Should We Pay a Retention Bonus to an Employee Who Resigned After Poor Performance?

Hello everyone,

My name is Geetanjali, and I am training to become a human resource manager. I have come across a case of an employee resigning after 7 months. We had entitled him to a retention bonus; however, he performed quite poorly. Now, after resigning, he is asking for the retention bonus. He was not very beneficial for the company, and as it is rightly said, a retention bonus is to retain an employee. I wanted to know if we should release his retention bonus.

Thank you.

Dear Geetanjali, your query is about "retention bonus" and not "statutory bonus." Regarding the latter, the rules are quite clear. However, in the case of the former, it is an internal matter of your company. Therefore, the first question that comes to mind is: have you read the Policy on Disbursement of Retention Bonus? Furthermore, if this policy is well in place, has it been communicated to the employees? Under which clause does the employee state that they are eligible to receive the retention bonus?

The first step is to read the policy on retention bonus. If the employee is eligible, then pay them. If not, call them to the HR department and explain the ineligibility.

Thanks,
Dinesh Divekar

Retention Bonus Payment Policy

Poor performance in respect of payment of remuneration or any additional remuneration is irrelevant. What is the retention bonus payment policy? Check the eligibility as per the policy terms defined in the employee service agreement. Furthermore, as per Section 2 of the Payment of Wages Act, 1936, wages include any remuneration under any award or settlement between parties or an order of the court, and any additional remuneration (whether called bonus or by any other name). Hence, any remuneration paid to an employee by way of an award, incentive, or any bonus shall come within the purview of wages under the Payment of Wages Act, 1936, if the employee is covered by the said act. Therefore, the retention bonus should also be paid monthly as defined in Section 5 of the Payment of Wages Act, 1936. Holding wages by way of an incentive or retention bonus is illegal.

Thanks & Regards,

V. Shakya

HR & Labour, Corporate Laws Advisor

Hi Geetanjali,

First, try to get information on the retention bonus policy of your company. Generally, employees are eligible for a retention bonus after a few years of service in the company; only then can they receive this bonus.

In general, the retention bonus shall be paid upon completion of 1, 2, or 3 years, based on the company's policy. This is clearly stated in the appointment letter. Employees who leave the company without meeting the specified criteria are not eligible for the retention bonus.

Retention bonuses, incentives, production bonuses, etc., need to be earned by employees who meet specific targets. Therefore, employees who do not meet the set targets are not eligible for these bonuses. In my opinion, an employee who has worked for 7 months and decides to leave, even if the management is not interested in retaining them due to their performance, may not be entitled to the bonus or incentive. However, as suggested by our HR professionals, eligibility and applicability are solely based on the terms and conditions of employment or the company's policies.

Regards,

Kamesh