Incentive-based remuneration enables employers to attract talented employees, retain them, create a sense of loyalty, reward good performance and increase motivation. Aligning performance and rewards is a key consideration for all modern employers. In the short term employees performing the operational tasks of the employer are often rewarded by the payment of an annual bonus, which may be 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 a multitude of bonus models, share schemes and deferred compensation arrangements albeit that many have common themes. The payment of bonuses is an increasingly hot topic and firms which are regulated by the Prudential Regulation Authority (PRA) will have to ensure that variable remuneration is subject to clawback for a period of at least seven years from the date on which it is awarded.

In the context of bonuses and deferred compensation our team of specialist employment lawyers regularly advise employers on a wide range of issues including the following:

  • 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
  • termination of employment and the implications for bonuses
  • remedies for non-payment of bonuses and deferred compensation
  • bonuses and unlawful deductions claims
  • calculation of bonuses on termination
  • bonus issues for workers on maternity leave
  • taxation of bonuses
  • requirements for listed companies given the provisions of the UK Corporate Governance Code and the ABI/NAPF guidelines
  • remuneration codes in the financial services sector
  • good leaver/bad leaver provisions in deferred compensation schemes

Perhaps the hottest issue for employers is in relation to discretionary bonuses. Over the years the question of how discretionary a discretionary bonus is has been much debated by the courts.

Our recent experience includes advising clients upon the CRD IV provisions on bankers’ bonus caps i.e. the ratio of fixed pay to variable pay.

How Fox & Partners can help…

  • drafting bonus clauses for employers which avoid costly disputes with well remunerated employees.
  • advice on employers’ 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.

Please call us on 020 7618 2400