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01 March 2012

News - Bonuses; a Contractual Entitlement?

By Ben Turner @ 06:21 :: 1531 Views :: 1 Comments :: Article Rating
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Employment expert Alan Jones, partner at Averta, comments on the recent decision by Lloyds Bank to withdraw bonuses from senior executives and directors because of the scandal of mis-sold insurance:

I predicted in 2010 that we could expect to see extreme pressure on bonus payments, and that banks and financial institutions may exert their right to withdraw bonuses if financial performance was poor. 

Now Lloyds Bank becomes the first to ‘adjust’ the bonuses of a number of directors and senior executives and HSBC looks like it might follow. The reason quoted for the ‘claw back’ is the impact of payment protection insurance mis-selling. It is thought that others may follow.

So politically and maybe emotionally the right thing to do, as there is a widely held belief that the bankers are responsible for our current financial turmoil. And it is therefore unlikely that any of the bankers will not accept the ‘adjustment’, for fear of public opinion.

But what attitude would the courts take to banks refusing to make payments to senior executives?

In early 2010, the High Court have rejected arguments raised by a major bank that executives must give up their contractual benefits because of subsequent unforeseen events (that is, the recession), or that because each executive had a contractual obligation to act in its employer’s best interests, they should not receive their contractual bonuses. The court felt the contractual terms were sacrosanct as the bonuses had in effect been “declared”, even though the bonuses were said to be “discretionary”. 

It will come as no surprise that this case involved many millions of Euros in bonus payments and skilful (and expensive) legal advisers would have considered the case from every angle. 

However this case is just as relevant for the executive whose bonus expectation is a fraction (rather than a multiple) of his or her salary and who will be comforted to know that some of the creative arguments that employers adopt in trying to avoid bonus payments, will not necessarily succeed in court.

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comment By mike33 @ 23 July 2012 21:19
I think stopping these bonuses is so good to see. This is definitely way too much money going out that does not need to go out. All companies should be doing this. Industrial filter

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