Employers No Longer Have a Free Hand

Financial News, November 3, 2002 | Go to article overview

Employers No Longer Have a Free Hand


Byline: Makbool Javaid

One feature that distinguishes the City of London financial services sector from others is the annual bonus, which for many workers represents the bulk of their income. The bonus culture is so entrenched in the City work ethic that it plays a significant part in recruitment, performance appraisals and staff departures.In good market conditions, awards are high and there are relatively few complaints. However, in more difficult times, bonuses tend to be lower and add to the climate of frustration, anxiety and suspicion that hangs over the Square Mile. In the past, the response was to ride out the storm, move on elsewhere or sit tight until conditions improved. But in the modern age, with the tidal wave of employment regulation flooding into the UK from Europe, there are more incentives to litigate. Consequently, the markets' recent downturn will result in employees, faced with potential redundancies and lower bonus awards, bringing claims. The usual constraint of avoiding litigation in the hope of new employment is overshadowed by bleak work prospects in London. Moreover, the publicity surrounding cases, such as that of Julie Bowers against her former employer Schroders Securities, illustrates that the outcome, a judgment for pound sterling1.4m ([euro]2.2m), can be successful. Bowers complained of sex discrimination, but others have based their claims on breach of contract.

Steve Clark, in the case against Nomura International, walked away with pound sterling1.35m after the court ruled that the failure to pay him a discretionary bonus was an "irrational and capricious" exercise of the employer's discretion.

The successful cases, and there are many more that are settled before they reach the courts, make it clear that employers do not have a free hand in exercising their discretion in making bonus awards. Nevertheless, if the City is to function as a meritocracy, it is essential that discretion is retained, otherwise the objectives of rewarding performance to individuals, teams or a company will be lost. It is now more important than ever to reward and retain high achievers.

However, far too many cases reveal an unwillingness or inability by City employers to pursue bonus decisions on the basis of objective, transparent and consistent criteria. A survey of leading City human resource departments shows that 41% do not check appraisal forms for discrimination and 30% do not do so for bonus awards. …

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