Incentive-based remuneration creates a sense of loyalty, rewards good performance and increases motivation. Aligning performance and rewards is a priority for all employers. In the short term employees performing operational tasks are often rewarded by the payment of an annual bonus, which may be described as discretionary. Beating competitors in the medium term may be rewarded by LTIPs whilst share price growth in the long term is typically rewarded by options and share ownership.
There are many different types of bonus models, share schemes and deferred compensation arrangements. The payment of bonuses is an increasingly hot topic. Firms regulated by the Prudential Regulation Authority (PRA) now have to ensure that variable remuneration is subject to clawback for at least seven years from the date of award.
Specialist employment lawyers at Fox & Partners advise on:
- different types of bonus (non-contractual, contractual with performance criteria and contractual with specific terms)
- repayable bonuses/clawbacks
- limitations on the employer’s exercise of discretion and the ability to withhold a bonus payment
- termination of employment and the implications for an employee’s bonus
- remedies for non-payment of bonuses and deferred compensation
- bonuses and unlawful deductions claims
- calculation of bonuses on termination
- bonuses for those on maternity leave
- requirements for listed companies, the UK Corporate Governance Code and the ABI/NAPF guidelines
- remuneration codes in the financial services sector
Perhaps the hottest issue for employees is in relation to discretionary bonuses. Over the years the courts have debated limitations on the exercise of an employer’s discretion in relation to bonuses.
Our recent experience includes:
- advising a senior director of a major European bank upon the CRD IV provisions on bankers’ bonus caps i.e. the ratio of fixed pay to variable pay
- providing an opinion for the CEO of a funds management company summarily dismissed without cause. Our opinion covered areas as diverse as the confiscatory non-payment of a seven figure discretionary bonus award, deferred compensation, the determination by the remuneration committee of good/bad leaver status for our client and the remedies available to him
- settling a letter for the chief investment officer of an asset management company to send to the managing director inviting the board of directors to provide our client with an explanation as to the reasons for its provisional assessment to award a nil bonus and to reconsider its decision (resulting in a successful outcome for our client).
How Fox & Partners can help…
- clear drafting of bonus clauses reduces the risk of costly disputes, we aim to provide clear and concise guidance on offer letters and employment contracts
- we provide employees with bespoke advice on their legal rights and obligations knowing that for discretionary bonus awards the burden of proof is on an employee to establish that his or her employer has been irrational or perverse and that the burden of proof is not easy to discharge.
Please call us on 020 7618 2400