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Banks’ switch to higher bonuses and away from fixed salaries will have inevitable legal challenges

Banks’ switch to higher bonuses and away from fixed salaries will have inevitable legal challenges


A shift away from fixed salaries to larger bonuses for bankers will come with inevitable legal risks, says Dean Fuller, Partner at Fox & Partners, the employment law specialists, following the abolition of the cap on bankers’ bonuses next week

Says Dean Fuller: “A lot of bankers have got used to more predictable earnings through increased levels of fixed salary and may resist a system where a much higher percentage of their compensation is based on a variable and usually discretionary bonus.”

“HR teams are going to find any wholesale shift to bonuses a legal and practical challenge – you can’t unilaterally change such an important part of an employment contract without risking employment disputes along the way.”

“Banks will likely have to introduce higher bonuses slowly, through new hires, a gradual roll out of new policies or with those “star performers” who are doing so well they feel they have nothing to lose by freezing their basic salary in exchange for a bigger bonus potential.”

“Bigger bonuses also bring the potential for more bitter and hard-fought legal disputes.”

“The law has progressed somewhat since the cap on bonuses was introduced in 2014. Employees arguably now have more chance of successfully winning a case where they can show that their bonus is unfairly low or that they have been singled out.”

“The legal ‘discretion’ that banks had in setting bonuses has started to be eroded over the years.”

“A dispute over a bonus where the banker feels they have been discriminated against on the grounds of gender, race, religion or sexual orientation is a bombshell both legally and reputationally. Bigger variable bonuses means more potential for disputes. That’s inevitable.”

“Banks will have to be extremely careful over how they allocate bonuses. The formula they use and how this is applied in individual cases have to stand up to scrutiny; the record-keeping of the process needs to be meticulous. All of that would be uncovered during the disclosure process of any ensuing litigation.”