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Employment Solicitor explains creative ways to avoid the bonus cap

By Practice Group Leader, Employment

The controversial bonus cap which came into force on 1 January 2014 and is opposed by the UK government, prevents banks from paying bonuses worth more than individual’s salaries unless shareholders approve the payments explains Employment Solicitor Deborah Casale...................

Individuals earning over €750,000 (recently increased from €500,000) will be affected by the rules and will need to be registered with local regulators and the European Banking Authority. So at a time when banks are set to award this year’s bonuses, what are they doing to avoid the restriction?

Britain’s biggest bank HSBC is preparing to hand out share awards to 1,000 of its top staff as it attempts to circumvent the EU rules capping banker’s bonuses. Previously HSBC admitted it was considering increasing salaries to avoid the restriction. Now the bank is reported to be looking at making quarterly payments of shares to top up remuneration. Bankers receiving share awards will be required to retain them for five years after selling some to meet their tax obligations.

Barclays is also planning to hand monthly allowances to its staff most likely in shares, which would not qualify as bonuses. Others may instead choose salary rises over share awards and some media reports have suggested that salaries are set to double in some banks. However, RBS has denied that it is using salary rises to avoid the bonus cap.

Meanwhile, the British Bankers Association has said that bonuses were now “smaller” and rewarded sound, long-term decision making and that banks would be complying with the new rules.

Whatever solutions the banks find, it seems likely that banks will find other ways to reward so that the legislation will be creatively complied with in some form or other.

If your employer is planning on making changes to your remuneration and/or your contract of employment, be aware packages need to be compliant; as if not compliant, the employer may not be able to deliver what is promised. Share awards and options can also come with their own set of complications and tax issues – for example good leaver/bad leaver clauses and clawbacks. You may therefore want to seek advice at the outset on what the conditions are before accepting any offer, as these may become relevant at time in future when you are moving on.

If you have any concerns regarding the payment of your bonus or changes to your remuneration structure please contact us on 0808 175 7872 or contact us online.

By Employment Law Solicitor Deborah Casale.