Discretionary annual bonuses are supplementary payments made by employers to employees, typically at the end of the year, prior to the festive season. Although this benefit should serve as an incentive for outstanding employee performance, the criteria for deciding who receives a bonus and how much can sometimes lead to disputes about fairness and the legalities under certain labour law principles.
Typically, annual bonuses or 13th cheques are not legally mandated, granting employers considerable flexibility in determining who will be eligible for the bonus and who will not. This discretion can be beneficial; it allows organisations to tailor incentives to align with their operational objectives and to respond appropriately to their financial performance. However, the subjectivity associated with discretionary bonuses can also create an environment ripe for arbitrary selection criteria, which may lead to perceptions of favouritism, discrimination, or unfair treatment among employees.
When employers implement discretionary bonuses, they must tread carefully to ensure compliance with the legal and statutory framework and accepted practices and norms within the workplace. Concerns arise particularly when the criteria for granting bonuses lack transparency or consistency. Arbitrary decision-making can result in grievances and disputes, as employees may feel their contributions are undervalued or overlooked due to biased selection processes.
For example, if a company rewards bonuses based predominantly on subjective performance evaluations, it can lead to discontent. An employee may excel in their role but miss out on a bonus due to an evaluator’s personal bias or lack of objectivity. Additionally, should an employer have developed a practice of paying annual bonuses consistently, the employees may expect to receive the benefit as a matter of course.
Employers are encouraged to establish clear, objective criteria for discretionary bonuses to ensure fairness and transparency. Setting measurable targets, conducting regular performance reviews, and ensuring that all employees are aware of the criteria can significantly enhance perceptions of fairness. Furthermore, should the employer not be in a financial position to pay a bonus after having done so for a prolonged period, consultations with affected employees could alleviate potential discontent amongst employees.
While discretionary annual bonuses can be an effective tool for motivating employees and rewarding high performance, employers should carefully consider the relevant labour law and fairness principles. By establishing clear, objective criteria for bonus allocation and promoting transparency, employers can avoid the pitfalls associated with arbitrary selection criteria and foster a more positive and fairer workplace environment.
Article By Stephen Kirsten
Provincial Manager at Consolidated Employers Organisation (CEO SA)