Executive summary

In the Philippines, a retiree’s entitlement to a prior-year performance bonus depends on (1) the legal character of the bonus (discretionary vs. demandable), (2) what the contract/CBA/policy says about eligibility at payout, (3) whether the bonus was already earned or accrued before retirement, and (4) whether consistent, deliberate company practice has made the bonus demandable. There is no law that automatically grants a private-sector retiree a performance bonus for the previous year; however, many retirees succeed in claiming it when the scheme is formula-based, contractually promised, or has become a company practice, or when the employer already recognized it as an accrued obligation.

Below is a practitioner-style treatment, organized for quick use.

1) Legal sources that frame the issue

A. Labor Code and retirement statute

Retirement pay (R.A. 7641) guarantees retirement benefits at minimum levels. It does not transform performance bonuses into part of retirement pay unless the bonus forms part of “salary” by agreement or established practice. By default, retirement pay is computed from basic salary (with statutory inclusions like 13th-month fraction and service incentive leave equivalent), not from discretionary bonuses.

B. 13th-Month Pay vs. bonuses

13th-month pay (a statutory benefit) is distinct from performance bonuses (generally ex gratia unless contractually promised). Don’t conflate them. A retiree’s prorated 13th-month for the service months rendered before retirement is ordinarily due; this article, however, focuses on performance or incentive bonuses beyond the 13th-month.

C. Private contracts and CBAs

Employment contracts, executive plans, sales incentive plans, and collective bargaining agreements (CBAs) can make a bonus demandable by prescribing specific conditions, formulas, or eligibility rules. If such instruments exist, they control—subject to rules on ambiguity (construed against the drafter) and on unlawful forfeitures.

D. Doctrine on “bonus as company practice”

Even absent a written promise, a bonus may become demandable if the employer gives it regularly, consistently, and deliberately over time in a way that creates a reasonable employee expectation. The inquiry is factual: frequency, consistency, and employer intent matter. Occasional or qualified grants (e.g., expressly “subject to management discretion each year”) generally do not ripen into a vested right.

2) The four decisive questions in retiree claims

Q1: Is the bonus discretionary or demandable?

Discretionary: Paid only when management chooses, without a fixed formula; usually described as “ex gratia,” “subject to company performance and Board approval,” or “non-guaranteed.” Retirees normally cannot compel payment unless the employer had already approved or accrued the specific bonus before the retirement date.
Demandable: Where a plan, CBA, or policy sets objective metrics (e.g., EBIT targets, performance ratings) and provides that qualifying employees shall receive X% of salary upon meeting those metrics. Once the conditions are met, the bonus vests for eligible employees, even if payout is scheduled later.

Q2: Was the bonus earned during the period when the employee was still employed?

If the performance period (e.g., January–December 2024) has ended and the retiree met all performance conditions while still employed, the bonus is generally earned (subject to plan eligibility rules) even if the company normally pays it in, say, March 2025 after audits. Where the plan is formula-based and only the ministerial act of computation/approval remains, claims are stronger.

Q3: Does the plan require the employee to be “actively employed on payout date”?

Many plans include an “active employment on payout” condition. Philippine tribunals typically enforce such clauses if they are clear, written, and consistently applied, unless they result in forfeiture of a benefit already earned or contradict a CBA/contract. Outcomes turn on drafting:
- If the clause states the bonus is earned only upon Board approval at payout, the retiree may fail.
- If the plan says the bonus is earned at year-end upon meeting KPIs, with payout later for administrative reasons, an “active on payout” clause may be viewed as an invalid forfeiture as to retirees (especially involuntary separations).

Q4: Has the employer recognized the bonus as an accrued liability?

Where management (or finance) has formally approved the bonus pool, issued notices of award, booked accruals, or communicated definitive amounts before the retirement date, the retiree’s claim strengthens: the bonus is no longer “discretionary,” merely unpaid.

3) Typical scenarios and likely outcomes

CBA-mandated, KPI-based bonus; year completed before retirement; no “active on payout” condition → Retiree likely entitled, in full or prorated per CBA.
Written incentive plan says: “subject to Board approval; employees must be active on payout date”
- Retired before approval: entitlement is weak unless there is evidence the amount was already fixed/approved or the clause is applied inconsistently.
- Retired after approval/award: entitled (the right has vested), even if actual payment is later.
Long, consistent practice of paying a formula-like bonus every March for last year’s results; no clear written reservation of discretion → May be treated as company practice; retirees who completed the performance year often recover (sometimes prorated to employment months).
Discretionary “profit-sharing” granted only in profitable years; announcement varies and often omits some groups → No vested right. Retiree claims usually fail absent proof of accrual/approval before retirement.
Executive long-term incentive (LTI) with cliff/vesting dates beyond retirement → Follow plan rules. If retirement qualifies as a good-leaver event, unvested tranches may accelerate or continue vesting; otherwise, they may forfeit. Read the plan carefully.

4) Private-sector vs. government-sector distinctions

Private sector: Governed by contract/CBA, company policies, and practice. No statute compels a performance bonus to retirees absent vested entitlement.
Public sector: Annual performance bonuses (e.g., PBB/PEI) are governed by budget and administrative guidelines that change over time. Eligibility often turns on actual service during the performance period, ratings, and status on the cut-off date. Retirees can sometimes qualify if they rendered service for the covered year and satisfied rating rules, but details vary by issuance and year.

Because public-sector rules are highly year-specific, always check the exact circulars for the covered year and agency.

5) Evidence that wins (or loses) retiree bonus claims

Helpful to retirees

Plan/CBA text showing entitlement and year-end vesting.
Emails or HR circulars announcing the bonus for the year and confirming inclusion of the retiree.
Board/management resolutions or financial accruals recorded before retirement.
Proof of consistent payment in prior years to similarly situated retirees (practice).
Performance appraisals meeting thresholds; finalized KPI scorecards.

Helpful to employers

Clear reservation of discretion and active-on-payout conditions, consistently enforced.
Records showing bonus amounts are set only after year-end approval, not earned before.
Evidence that prior grants were sporadic or conditional, not a practice.
Signed acknowledgments by employees of plan rules.

6) Proration, timing, and offsets

Proration: If the plan or CBA calls for proration upon mid-year separation/retirement, follow that formula. In the absence of a clause, tribunals sometimes equity-prorate when performance for part of the year indisputably contributed to the results and the scheme is otherwise formula-based.
Timing: If the right vested before retirement, payment is due on the plan’s normal payout date, with legal interest if delayed after demand.
Set-off: Employers can offset undisputed company receivables (e.g., cash advances) against bonus only if authorized by law or written consent, and without diminishing statutory benefits.

7) Tax, SSS/PhilHealth, and payroll compliance (high-level)

Income tax: Bonuses are generally taxable compensation when paid or constructively received, subject to prevailing exempt caps (which may change). Retirement pay under R.A. 7641 (and certain qualified plans) can be income tax-exempt under the Tax Code when conditions are met; this is separate from any performance bonus.
Contributions: Performance bonuses typically do not form part of the SSS/PhilHealth/HDMF contribution base; however, confirm current rules and internal payroll policies.
Substantiation: Keep the plan document, approval minutes, payroll run, withholding computation, and quitclaim wording aligned.

(Specific tax thresholds and contribution bases change, so verify current BIR/SSS/PhilHealth issuances for the exact year.)

8) Drafting tips for employers (to reduce disputes)

State when the bonus is earned (e.g., only upon Board approval vs. at year-end if KPIs met).
State whether employees must be active on payout and carve-out any good-leaver exceptions (retirement, death, disability, redundancy).
Use explicit proration rules for partial-year service.
Clarify discretion (pool size, individual modifiers) and non-vesting language.
Preserve the policy from becoming “practice” by adding an annual reaffirmation that bonuses remain non-precedential.
Apply rules consistently and document approvals and accruals.

9) Practical playbook for retirees (and HR)

Identify the instrument: CBA? Incentive plan? Handbook? Offer letter?
Locate vesting language: Does entitlement vest at year-end or only upon approval?
Check eligibility gates: “Active on payout,” performance rating floor, disciplinary clean record, not on PIP, etc.
Gather proof: Prior years’ payslips, HR circulars, management memos, accrual entries.
Assess timing: If retirement followed year-end and KPIs are met, argue earned right; request proration if mid-year.
Negotiate the quitclaim: If the company offers a quitclaim, ensure it expressly includes payment (or denial) of the prior-year bonus to avoid later disputes.
Escalation: If unresolved, consider a money claim (within prescriptive periods), mindful that documentary evidence is key.

10) Quick answers to common questions

Q: I retired in February 2025. The bonus covers my work in 2024 but pays in March 2025. Am I entitled? A: It depends on your plan. If entitlement vests at 2024 year-end upon meeting KPIs (and you did), you have a strong claim—even if you’re not active on the payout date—unless a valid “active on payout” condition applies. If the plan says the bonus exists only after Board approval and you retired before that approval, your claim is weaker.
Q: HR says the bonus is “discretionary,” but we’ve received it every March for 7 years using a fixed formula. A: Labels aren’t decisive. Long, consistent, formula-based payments can be treated as demandable practice. The employer’s contrary label may not prevail if behavior shows otherwise.
Q: Can my retirement pay be used to offset the prior-year bonus? A: Statutory retirement pay has special protection. Offsets require legal basis and/or written consent and cannot reduce statutory minima.
Q: We have a CBA that promises a performance bonus if profits exceed a threshold. I retired after year-end but before payout; profits exceeded the threshold. A: CBAs are binding. Unless the CBA requires being active on payout, you are generally entitled, potentially prorated.

11) Takeaways

There is no automatic right to a prior-year performance bonus for retirees in the private sector.
Rights are strongest when the bonus is contractual or formula-based, earned during employment, and not conditioned on being active at payout—or when a company practice has effectively created a right.
Government-sector eligibility is issuance-specific; always consult the circulars for the covered year.
For both sides, clarity in drafting, consistency in application, and documentation decide most cases.

12) Model clauses (for clarity)

Good-leaver carve-out: “Notwithstanding the ‘active on payout date’ rule, employees who separate due to retirement, death, permanent disability, or authorized causes remain eligible for any earned bonus for the completed performance year immediately preceding separation, payable on the regular payout schedule.”
Year-end vesting: “Subject to validated financials, the Annual Performance Bonus vests as of December 31 of the performance year for employees meeting all KPIs and conduct requirements. Board approval thereafter is administrative and does not create the entitlement.”
Discretion + non-precedent: “The Company may, in its sole discretion, grant or withhold a bonus each year. No past payment constitutes a promise or practice, and the Company reserves the right to vary or discontinue the scheme without notice.”

Final note

This article synthesizes prevailing Philippine legal principles and common plan designs. For a concrete case, read the exact plan/CBA language, payroll records, and management approvals for the covered year—that paperwork usually makes (or breaks) the claim.