Is It Legal for Companies to Withhold Performance Linked Incentives in CTC?

Understanding Performance Linked Incentive (PLI) in CTC

Please help me with this question. Is the Performance Linked Incentive (PLI) a fixed component of my Cost to Company (CTC)? Can a company deny paying PLI, which is a fixed part of my CTC? If yes, on what grounds? Are there any case precedents that can be quoted?

Thank you in advance.

Regards

Performance-Linked Incentive as a Fixed Component of CTC

Performance-linked incentive, being a fixed component of CTC, and the CTC being the amount on which you have agreed to work with the company, the PLI cannot be denied to you. Your demand should be like this: the sum of Rs...(CTC) was the amount on which I have agreed to work with the company, and its bifurcation into small elements has been done for the convenience of the company. I am even okay with a consolidated amount equal to the gross salary, and therefore, I shall be paid the gross salary without deducting PLI, which is not even a variable pay.

Regards,
Madhu T.K.

How can performance-linked incentives be a fixed component? The amount of the performance bonus is fixed, and I can accept that. However, whether you will receive it or not will depend on how you have performed.

The question is more linked to what was discussed in your interaction with HR when you joined. Was this promised to you as compulsorily payable (like a statutory bonus)?

Regards

Understanding Performance Linked Incentive (PLI)

PLI is directly concerned with the performance of both an employee and employer. This is also termed as variable pay in a few companies. Therefore, the possibility of its payment or refusal may exist, depending on the performance measures of both the employee and employer.

Regards, Chandrakant

Performance-Linked Bonus

In my view, a performance-linked bonus is admissible on certain terms and conditions linked to your performance. Your claim to it is tenable provided you fulfill those conditions. If you have not fulfilled those conditions, the company can deny it. Therefore, be sure about it first.

Regards,
B. Saikumar
Mumbai

The performance-linked variable component of the salary is always based on the terms and conditions of its payment, which an employee signs for at the time of recruitment. Normally, it is linked with the performance of the company, the team/department, and each individual employee. It is worked out on the basis of algorithms designed to implement the company policy.

You may, therefore, like to read your company's policy and process connected with the payment of the performance-linked variable component of your CTC.

When Keerthy himself/herself has said that the PLI is a fixed component of his/her CTC, why should there be a debate on it? I know that by definition it is a variable component and is payable based on performance only, but in the present case, it is a fixed component of gross salary, and that is why I said it should be paid irrespective of performance. A component of salary should not be just to show a high salary so that a candidate can accept the offer. Many companies do include it as a component of salary and face the consequences. The case here also is not different.

Regards,
Madhu.T.K

You had mentioned that the PLI is fixed, but there may be some conditions for the same. In our company, we also pay a bonus as a yearly component, but the performance has to be satisfactory at least. If it's below average or poor, then it's the company's discretion whether to pay it or not. Please read carefully the terms and conditions for PLI in your appointment letter or the company's handbook; it should be mentioned there. If nothing is mentioned, then the company has to pay you the PLI.

Here in the given case, PLI, though shown as fixed while negotiating or fixing the terms of employment, may be hidden in the Policy/Rules of the organization, due to which it seems to be denied. Hence, in the absence of clear information on this, it is very difficult to provide any view. However, Kreethykk, please study the policies and their applications carefully before arriving at any conclusion.

In general, the acceptable term PLI means linked with the performance, which may or may not be fixed to a certain extent.

As stated, PLI is 10% extra over 5 lacs. Kindly provide the breakup for the same and what would be the CTC in that case.

Many thanks, Madhu, for your kind reply. Currently, the company is denying payment on the grounds that there is no policy to pay PLI, even though they have been paying me for the last two years. They are also denying payment based on the fact that I left the organization within 9 months of my third year of service, not completing 12 months of service with them.

The offer letter clearly states that upon completion of 12 months, the "X" amount will be paid. After 2 years of service, my PLI was revised, but the conditions in the offer letter were not updated.

I have requested payment on a pro-rata basis, which they are currently denying. Please advise on what my next step should be. Thank you in advance for your eagerly awaited reply.

Regards

Many thanks, Mr. Bhatia. I understand from your reply that PLI is a variable component of the salary, but when it is part of CTC, should I be paid, right?

Clarification on Terms and Conditions

Now, coming to your second point on terms and conditions:
1) There is no signed policy in the company since I joined.
2) I have received my 100% PLI component at the end of the year, considering my performance was 100% for the last two years.
3) I left the organization at the end of 9 months in my third year, and the company is denying on the grounds that there is no policy to pay.
4) I have read the offer letter, which clearly states that I will be getting "X" amount at the end of 12 months. Now, the "X" amount was revised as my salary was revised twice in two years. Does this condition still hold good? Can I still fight for my PLI, which is part of CTC, or should I forget it based on the above condition?

Many thanks, Mr. Sai. I understand from your reply that PLI has certain terms and conditions:

1. There is no signed policy in the company since I have joined.
2. I have received my 100% PLI component at the end of the year considering my performance was 100% for the last two years.
3. I left the organization at the end of 9 months in my third year, and the company is denying it on the grounds that there is no policy to pay.
4. I have read the offer letter, which clearly states that I will be getting "X" amount at the end of 12 months. Now, the "X" amount was revised as my salary was revised twice in two years. Does this condition still hold good?

Can I still fight for my PLI, which is part of CTC, or should I forget it based on the above condition?

You cannot fight for what is in the CTC. CTC refers to the cost to company, not what is payable to you. You need to go by what the appointment letter and the salary structure say. If it states that you will receive it after 12 months of work, they are well within their rights to deny it. Secondly, it is a performance-linked incentive. So it is within their rights again to deny it, citing that the performance was not up to the mark. You do not have anything to fight that. It's best you forget about it and move on. Perhaps in the future, you will ensure that the company clearly states what you will receive for part-year working or clearly defines the terms of PLI in a manner that has a quantitative basis, not a vague qualitative base.

What I understand from the details furnished by you is that:

1. There is no written policy on the payment of PLI to employees.

2. Therefore, the next document that can be relied on is the offer letter. The offer letter clearly mentioned that you will be entitled to PLI if you serve 12 months.

3. The company honored this condition by paying you 100% PLI for the last two years at the end of the relevant years. Therefore, the practice together with the relevant terms and conditions in the offer letter abundantly substantiates the fact that your right to PLI accrues only on completing 12 months of service in the company. Since you have not fulfilled this condition, I am of the view that you cannot claim PLI, and the company can deny it, as I have already said in my earlier post.

Understanding Salary and CTC

Now coming to the concept of CTC, salary and CTC are two different concepts with different implications. In layman's understanding, avoiding technicalities, it can broadly be said that the salary is the employee's zone of entitlement and CTC is the employer's zone of discretion. Thus, he can stipulate in CTC all those payments/expenses which he will make or pay to an employee subject to the fulfillment of certain terms and conditions which he may lay down in his discretion. Therefore, an employee cannot lay a claim to a payment falling in the employer's zone of discretion unless he fulfills those terms and conditions.

Accordingly, I find it difficult to canvass for your right to PLI. I hope I have sufficiently explained my stand on the issue.

Regards,
B. Saikumar
Mumbai

I think the clarifications given above by B Saikumar and others are quite valid and lucid. If a variable component is payable after 12 months of service during the year, based on an individual's performance, then serving only for 9 months during the year means you are not entitled to the same (unless your company policy clearly states that for serving less than 12 months in a year, the payment shall be calculated on a pro-rata basis for the actual period served).

Also, the confusion in your mind that it is a part of your CTC should be removed since CTC is not your entitlement, but your cost to the company. CTC is a budgeting tool for human resources and has no universal composition.

Components of CTC

CTC comprises two components: Committed and Non-committed. PLI in most organizations is covered under the non-committed CTC, even though it is mentioned as part of CTC.

Regards, Pon