Bonus bonanza comes to end as employers get green light to curb City excesses

City employers have been given the green light by legal experts to slash banker bonuses in the wake of the £50bn government bailout.

On announcing the high-stakes rescue package, chancellor of the exchequer Alistair Darling last week insisted that banks would have to curb big payouts to staff if they took taxpayers’ money.

Gagandeep Prasad, solicitor at law firm Charles Russell, said that while City workers could bring claims against employers that gave them smaller bonuses than normal, they were highly unlikely to win.

“Most City bonus schemes are discretionary, and it has been established that an employer with such a discretion will only be in breach of contract if no reasonable employer would have exercised its discretion in that way.”

She added that it would be very hard for aggrieved workers to claim their employer had acted unreasonably by cutting their bonus in the light of Darling’s conditions. Besides this, the credit crunch provided conditions in which many reasonable employers would reduce payments, Prasad said.

Darling last week announced that the government would put up £50bn to buy preference shares in troubled UK banks. But announcing the plan to MPs, he said: “The public is entitled to share in the upside of these proposals – so in return for our support, we will be looking at executive pay, dividend payments, and lending practices, particularly to home owners and small and medium-sized enterprises.”

Bill Schuh, vice-president for Europe at performance management firm Callidus Software, said cutting illogical bonuses was important.

“Aiming to curb incentives that reward short-term risk at the expense of long-term performance is obviously a crucial step in rebuilding public confidence in the banking system,” he said.

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