Labour Court Database __________________________________________________________________________________ File Number: CD91533 Case Number: LCR13494 Section / Act: S26(1) Parties: GUARDIAN ROYAL EXCHANGE INSURANCE GROUP - and - MANUFACTURING SCIENCE FINANCE |
Dispute concerning the interpretation of a bonus scheme payable to inspectors.
Recommendation:
5. The Court is of the opinion that the key factor bearing on the
calculation of bonus was omitted in error during the negotiations
dealing with the extension of bonus earnings to G.R.E. business.
In the circumstances the Court recommends that the Union's
compromise proposal be accepted by the Company for a period of two
years during which time the parties assess the impact of the
arrangement and if necessary agree to change the system.
Division: Mr O'Connell Mr Collins Ms Ni Mhurchu
Text of Document__________________________________________________________________
CD91533 RECOMMENDATION NO. LCR13494
INDUSTRIAL RELATIONS ACTS, 1946 TO 1990
SECTION 26(1), INDUSTRIAL RELATIONS ACT, 1990
PARTIES: GUARDIAN ROYAL EXCHANGE INSURANCE GROUP
and
MANUFACTURING SCIENCE FINANCE
SUBJECT:
1. Dispute concerning the interpretation of a bonus scheme
payable to inspectors.
BACKGROUND:
2. The Group's operations in Ireland consist of the Caledonian
Insurance Company and the Guardian Royal Exchange - Life Ireland
Limited. Guardian Royal Exchange - Life Ireland was established
in Ireland in 1989 to transact unit linked business.
Operationally the inspectors sell business for both companies. On
the formation of G.R.E. Life a new bonus scheme was introduced to
take account of the business arising from the new Company. The
scheme provided for the payment of a bonus on producing a
threshold level of business (£100,000). Once the threshold is
achieved a bonus payment of 7½% is made, up to a maximum of 18% of
salary. Calculations are based on a bonus of 1.5% per £5,000 of
Caledonian business and 1% per £5,000 of G.R.E. business. When
the Company paid out the bonus to the inspectors in 1990 it was
substantially lower than the amount they had anticipated. The
Union claimed that the Company's method of calculating the bonus
was incorrect. Management rejected the claim. (Examples of both
the Company's and Union's interpretation of the bonus scheme are
attached at Appendix A). The issue was referred to the Labour
Relations Commission on the 7th June, 1991. A conciliation
conference was held on the 10th September, 1991 but no agreement
was reached. The dispute was referred to the Labour Court by the
Labour Relations Commission on the 7th October, 1991. The Court
investigated the dispute on the 25th November, 1991.
UNION'S ARGUMENTS:
3. 1. It is obvious that the determining chronological point for
attainment of threshold is crucial to the calculation of
bonus. There could, for example be an intermix of G.R.E. and
Caledonian business post attainment date of threshold, or
there might be G.R.E. or Caledonian business only. The
Company in its particular interpretation of the agreement
gives maximum advantage to its calculation of bonuses in so
far as all higher bonus production prior to threshold is
included, thereby limiting the maximum post threshold earnings
to the lower bonus by waiting until 1st January. Primary
counting of Caledonian business has been introduced by the
Company, rather than chronological counting. If the opposite
were the case all G.R.E. Life production should be
pre-threshold thereby maximising the higher bonus for
inspectors. The Union contends that the calendar or
chronological time of the attainment of threshold being
reached should be the basis for post threshold bonus
calculation.
COMPANY'S ARGUMENTS:
4. 1. In agreeing the terms of the new scheme, it was the
Company's intention to promote the sale of business for the
new Company G.R.E. Life, but not at the expense of Caledonian
business production. Inspectors were still expected to obtain
Caledonian business up to the threshold level if Caledonian
business was to be paid. However, as a concession during
negotiations, it was agreed that G.R.E. Life business could be
added to Caledonian production if there was a shortfall in
Caledonian business as otherwise the 7.5% threshold bonus
could be withheld and this was not regarded as being equitable
by inspectors. Having agreed to this concession, it was never
Management's intention that the timing of the calculation
would further increase the final bonus payment. The timing of
the calculation of the bonus was not an issue. Historically
calculations had always been done at the end of year of
production and the Company had no reason to imply to
inspectors, either verbally or in writing, that the
calculations would be done in any other way. Furthermore the
date on which the threshold figure was first reached was never
debated, nor was it the subject of any agreements.
2. The substantial additional cost now claimed by the Union
was at no stage taken into account by the Company. It would
have the effect of making the entire bonus scheme non-viable,
particularly bearing in mind the very high fixed costs which
include, comparatively high basic incremental schemes,
non-contributory pension entitlements, company cars, expense
accounts, profit sharing etc. The Union's interpretation of
the bonus scheme will severely affect the Company's attitude
towards future operations. The Court is requested to confirm
that the Company's interpretation of the bonus scheme is both
fair and reasonable.
RECOMMENDATION:
5. The Court is of the opinion that the key factor bearing on the
calculation of bonus was omitted in error during the negotiations
dealing with the extension of bonus earnings to G.R.E. business.
In the circumstances the Court recommends that the Union's
compromise proposal be accepted by the Company for a period of two
years during which time the parties assess the impact of the
arrangement and if necessary agree to change the system.
~
Signed on behalf of the Labour Court
John O'Connell
_______________________
11th December, 1991 Deputy Chairman.
T.O'D./J.C.
APPENDIX A
Difference in Interpretation
The difference in the interpretation arises from the timing of the
calculation of the bonus. The following example illustrates the
point -
An inspector whose basic salary at start of year is, say, £20,000.
Therefore, threshold is £100,000 (£20,000 X 5 times).
At the year end, it is established that his sales performance
£140,000 made up of £80,000 Caledonian and £60,000 GRE-Life
(i) Calculation of Bonus - Company Interpretation and Practise
The threshold of £100,000 was reached, made up of £80,000
Caledonian business and topped-up with £20,000 of total
GRE-Life business.
Therefore, a bonus of 7.5% is initially payable and a further
bonus calculation is required in respect of the remaining
£40,000 GRE-Life business.
GRE-Life Bonus on £40,000 = 90% of premium (£40,000)
= £36,000 X 1%
= £360
PLUS Threshold 7.5% of
£20,000 salary = £1,500
_______
Total Bonus £1,860
(ii) Union's Interpretation of Calculation
(same example)
If, say, by September, £55,000 Caledonian business and
£45,000 GRE-Life business had been achieved.
Threshold therefore (£100,000) achieved in September = 7.5%
of salary.
September to December Period.
£25,000 Caledonian business
and £15,000 GRE-Life business achieved
£25,000 Caledonian = 5 times 1.5% = 7.5% bonus
£15,000 GRE-Life = 90% of £15,000 = £13,500 X 1% = £135
_____
Total Bonus - Threshold 7.5%| - 15% of salary
plus, a further 7.5%|
plus £135
= £3,135 in Total.
(iii) Cost Difference in Both Interpretations
£3,135 (union) less £1,860 (company) = £1,275.