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Ten Typical Cases of Labor Disputes With Senior Executives(Ⅵ)

2021-03-16

On December 4, 2020, the Beijing Intermediate People’s Court No. 1 held a press conference to inform of labor disputes involving senior executives in recent years and issued the "Beijing’s Ten typical labor dispute cases." River Delta Law Firm conducted a comprehensive interpretation of the ten major cases and put forward corresponding management suggestions for employers.

Case 6: Rules on the Variable Compensation of Senior Executives Prevails
 
Introduction
On March 31, 2014, Li joined a telecommunications company as Deputy General Manager, and the performance salary evaluation system is listed in the onboarding materials. On March 21, 2016, the company terminated the labor relationship, and Li later sued the company for unpaid performance wages. Li argued that performance pay is not affected by the company’s operating conditions, and that the refusal to pay his performance pay based the business losing money is unreasonable and unfounded. After the trial, the court held that Li was a Senior Executive of the company, and his position was obviously different from that of ordinary workers. Therefore, the effectiveness of the performance of his duties was legitimately related to the company’s operating benefits, thus Li’s request was rejected.
 
Judge Interpretation
The company and its Senior Executives are interdependent. On the one hand, the management by Senior Executives may directly determine the company’s operating results and economic benefits. On the other hand, the company pay high compensation to Senior Executives. The purpose of high remuneration is also to motivate them to make greater contributions and obtain higher operating income. When the company has formulated rules for Senior Executives’ performance-based wages and other variable remunerations, and Senior Executives are aware of them, the compensation shall follow the specific rules.
 
Lawyer's suggestions
The functions and powers of Senior Executives are obviously different from those of ordinary workers. There is often a strong correlation between the effectiveness of their performance and the operating benefits of the enterprise. The variable salary of Senior Executives is an important part of their overall labor compensation. In practice, most companies associate the variable compensation of Senior Executives with the company’s overall operation, the completion of goals, and the individual performance appraisal.
 
Employers should consider
1. Have clear rules or mutual agreement on the conditions and procedures for the variable salaries such as performance wages for Senior Executives;
2. In terms of content, it should be legal and reasonable. In terms of procedures, the rules should be formulated and established following the mandatory democratic procedures, and be made public or communicated to Senior Executives;
3. It is particularly important to note that if there are provisions on the variable salary of Senior Executives in the labor contract or collective contract and they are different from the company’s rules, it is crucial to properly connect the two, otherwise Senior Executives can choose to apply the most favorable one.

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