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By Michael Scutt, 28/10/2009 10:10 pm

This is from yesterday’s Telegraph.  Marvellous.  Bad news for employment lawyers, of course.

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By michaelscutt, 05/08/2009 12:00 pm

Unusually for an August the topic of bonuses is back in the news pages.  This isn’t surprising given that the recession has been firmly blamed on reckless bankers supposedly taking unnecessary risks to generate huge returns that almost led the banking system to collapse last autumn.  Both Barclays and HSBC have announced huge profits for the last six months.  In Barclays case it was £3bn up 8% on the equivalent period last year, and the comparable figure for HSBC was £2.8bn.  Both banks also revealed that they were making massive provision for bad debts.  Bob Diamond, the head of Barclays Capital (BarCap) was on the front page of The Independent on Tuesday, where it was reported that he had received a remuneration package in excess of $50mn at the height of the boom.  The Independent also reported that the “average net income generated per member of staff” at BarCap had increased from £134,000 to £193,000 per member of staff in the last six months.   The FT also reports today that a US hedge fund group called Och-Ziff, based in the US made a loss of $88.3mn because of a 74% increase in bonuses paid to its top traders.  At the Dale Langley & Co website we recently posted on the steps the FSA are taking to try and restrict remuneration packages – click here to visit.  The government, the FSA and the public are all determined to stick the boot in.

Much of the anger generated over this issue has been stoked by the fact that the taxpayer bailed out the banking system to prevent its collapse. In the case of Barclays and HSBC, of course, they did not directly receive state funds but are judged to have been indirect beneficiaries of the taxpayers’ largesse.  If this wasn’t August we would, presumably be seeing the usual collection of hippies, anarchists and eco-warriors calling for bankers to be strung up from the nearest lamp-post (where are they - visiting their holiday squats in Tuscany?)  The central issue is how do you balance the need for restraint with incentivising employees to produce the goods?   Some much needed perspective on the whole issue was provided by Sean O’Grady writing in today’s Independent (click here).   He calls for “sensible, intelligent rules” to govern remuneration packages and deplores the hypocrisy that sees people calling for bankers to hand back their bonuses:  “if you or I were offered a £25mn bonus, we wouldn’t hand it back.  Nor would we say no to the taxpayer paying for a second home, as our MPs did”.  Good performance should be rewarded appropriately.

This of course is the nub of the matter as far as employees (and employment lawyers) are concerned.  Over the years I have seen many people who are unhappy with the annual bonus they have been awarded and I’ve written before on the difficult legal issues that arise when it comes to challenging a bonus (click here).  In recent months with all the redundancies occurring, perhaps not surprisingly, it has become less and less common for employers to make any sort of payment in respect of bonus. When negotiating a contract of employment it is always worth trying to include provision for payment, or pro-rata payment, of the bonus that would have been received had the employee remained in employment at the payment date.

Repayment and clawback provisions in new contracts of employment are also becoming increasingly common, especially amongst those banks that have received state funds.  They will usually require that if performance (whether individual or corporate) does not match up to expectations then bonuses paid (including guaranteed bonuses) can be clawed back.  The period of time covered by the clawback can be quite lengthy, perhaps two – three years, meaning that the recipient employee can be left in some uncertainty about how secure the guarantee is. This is an issue that needs to be dealt with at the stage of negotiating the terms of the contract upon joining the business: it can sometimes be renegotiated to the benefit of the employee.   Just recently I have been instructed on a number of contract negotiations by employees who have secured offers of employment – evidence of “green shoots” perhaps?   - and some of the sting of the clawback was removed.

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By michaelscutt, 31/03/2009 9:31 am

The recent indignity suffered by Home Secretary Jacqui Smith over her husband’s viewing of two “adult” films, which she then submitted as part of her parliamentary expenses claim got me thinking again about the slightly older furore over Sir Fred Goodwin and his humungus pension, and the ongoing hysteria over bankers’ bonuses.  I posted a couple of weeks ago on why I thought it unlikely that Harriet Harman’s threat to take government action to recover Sir Fred’s pension would be successful.  In the meantime Congress in the USA has got itself worked up into  a  lather over bankers’ bonuses and is considering a 90% rate of tax on all executives (from those institutions receiving state bail outs, particularly AIG) receiving compensation packages in excess of $250,000. 

When I posted on the subject originally, I said I thought that the politicians were merely trying to deflect attention from their own  inability to actually take meaningful action to mitigate the effects of the recession.  Nothing that has happened since dissuades me from that view.  Indeed reports in the newpapers suggest that President Obama has been coming under some pressure to do something and there are signs that his honeymoon period may be drawing to an end.  A report in the Financial Times on the 27th last was headline “America’s liberal lay into Obama” and he was accused ”of taking dictation from the same financiers who have brought the economy to the brink of depression”.  Some of the (American) people I follow on Twitter are also incensed by his actions (ok, that’s not representative I know but the mood of optimism that greeted his inauguration seems to have withered).  America’s liberals! Heaven help the man!

Politics is never an easy world and politicians will always be criticised whatever they do.  What irks me in with these two particular issues though is how politicians were calling, effectively, for the rule of law to be pushed aside so that valid contractual relationships between employer and employee could be set aside to satisfy the public call for bankers’ blood (and make the politicians look like they were doing something) when at the same time politicians dissatisfied with their incomes are loading their expense claims up onto the taxpayer  bcause they feel their salaries don’t compensate the sufficiently.  Jacqui Smith gets a salary of £141,000.  Her husband, who acts as her parliamentary aide, gets a salary of £40,000 (if the newspapers are to be believed).  She lives in her sister’s house during the week (and that has been the subject of criticism already)  and claims an allowance for that.  I have no issue with what her husband chooses to watch on TV (although I do wonder how stupid he must have been to submit the cost as an expense).  Jacqui Smith is not alone in having her expenses questioned – and no doubt we will be hearing a lot more similar stories in future  –  but I do have an issue with the hypocrisy of politicians (as a class) who criticise bankers for greed when their own actions don’t pass scrutiny. 

I’m not surprised; it was ever thus but let’s just bear it in mind next time Harriet Harman, Gordon Brown, Alistair Darling et al start singling out sections of the working population for special treatment.