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Make decisions on bonus early

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I remember the year 1995 with nostalgia. That was the same year I joined the Public Service, fresh from university.

That year, for reasons which I will not bother to recall, the government just decided that civil servants were not going to get bonuses.

It all started as hearsay, but gradually turned out to be fact. For sure, November passed and we received our normal salaries. December came and our worst fears were confirmed — there was no bonus!

A manager from a company in Harare recently sent me the following email message: “I work for a UK-based organisation.

I have a statement in my contract stating that in addition to my salary I am also entitled to a bonus. Indeed, I have been paid out nine of the last twelve years. Since a new MD was appointed some three years ago the company has not done so well and there have been major changes to staff and systems.

The result is that no bonus has been paid for the past three years and I feel that I am being penalised unfairly. What should I do? Accept the situation or fight from my corner, which may result in the loss of my job? I really feel that my back is against the wall.”

Do any of the above two scenarios sound familiar?
Bonuses can be an emotive issue. Handled well, bonus pay improves employee morale, motivation and productivity. Handled on an ad hoc or arbitrary basis, it can achieve the opposite result.

There is no greater impediment to industrial peace and productivity than having a bunch of disgruntled employees.

Historically, most organisations pay bonuses either in November or in December. Section 12(2)(h) of the Labour Act (Chapter 28:01) provides that on engaging a new employee, an employer shall inform such employee in writing, among other things, “particulars of any bonus or incentive production scheme”.

This provision must not be misconstrued to mean that our labour law makes it mandatory for employers to pay bonuses to their staff. Payment or non-payment of bonuses is left entirely to the discretion of the employer.

The law only says where bonuses are payable or not payable, the employer must reduce this to writing in the employment contract. It is not an unfair labour practice for the employer to fail to pay a bonus or 13th cheque to the employee, unless this is contrary to what was agreed upon in the contract of employment.

The most common types of bonus are the productivity bonus, performance bonus and the Christmas bonus, popularly known as the “13th cheque”. The focus of this article will be the “13th cheque”. There are twelve months in a calendar year.

At the end of the year, an additional month’s salary is normally paid as a thank you to all employees for their hard work during the year. That additional month’s salary is affectionately known as the “13th cheque”.

The payment of the 13th cheque has come to be regarded by workers as a right or entitlement. Whether the company performs well or poorly, workers expect to get their “13th cheque”.

This is mainly because despite clauses in most employee contracts that bonus payment will depend on company performance, many companies have continued to pay even after posting poor financial results.

Traditionally, the decision on bonus in most organisations is made by the board of directors in their last meeting of the calendar year.

A week or so before payday in November or December, a pronouncement is then made on whether the bonus will be paid or not. In some instances, employees are not informed at all, but only discover that no bonus has been paid when they visit their banks to make withdrawals.

In my view, this practice and can generate unnecessary conflict. Frankly speaking, management and the board must have some sketchy idea of the company’s year-end financial position a month or so before the payment date.

It goes without saying that every worker does his or her end of year budgeting with the “13th cheque” in mind, what with the dreaded “January disease” beckoning. It is only fair that the news — good or bad — are pronounced early rather than to be told at the last minute.

As a result of financial pressure, companies may decide to alter their policy regarding payment of bonuses, either by deferring payment, paying less, splitting the bonus into two separate payments or scrapping payment altogether.

Companies contemplating doing so are advised to first consult with their employees, explain their reasons and listen to employee suggestions and views.

A sudden change of policy can spark the ire of workers, especially where a small band of staff is perceived, rightly or wrongly, to be pocketing huge bonuses while the rest of staff is told that the organisation is bleeding.

In the current economic climate, employees are more likely to accept a deferred bonus arrangement rather than receive nothing at all.

Where possible, the employer must be prepared to make some concessions to compensate workers for any lost benefit.

Where the payment of bonus is subject to custom and practice, unilateral alteration of established norms by the employer is likely to be viewed negatively by the courts, as the 1993 High Court of Zimbabwe case of Mangosho vs UDC demonstrated. In this case, an employee was singled out for non-payment of an unconditional bonus. The court declared this action unlawful.

Where payment of bonus is guaranteed, such as being stipulated in the employment contract or as company policy, the employer is left without much choice but to pay the bonus.

The taxation of bonuses remains one of the most perplexing areas to the ordinary worker. Very soon, Finance minister Tendai Biti will be presenting the 2012 National Budget proposals and announcing a new tax-free threshold for bonuses which is unlikely to depart significantly from the $500 that was announced in November 2010.

With most workers earning below the estimated poverty datum line figure of $500, it is probably safe to assume that no tax will be deducted from the average worker.

While this will bring smiles to the faces of many workers and their families, such joy is likely to be eroded by retailers who at this time of the year customarily exhibit their perennial hyperinflationary-era mentality by unleashing a wave of unjustified price increases.

lIsaac Mazanhi is a labour analyst writing in his own capacity.

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