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A group of former Dresdner Kleinwort bankers recently
established the right in the High Court to a share of a bonus pool
of €400 million. Few employers have such largesse to
distribute, but the case highlights some important points about
discretionary bonuses:
announcing a minimum or guaranteed bonus pool can create a
contractual obligation to distribute it;
even if each individual employee's award from the pool is
discretionary and subject to their personal performance, the
employer is obliged to exercise its discretion in a bona fide and
rational manner;
attempting to attach conditions to the bonus after announcing
the bonus pool, or after informing individual employees of their
bonus award, will be a breach of the implied term of trust and
confidence if the purpose behind the conditions is to allow the
employer to avoid paying all or some of the bonus – a
condition that makes the bonus subject to the overall performance
of the employer is likely to fall into this category; and
even if conditions are clearly set out in advance, the employer
must apply them properly and in good faith.
The facts of the case were unusual, arising as they did during
the banking sector near-collapse of 2007-2008. However,
recommendations for employers in relation to discretionary bonuses
are as follows:
set out bonus conditions clearly in advance;
avoid announcing minimum or guaranteed bonus pools;
if you have to, e.g. for retention purposes, ensure that the
announcement sets out any conditionality that will apply to
distribution of the pool or payment of individual awards, or at
least the possibility of conditions being imposed later.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The High Court and, most recently, Court of Appeal decisions in the "banker bonus" litigation stemming out of the Commerzbank/Dresdner merger in 2008 have received extensive media coverage.
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