Back
Get in Touch Menu

Clawing back bonuses – is it legal?

13 March 2012

The issue of bonuses, particularly bankers’ bonuses is still dominating the headlines. In February, it emerged that Lloyds Banking Group planned to strip a number of top executives of about £2 million in bonuses as a penalty for a financial scandal that cost the taxpayer-backed bank £3.2 billion last year.

It is important to stress that this unprecedented attempt to claw back bonus payments is not a universal remedy. In this case, because it is a consequence of the adjustment of the bonus pot caused by the PPI scandal, it is provided for in Lloyd’s contractual arrangement.

Many opinions have been voiced suggesting that bonuses should be cut or withdrawn. However in the real world, whether or not politicians or the general public like it, the status of a bonus is a legal matter – does the contract allow it or not?

If employers want the option of being able to withdraw, or not to pay, a bonus, they must put in place a tightly-drafted contractual definition. Some companies may try to allow for flexibility by describing bonuses as ‘discretionary’ but simply attaching this label is no guarantee that payment is, indeed discretionary. If such a clause goes on to detail how the employee would qualify for a bonus or the employee has always received a bonus, then very often it may not be ‘discretionary’ at all.

A well-drafted contract could save money, embarrassment and the risk of litigation in the event a company wants to say ‘no’ to a bonus on the grounds that it is not warranted.

As always, if you need commercial and pragmatic legal advice, we’re here to help so please get in touch.

Contact us

Disclaimer: All legal information is correct at the time of publication but please be aware that laws may change over time. This article contains general legal information but should not be relied upon as legal advice. Please seek professional legal advice about your specific situation - contact us; we’d be delighted to help.
Contact
Matthew Clayton MA LLM (Cantab), CIPP/E
Partner
View profile
Mathew Clayton
Related services
Share this article
Resources to help

Related articles

Mental health & the Equality Act: tips for employers

Employment & business immigration

During Mental Health Awareness Week, employers may be thinking about things they can do to support employees suffering with their mental health. Besides the general duty of care that employers…

Jenny Hawrot LLB (Hons)
Partner

Employment law changes: a 2024 update

Employment & business immigration

Our employment law & business immigration team have put together a useful timeline to help you and your business keep on top of developments throughout the year. For several years,…

Klára Grmelová MGR (LLM Czech)
Solicitor

Navigating the future: protected beliefs in the workplace

Employment & business immigration

Our employment law & business immigration experts look into the challenges employers can face surrounding protected beliefs. In the past few years, we have witnessed a significant rise in employment…

Matthew Clayton MA LLM (Cantab), CIPP/E
Partner
Contact us