Thursday, 12 February 2009

Just Bonuses!

I was discussing the topical issue of Bankers and their bonuses with a solicitor today who wanted to know my opinion based on my knowledge of contract law.

I caught most of the recent parliamentary committee meeting with the Bankers (the one where they all apologised) and I watched the Prime Minister before a different parliamentary committee this morning. I thought all of these hearings were pretty tedious and I can't see how much good could come out of it. I think the government could have done a better job of preparing for the current public disquiet over bonuses when it decided to bail them out.

One of the bankers before the committee informed the MPs that, having sought legal advice, they had been told that they were obliged to pay bonuses if they were stipulated in an employee's contract. With this in mind, I found one particular question by an MP quite surprising. This MP asked a banker whether he could appreciate the view of the wider public that these bankers should not be paid the bonuses they were promised in their employment contract and that surely they shouldn't be paying them out. I thought it was strange how this MP was being so callous in his analysis of an employee's right to be paid their due.

My conclusion is: the bankers aren't to be blamed in this respect. I think there is an inherent problem in the word 'Bonus'. By itself, it suggests that its something surplus to standard requirements; and, in a banking context, the wider public see it as something of an excessive windfall. Now, I acknowledge that, applied to certain bankers, this definition rings true. But it absolutely doesn't for certain bankers in the low-mid level of the profession.

If this issue was to be litigated before the courts, it seems to me that the word 'bonus' itself should be considered closely. For some employees, a bonus isn't a bonus in the real sense of the word but rather no more than their standard salary. The court's assessment should take into account the employee contract itself and what the employee has come to expect in practice in light of the work he does. If its clear that a windfall is being made where not a lot of work is being done, then they should not be rewarded.

Finally, the government is partially to blame for their failure to consider the Bonus issue at the time they bailed out the banks.

1 comment:

.C. said...

Although if this case was to be litigated before courts the word bonus would be irrelevant as there would be enough clauses in the bankers contract of employment, express or implied, which would clarify exactly what they were entitled to. A legal definition is irrelevant in such employment contracts. In reality the court will look at what warrants the individual bonus: hard work, regardless of profit, may perhaps mean they are still entitled: profit/ commission based bonuses would suggest they are not. If bonuses are merely lump sum payments awarded regardless of other factors an employment court might deem them payable in line with the bank's precedent. In general though employment contracts are handled in a very different way to service contracts.

The biggest problem with the banker's case is that it is a moral dilemma which appears to be being deliberated outside the scope of employment law: If the bankers are legally entitled the only legal way morality will prevail is if he bonus' are given and relinquished by the payee on moral grounds. Although it is more likely that the banker's contracts are laced with discretionary clauses for bonuses which are even more complex as the expectations of both parties must be considered: this would therefore include the "expectations" of the publicly owned shares which is the minefield that these committee meetings are probably trying to deal with: although, in fairness, i havent been paying much attention to them.