At one time where the market was the employees market.
Workers were quiting and signing up at another
company with pay rise each time.
In order to address this spate of resignation
especially at the end of November, they introduce the
AWS, the Annual Wage Supplement. There is a catch. To get this AWS,
one has to be on the company payroll on 31 December.
This made many employees to stay till 31 December, and submit
their resignation on 2 January giving one month notice. This cause
the worker to "lose" one month at the new company, which in turn
affect the AWS of that year as it is pro-rated to 31 Dec.
The quantum of payment is recommended at one month, thus it
is also called the 13th month pay.
Besides encouraging the worker to stay till the end of the year,
it is also a mechanism to keep monthly wages low, but annual income
high.