentive.' Hence, I presume you are referring to the 4 months of the second year. From what you have said, they have paid 3 months' salary before terminating the employment. The reason given was 'not much business in India.' In such a scenario, I think it is not appropriate to expect a retention incentive.

Regards