(Management Prerogative)

G.R. No. 168654 March 25, 2009

ZAYBER JOHN B. PROTACIO, Petitioner, vs. LAYA MANANGHAYA & CO. and/or MARIO MANANGHAYA,
Respondents

TINGA, J.:

FACTS:
Respondent KPMG Mananghaya & Co. hired petitioner Zayber John B. Protacio as Tax Manager in 1996.
He was subsequently promoted as Senior Tax Manager then as Tax Principal in 1 October 1997.
However, petitioner resigned effective 30 September 1999. On 1 December 1999, petitioner sent a
letter to responded firm demanding the immediate payment of his 13
th
month pay, the cash
commutation of his leave credits and the issuance of his 1999 Certificate of Income Tax Withheld on
Compensation. He sent two more demand letters for the payment of his reimbursement claims under
pain of a legal action.

Respondent firm failed to act upon the demand letters. Thus, on 15 December 1999, petitioner filed
before the NLRC a complaint for the non-issuance of petitioners W-2 tax form for 1999 and the non-
payment of the following benefits: 1) cash equivalent of petitioners leave credits in the amount of
P55,467.60; 2) proportionate 13
th
month pay for 1999; 3) reimbursement claims of P19,012; and 4) lump
sum pay for the FY 1999 of P674,756.7. He also sought moral and exemplary damages and attorneys
fees.

During the pendency of the case, respondent firm on three occasions sent check payments to petitioner
in the following amounts: 1) P17,250 13
th
month pay; 2) P54,824.18 cash equivalent of his leave credits
and reimbursement claims; and 3) P10,762.57 refund of taxes withheld on his vacation leave credits.
Petitioner acknowledged the receipt of the 13
th
month pay but disputed the computation of the cash
value of his vacation leave credits and reimbursement claims.

The Labor Arbiter rendered a decision, ordering respondent to pay complainant the following: P12,681
reimbursement claims; P28,407.08 for underpayment of cash equivalent of the unused leave credits;
P573,000 year-end lump sum payment for 1999, and; 10% of total judgment awards way of attorneys
fees.

The Labor Arbiter held that the respondent firm had erroneously based the computation of the cash
equivalent of the leave credits on a basic pay of P61,000. He held that evidence showed that petitioners
monthly basic salary was P95,000 inclusive of the other benefits that were deemed included and
integrated in the basic salary and that respondent firm had computed petitioners 13
th
month pay based
on a monthly basic pay of P95,000, thus the cash commutation of the leave credits should also be based
on this figure.

The Labor Arbiter also ruled that petitioner was entitled to a year-end payment of P573,000 on the basis
of the company policy of granting yearly lump sum payments to petitioner during all the years of service
and that respondent firm had failed to give petitioner the same benefit for 1999 without any
explanation.

Respondent firm appealed to the NLRC which rendered a judgment affirming its earlier ruling with the
modification that complainant is only entitled to receive P2,301 as reimbursement claims. The award of
P12,681 was set aside for lack of basis while affirming the findings on the issues of lump sum payments
and cash equivalents of leave credits. After being denied by NLRC its petition for reconsideration,
respondent elevated the matter to the Court of Appeals.

The CA further reduced total money award to petitioner to P2,301 for reimbursement claims,
P9,8012.83 for underpayment of cash equivalent of unused leave credits, and P10,000 attorneys fees.
With respect to the award of the year-end lump sum, the CA held that while the lump sum payment
which petitioner was entitled, the payment thereof was contingent upon the financial position of the
firm. Petitioner brought the matter to the Supreme Court.

ISSUE:
Whether or not petitioner is entitled to the year-end lump sum as part of his compensation package.

RULING:
The evidence on record establishes that aside from the basic monthly compensation, petitioner received
a yearly lump sum amount during the first two years of his employment, with payments made to him
after the annual net incomes of the firm had been determined. Thus, the amounts thereof varied and
were dependent on the firms cash position and financial performance. In one of the letters of
Mananghaya to petitioner, the amount was referred to as petitioners share in the incentive
compensation program.

While the amount was drawn from the annual net income of the firm, the distribution to non-partners
of employees of the firm was not a profit-sharing arrangement contrary to CAs finding. The payment to
non-partners like the petitioner was discretionary on the part of the chairman and managing chairman
coming from their authority to fix compensation of any employee based on a share in the partnerships
net income. The distribution being merely discretionary, the year-end lump sum payment may properly
be considered as a year-end bonus or incentive. Contrary to petitioners claim, the granting of the year-
end lump sum amount was payable only after the firms annual net income and cash position were
determined.

A bonus is a gratuity, or act of liberality of the giver. It is something given in addition to what is
ordinarily received by or strictly due the recipient. A bonus is granted and paid to an employee for his
industry and loyalty which contributed to the success of the employers business and made possible the
realization of profits. Generally, a bonus is not a demandable and enforceable obligation. It is so only
when it is made part of the wage or salary or compensation. When considered as part of the
compensation and therefore demandable and enforceable, the amount is usually fixed. If the amount
would be dependent upon the realization of profits, the bonus is also not demandable and enforceable.

Thus, petitioners claim that the year-end lump sum represented the balance of his total compensation
package is incorrect. The fact remains that the amount paid to petitioner on the two occasions varied
and were always dependent upon the firms financial position.

In Philippine Duplicators, Inc. v. NLRC, the Court held that if the bonus is paid only if profits are realized
or a certain amount of productivity achieved, it cannot be considered part of wages. Only when the
employer promises and agrees to give without any conditions imposed for its payment, does the bonus
become part of the wage.

The granting of the bonus is basically a management prerogative which cannot be enforced upon the
employer who may not be obliged to assume the onerous burden of granting bonuses or other benefits
aside from the employees basic salaries or wages. Respondents had consistently maintained that
petitioner was not entitled to the bonus as a matter of right. The payment of the year-end lump sum
bonus based upon the firms productivity or the individual performance of tis employees was well within
respondent firms prerogative. Thus, respondent was also justified in declining to give the bonus to
petitioner on account of the latters unsatisfactory performance. The granting of the year-end lump sum
bonus was discretionary and conditional, thus, petitioner may not question the basis for the granting of
a mere privilege.

The monthly compensation of P71,250 used as base figure by the CA is totally without basis. As correctly
held by the Labor Arbiter and the NLRC, the evidence on record reveals that petitioner was receiving a
monthly compensation of P95,000 consisting of a basic salary of P61,000, advance incentive pay of
P15,000, transportation allowance of P15,000, and representation allowance of P4,000, totalling to
P95,000 and are all deemed part of petitioners monthly compensation package, and as such, should be
the basis in the cash commutation of his leave credits. These allowances were customarily furnished by
respondent firm and regularly received by the petitioner on top of the basic monthly pay of P61,000.
Moreover, respondent firms act of paying petitioner a 13
th
month pay at the rate of P95,000 was as
admission that petitioners basic monthly salary was P95,000.

The Court was also perplexed on the use of the CA, the Labor Arbiter and the NLRC of a 30-working day
divisor instead of 26 days which petitioner insists and which even the respondent firm used in the cash
commutation of leave credits. The reliance of CA on Section 2, Rule IV, Book III of the Implementing
Rules of Labor Code in using the 30-day working divisor is inapplicable to the instant case because it
referred to the computation of holiday pay for monthly-paid employees.

Thus, with a monthly compensation of P95,000 and using a 26-working day divisor, petitioners daily
rate is P3,653.85. Based on this rate, petitioners cash equivalent of his leave credits of 23.5 is
P85,865.48. Since he has already received the amount of P46,009.67, a balance of P39,855.80 remains
payable to petitioner.

Wherefore, the instant petition for review on certiorari is partly granted. The Decision of the CA is
affirmed with the modification that respondents are liable for the underpayment of the cash equivalent
of petitioners leave credits in the amount of P39,855.80.

Protacio KPMG LA NLRC CA SC
13
TH
mo-pay P71,250 (based
on P95K rate)

Cash equivalent of
leave credits (23.5)
55,467.6 54,824.18 (of
w/c P46,009.67
cash equiv. of
leave credits)
10,762.57
(refund)
28,407.08
(95K/30days x
23.5-
46,009.67)
Affirmed
LA
9,802.83
(71,250/30 day-
divisorx23.5-
46,009.67)
39,855.8 (95K/26
days x 23.5 =
85,865.48-
46,009.67)
Reimbursement
claims
19,012.0 12,681 2,301 Affirmed NLRC Affirmed CA
Year-end lump sum 674,756.7 X 573,000 Affirmed
LA
X Affirmed CA
Exemplary damages/
Atty.s fees
10% of total
award
10K Affirmed CA