Financial services industry could be considered too volatile for deferred bonus scheme
Financial institutions which try to defer bonus payments in future could face fierce resistance from employees after the collapse of Lehman Brothers, lawyers say.
Richie Alder, partner at Trowers & Hamlins, says employees may see Lehman’s downfall as evidence that their industry is too volatile for bonus payments to be deferred too far into the future.
He says: “Banks and hedge funds are likely to come up against a great deal of resistance from their employees next time bonus payments are deferred.
“Critics have placed the blame for the City and Wall Street’s current woes firmly at the door of the bonus culture they say has encouraged excessive risk taking and the financial services sector is now under pressure to defer bonus payments for longer and longer periods.”
This, he says, encourages traders to consider the longterm effects of their deals and prevents them from moving on before high-risk deals begin to unravel.
However much banks might like to defer bonus payments to improve their cash flows, he says, those vying to recruit Lehman’s best talent may find that employees who have seen their bonuses disappear overnight will be reluctant to agree these terms. “Other financial services professionals moving into new roles are also likely to be pushing to secure a bonus structure that protects them from the same fate Lehman employees are now facing. They will want to agree a deal that sees any guaranteed bonus schemes paid out as early as possible, or at least at regular intervals.” He adds that bonuses are often discretionary and so Lehman Brothers employees’ chances of recovering their bonuses may be very remote.
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