Whose Bonus Is A Problem Now?

Bonus dispute is an interesting subject to write about! That was the discovery I made; I must confess here that I was guided by my age-old experience of bonus battles, and I never realized that the situation has changed dramatically!!

It all began when I enquired about the bonus payments being made by various companies. In the seventies and eighties, bonus disputes arose particularly during Dasara-Diwali period. Textile workers agitated for it every year. Then came a wave of ‘Ex-gratia’ payments since almost all workers were out of the coverage of the Payment of Bonus Act. Leading bonus payers were refineries and petroleum industry.

When Deepak Fertilisers paid ex-gratia amounts it created a big furore in Taloja Industrial Estate. Nobody was paying the exceptionally high amount which they paid. Deepak Fertilisers had very little choice; delay in project completion or any breakdown that leads to stoppage of work costs the continuous process industry a fortune, so they prefer to buy peace. Reliance was no exception. Nobody paid the amount of Ex-gratia payments which they paid. Since labour cost is very insignificant in such industries nobody there batted an eye lid, but other industries had a tough time toning down the expectations of employees.

Two industries stand out even today – Gharda Chemicals and Sulzer Pumps. The latter recently gave a bonus of Rs. 1.20 lakhs! The newspaper report says “there are 393 employees and the maximum bonus is Rs 1.20 lakh and a minimum is Rs 25,000 for the present fiscal, a rise from the previous year’s bonus package of Rs 1.05 lakh to each employee.” The bonus payment is clearly performance linked. In Sulzer Pumps, the employees got a maximum bonus of Rs. 1.40 lakhs in 2008, somewhat higher amount than this year.

That is an interesting point. Employees in manufacturing sector have accepted variable pay now. Nowhere is this more evident than at the manufacturing industries in Pune. Almost all new settlements are being signed with variable pay schemes.

Such schemes have their own problems. Variability of pay is nice thing to talk about, but when you are paid a lower pay than the previous year, employees do not like it, some also revolt! So it is not without reason that the ‘Set on – and Set off’ scheme was introduced by the makers of the Payment of Bonus Act. Even Joel Stein who developed the concept of Economic Value Added recognises the need to keep variable ‘not too varying.’ They also recommend equalisation fund arrangement.

Another problem is that a wrongly designed scheme can effectively make operations unproductive. In one MNC, the required output was seen as unachievable, so workers gave up trying and did not earn a single rupee by way of variable pay. It led to bitterness and loss of credibility to both management and employees.

As Pune region long term settlements tell us, variable pay is here to stay. And workers have also accepted it. The Bonus Act is [and has been so for past thirty years] completely outdated. Industry and Employees have moved on and found their solution to the outdated labour laws.

The bonuses paid to managers and commissions paid to Directors are now coming in for scrutiny. In a recent article The Guardian says “AstraZeneca is paying its new chief executive a package worth up to £10m this year, including a “golden hello” of £4m – but a shareholder group has questioned whether performance hurdles for some of the awards are “sufficiently stretching”.” Bankers have traditionally drawn very hefty bonuses. Their bonuses are so large that those are getting questioned now. 

There is a view that such bonuses bring in “short-termism.” In India, however, this problem is yet to get noticed for many reasons. What gets noticed is the fact that investor-promoters are taking too big a cake, disproportionate to their contribution, like bankers in USA and Eurpe, although it is justified on contractual terms.

Let us see if Kejriwal has anything to say on this issue.