Does it work to require approval in bonus system

Except that there is specific agreement in labor contract, it is generally concluded that the bonus system falls within the scope of the employer’s autonomy in employment. Employers usually will set the appraisal standards as well as the approval process in bonus system. The guiding case in this issue will illustrate whether it’s effective to require approval process in bonus system.

Case Background (Guiding Case No.182)

Peng worked as a manager of a company’s Project Investment and Development Department. The Reward System of the company stipulated that the company would give reward to those who introduce projects successfully after taking into account the scale of the project, the value of profits and other factors. The reward should be applied by Project Investment and Development Department, and its payment has to be approved by the group leader of the company.

Peng led the department to successfully launch six projects during his employment, and then submitted applications for reward to the company. However, until Peng resigned, the company did not issue the above rewards. Afterwards, Peng  filed a labour arbitration and finally sued to the Court.

View of the Court

The focus of this case lay in whether the company should pay project bonus to Peng in accordance with the The Reward System. From the view of the Reward System, Peng is a qualified awardee and has successfully launched the projects, which met the conditions for obtaining reward. As the creator of the Reward System, the company has the right to set up assessment standards, assessment or approval process. Among them the assessment standard belongs to substantive factor for evaluation of whether the employee can get award, while the assessment and approval process is a procedural process set up by the company for the realization of appraisal right. If the process itself does not involve the assessment standards, whether it has gone through the approval process cannot be the substantive factor of whether or not the employee can obtain bonus.

In addition, the rewards stipulated in the Reward System should not only be regarded as the company’s unilateral incentives for employees based on labor autonomy, but also should be regarded as an agreement between the company and the employees on the aquisition of the reward. Thus, the company is obliged to review the rewards applications submitted from employees.

In this case, although the company claimed that Peng was in serious dereliction of duty and the project was in deficit, it failed to provide sufficient evidence to prove it, nor did it make a reasonable explanation for refusing to review. The company’s refusal to fulfill its approval obligation had harmed Peng’s legitimate rights and interests. The Court ultimately ruled that the company should pay the reward according to the Reward System.

View of PW & Partners

1 From the guiding case, if employer stipulates in the bonus system that employees who meet conditions can obtain rewards, it is not only the employer’s right, but also the employer’s obligation to substantively review and approve the employees’ applications for rewards. As the reward system includes appropriate assessment standards as well as an approval process, if the approval process itself does not involve assessment standards, and the employer refuse to pay bonus only on the reason that approval process hasn’t been finished or passed, but fail to provide substantive reasons, it may not be able to obtain the support of the People’s Court.

In terms of the design of bonus system, employers can link the approval process to substantive appraisal standards, for example, stipulating requirements for the assessment of employee’s performance, whether they have exceeded their tasks, whether there is dereliction of duty and violation of rules, and the participation in and contribution to the project, etc., as well as clarifying specific contents of each approval processes.

3 Besides the design of the system, it is recommended that employers should pay the bonus timely in order to prevent employees from claiming the bonus and at the same time claiming that they have been forced to leave their jobs so as to demand that the employer pay economic compensation; for those who do not meet the conditions for payment, it is recommended that employers should have reasonable grounds to collect and keep relevant evidence.