Bonuses
The subject of bonuses, particularly large discretionary bonuses paid to bankers, has been a hot topic over the last few months and several high profile figures have become embroiled in a media storm over whether they should have been paid them in the first place, or whether they should repay. However, the law surrounding bonuses has not had the amount of public discussion it perhaps deserved.
We have substantial experience in advising employees on the issue of bonuses. Generally speaking there are two types;
GuaranteedSome employees (probably a decreasing number at the moment) will be granted a guaranteed bonus when they sign on with a new employer. This can be to compensate them for giving up a bonus or equity allocations at their previous job, or merely an incentive for joining up. The bonus is said to be guaranteed because the employer will commit itself in the contract of employment (or a side document) to either pay a certain sum or to pay a sum guaranteed to be not lower than a fixed sum. The bonus will usually be payable on a specified date in the future provided the employee is still in employment. This type of arrangement will almost certainly be contractually binding and if the employer does not honour it there may be a claim for breach of contract and/or debt.
DiscretionaryThe law surrounding these types of bonus is more complex and an employee dissatisfied with the bonus they have been awarded faces a much harder task in trying to challenge it in the courts. As a starting point the employee is usually only contractually eligible to be considered for a bonus. The employer will not commit to stating a figure in advance of the bonus round. It is always important to look at the precise wording of the bonus scheme to see whether the employer has qualified its exercise of its discretion in any way. For instance, will the level of bonus be considered solely on the individual employee’s performance or with reference to the team or wider businesses achievements?
An employee who wishes to challenge the level of bonus faces an uphill struggle. The employee will have to prove that the employer failed to exercise its discretion reasonably. In the case of Commerzbank v Keene in 2006 the Judge held that this required an employee to show that the employer had acted perversely or irrationally in failing to pay a higher bonus. That is not an easy burden.
Bonuses by way of commission paymentsThe level of such payments should be calculable by reference to performance and achieving targets. If an employee hits their target and the employer fails to pay a claim for breach of contract and/or unlawful deduction of wages may arise.
Please contact us on 0207 464 8433 for further advice if you have queries on any of the issues raised above.