Performance Bonus As Per Financial Year And On Prorate Basis?

One of my senior employees (VP level) joined the company in Aug '15, and in her CTC breakup mentioned in her appointment letter, we have specified a performance bonus (fixed). Recently, she requested the release of that amount.

Kindly advise whether we should release the full payment since she has completed one year of service, or if the payment should be made based on the financial year and on a prorated basis.

Dear friend,

You may use the following formula for calculating the Performance Bonus:

Performance Bonus = [(Amount agreed per FY/12) * 7] * [Attainment of performance in %].

The calculation is for the Financial Year (FY), i.e., from 1st Apr to 31st Mar of the next year. We should multiply by 7 if she has joined somewhere between the month of Aug 2015. If she joined on 01-Aug-2015 or worked for more than twenty working days in Aug 2015, then we need to multiply by 8 (as she completes 8 months).

Thanks,

Dinesh Divekar

Thanks, Dinesh.

My query is regarding the payout of the amount. We have specified in her CTC that her performance bonus is fixed. Should we release the total amount when she completes one year, or only for the 8 months on a pro-rata basis? The employee claims she is on a 30 lac package and that her performance bonus was fixed, not a variable component.

Kindly suggest how to proceed as the employee is requesting payment.

Dear Isha,

Multiplication by 7 or 8 in the formula given in my previous post itself shows that you will pay a pro rata amount of the performance bonus. Payment of the entire agreed amount means the payment of the bonus to the employee even though she was not on the rolls of your company. Why do you want to do that?

In your second post, you have written that "[As the employee is saying that she has come on a 30lac package and that her performance bonus was fixed and not a variable component.]" Replying to this statement cannot be given. You are providing piecemeal information, and if I write something, you could still come up with a fresh query. Therefore, I recommend you provide complete details of the clause of the appointment letter that is related to the performance bonus.

Your confusion is also on account of a lack of clarity as to how the performance bonus will be calculated and when it will be paid, etc. Are the terms of the appointment letter clear?

Thanks,
Dinesh Divekar

As rightly mentioned by Mr. Dinesh, what are the terms attached/agreed upon for the performance bonus and/or salary? As per your statement, if the lady states that her package is 30 lac, wherein her performance bonus is fixed, then why can't you pay her monthly as part of her salary.

Why do you ask the members? When you fixed her CTC with a fixed performance bonus, you should have a better idea than us how to pay it. If it was under the Payment of Bonus Act, we could give our opinion.

The advice given by Dinesh sir in the first reply is correct and is to be followed. Whether it is 7 or 8 is to be decided based on the DOJ. Also, the employee is being unfair if he/she is asking for 12 months of fixed incentive having worked for only 7-8 months.

Janaka Dasa, Group HR Dy Manager, Vrindavan Chandrodaya Mandir, Vrindavan

Dear Janaka,

The employee has completed her full one year and is claiming her performance bonus. The query poser is of the opinion on whether it should be paid for the financial year 2015-16 on a prorate basis, i.e., from August 2015 till March 2016, which is 8 months, or for the full year from August 15 to August 16.