Trowers & Hamlins

Employees may push to receive bonus payments early or at regular intervals

The collapse of Lehman Brothers could make it more difficult for the financial services sector to defer the payment of bonuses to their employees, warns City law firm Trowers & Hamlins.

Comments Richie Alder, Partner at Trowers & Hamlins "Banks and hedge funds are likely to come up against a great deal of resistance from their employees next time bonus payments are deferred. Employees may see Lehman’s collapse as evidence that their industry is too volatile for bonus payments to be deferred too far into the future,"

"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 encourages traders to consider the long-term 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 in order to improve their cash flows 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 'golden hellos' or guaranteed bonus schemes paid out as early as possible, or at least at regular intervals."

Trowers & Hamlins explains that, in addition, bonuses are often discretionary and so Lehman Brothers employees’ chances of recovering their bonuses may be very remote, even if there are assets from which payments could be made.