Should the Diwali Bonus Be Scrapped?

With Diwali just around the corner, many employees look forward to a Diwali bonus from their companies. But this universe has been shrinking over the years as companies increasingly have veered away from Diwali bonuses, especially for managers. “Over the last 10 years…the nature of managerial compensation has changed,” says Santrupt Misra, director of human resources at the Aditya Birla Group. “A lot of productivity and performance-linked incentives have come in, which were almost non-existent earlier” thereby making the Diwali bonus less relevant. The “concept of Diwali bonus is more prevalent in ‘Old Economy’ companies like manufacturing and consumer goods,” says Kris Lakshmikanth, chief executive officer of recruitment firm The Head Hunters India Pvt.

There, too, companies often restrict the Diwali bonus to their blue-collar workers, in line with regulations. India’s labor laws require that companies pay an annual bonus to all employees who earn basic pay of 10,000 rupees per month ($204) or less. The bonus can range from 8.33% to 20% of an employee’s annual basic salary, according to the Payment of Bonus Act. For years, this bonus has been given around Diwali time thus becoming popularly known as Diwali bonus.

Companies like Aditya Birla, auto firm Mahindra & Mahindra Ltd. and textile-maker Arvind Mills Ltd. are among those who pay bonuses to hundreds of factory workers around Diwali. But management staff in these companies are typically given performance-linked bonuses. In this globally competitive age, performance-based bonuses best help motivate employees as they are “earned and not just given out,” says Babuji Abraham who heads human resources at information technology firm MindTree Ltd. A standard Diwali bonus which is given every year becomes something that employees take for granted and provides them no incentive to improve their work performance.

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