Presidential Approval and Legal Compliance in Corporate Incentives: PSALM v. COA

The Supreme Court's 2020 ruling in Power Sector Assets and Liabilities Management Corporation v. Commission on Audit (G.R. No. 245830) serves as a critical reminder for government-owned and controlled corporations (GOCCs) and their officers: statutory conditions for granting employee benefits cannot be bypassed, and attempts to circumvent the law carry serious personal liability. The case clarifies when presidential approval is required for GOCC incentives, what constitutes excessive benefits, and who must return disallowed amounts.

The Facts of the Case

PSALM, a GOCC created under the Electric Power Industry Reform Act (EPIRA) or Republic Act No. 9136, granted its officials and employees a Corporate Performance Based Incentive (CPBI) equivalent to five and a half months of basic pay, net of tax, totaling Php56,604,286.37. The grant was approved by PSALM's Board of Directors through Resolution No. 2009-1215-006 on 15 December 2009.

The Commission on Audit (COA) disallowed the disbursement. COA found that the grant violated Section 64 of RA 9136, which requires prior presidential approval before granting emoluments and benefits to PSALM personnel. The disbursement also violated Administrative Order No. 103, which suspended the grant of new or additional benefits to government employees, and was deemed excessive under COA Circular 85-55A.

PSALM argued that the CPBI was a "financial reward or incentive," not a "benefit" requiring presidential approval. It also claimed good faith, pointing to a confidential document purportedly bearing the Office of the President's approval.

The Issue

The central question was whether the CPBI grant was properly disallowed for lack of presidential approval and for being excessive, and whether the officers and employees were liable to return the amounts received.

The Court's Ruling

The Supreme Court upheld the disallowance. The Court ruled that the term "all other emoluments and benefits" under Section 64 of RA 9136 covers every kind of financial grant and payment given to PSALM employees, including performance-based incentives. When the law does not distinguish, neither should the Court.

The Court also noted that the supposed presidential approval was procured only on 30 December 2009—after the Board had already approved the grant—and lacked the President's signature. It was not among the records on file with the Malacañang Records Office.

On the issue of excessiveness, the Court cited Executive Order No. 486 and Executive Order No. 518, which set the maximum allowable incentive at three months' basic salary. The five and a half months granted by PSALM exceeded this limit and had no legal basis.

Liability Under the Madera Doctrine

Applying the framework established in Madera v. Commission on Audit, the Court distinguished between approving and certifying officers and mere recipients:

• Approving and certifying officers who acted in good faith are not civilly liable. However, those who acted in bad faith, with malice, or with gross negligence are solidarily liable for the disallowed amount.
• Recipients or payees are liable to return the amounts they received under the principle of solutio indebiti, unless the amounts were genuinely given for services rendered or other exceptions apply.

The Court found that PSALM's officers could not claim good faith. At the time the 2009 CPBI was granted, the audit team had already issued a Notice of Disallowance for the same kind of benefit for 2008. The officers were well aware of the legal requirements and attempted to circumvent them. The Court held this demonstrated malice and gross negligence amounting to bad faith.

The payees were also required to return the amounts received. The Court found no exception applied: the grant was illegal, the amounts were exorbitant (some payees received as much as Php472,680.00), and no undue prejudice would result from requiring return.

Practical Takeaways

• Presidential approval is mandatory. GOCCs created under laws requiring presidential approval for emoluments and benefits must secure such approval before granting incentives, regardless of how the benefit is labeled.
• Prior disallowances matter. A prior Notice of Disallowance for the same type of benefit negates any claim of good faith in subsequent similar grants.
• Incentive rates have limits. GOCCs should be guided by Executive Order No. 486 and No. 518, which cap incentive bonuses at three months' basic salary.
• Officers face personal liability. Approving and certifying officers who act in bad faith or with gross negligence are solidarily liable for disallowed amounts.
• Payees must return disallowed amounts. Recipients of illegal benefits are generally required to return what they received, regardless of good faith.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.