The size of bankers' bonuses has been in the public eye since the collapse of Lehman Brothers and the unwinding financial crisis. In a recent case 104 bankers were able to rely on a verbal
The size of bankers' bonuses has been in the public eye since the collapse of Lehman Brothers and the unwinding financial crisis. In a recent case 104 bankers were able to rely on a verbal announcement from their former CEO to claim bonuses amounting to a total of €400 million. This case is of particular interest because it highlights the need for employers to take great care in communicating bonus issues to staff.
In August 2008 the CEO of Dresdner Kleinwort Investment Banking made an announcement to staff promising a "guaranteed minimum bonus pool" of €400 million. by reference to performance "in the usual way". The bonus was announced in an attempt to encourage staff retention, following news that Dresdner intended to sell its Investment Bank Division to Commerzbank AG and in light of concern expressed by both management and the FSA about the potential for staff to leave and the destabilising effect this may have.
In December 2008, and at the height of the financial crisis, Dresdner attempted to introduce a clause in the employees' bonus letters to say their bonus would be adjusted if there was a material negative decrease in Dresdner's revenue and earnings. Dresdner ultimately relied on this clause to reduce the employees' bonus by 90% and unsurprisingly the employees were not happy about this.
The Court decided that the promise made by Dresdner's CEO amounted to a contractual obligation to pay discretionary bonuses from a guaranteed minimum pool of €400 million, subject to individual performance. As this announcement gave rise to a binding obligation, Dresdner's later attempt to introduce a clause entitling it to reduce the amount of bonus was not valid. The court commented that even if the verbal announcement had not been binding, the later clause breached the implied term of trust and confidence between employer and employee. It was apparent that the clause had been motivated by general political pressures at the time and in particular pressure from Commerzbank, who had received €18.2 billion from the German government at the height of the financial crisis.
This case was decided on its own facts but it is clear that an announcement to a group of employees about their bonus entitlement has the potential to be contractually binding. Such an announcement may be binding even if it does not specifically identify who is entitled to the bonus (as long as this is apparent from the surrounding facts) or the amount of bonus payable to each individual staff member.
Employers should ensure they consider very carefully the circumstances under which they may wish to reduce an employee's bonus (for example if there is a significant financial drop in performance) and expressly refer to these circumstances in any contractual terms or bonus scheme documents. This is of course a difficult task for the employer as it is not always possible to anticipate what will happen in the future.
In August 2008 the CEO of Dresdner Kleinwort Investment Banking made an announcement to staff promising a "guaranteed minimum bonus pool" of €400 million. by reference to performance "in the usual way". The bonus was announced in an attempt to encourage staff retention, following news that Dresdner intended to sell its Investment Bank Division to Commerzbank AG and in light of concern expressed by both management and the FSA about the potential for staff to leave and the destabilising effect this may have.
In December 2008, and at the height of the financial crisis, Dresdner attempted to introduce a clause in the employees' bonus letters to say their bonus would be adjusted if there was a material negative decrease in Dresdner's revenue and earnings. Dresdner ultimately relied on this clause to reduce the employees' bonus by 90% and unsurprisingly the employees were not happy about this.
The Court decided that the promise made by Dresdner's CEO amounted to a contractual obligation to pay discretionary bonuses from a guaranteed minimum pool of €400 million, subject to individual performance. As this announcement gave rise to a binding obligation, Dresdner's later attempt to introduce a clause entitling it to reduce the amount of bonus was not valid. The court commented that even if the verbal announcement had not been binding, the later clause breached the implied term of trust and confidence between employer and employee. It was apparent that the clause had been motivated by general political pressures at the time and in particular pressure from Commerzbank, who had received €18.2 billion from the German government at the height of the financial crisis.
This case was decided on its own facts but it is clear that an announcement to a group of employees about their bonus entitlement has the potential to be contractually binding. Such an announcement may be binding even if it does not specifically identify who is entitled to the bonus (as long as this is apparent from the surrounding facts) or the amount of bonus payable to each individual staff member.
Employers should ensure they consider very carefully the circumstances under which they may wish to reduce an employee's bonus (for example if there is a significant financial drop in performance) and expressly refer to these circumstances in any contractual terms or bonus scheme documents. This is of course a difficult task for the employer as it is not always possible to anticipate what will happen in the future.