A Pink Slip Before Christmas Likely Means No Bonus in Your Stocking

| Dec 2, 2011 | Compensation, Benefits, & Bonuses, Employment Contracts, Partnership Agreements, & Non-Competes |

Most employees in the financial services industry work all year long to earn an annual bonus, which often represents a major portion of their total compensation for the year. Unfortunately, employees not protected by a contract or an offer letter that specifically calls for a bonus payment if and when terminated (even if before year end), will likely be out of luck this season, even if they worked an entire fiscal year.

Most companies have policies that require that an employee or executive be “actively” employed when bonuses are paid unless again, they have negotiated an agreement that says otherwise. Most banks and other financial companies will include a token bonus amount as part of a severance if they are terminating employees close to year end. But after working an entire year-that is little consolation. However, the employees are not completely defenseless in their claims for their annual bonus if their termination (without cause or part of a reduction in force) occurred after a large portion of the year has passed. Some state courts have supported employees’ claims for discretionary bonuses earned throughout the year. Also, for registered representatives in financial services FINRA arbitrations have at times found in favor of employees if they were denied a bonus that they technically earned for the year, and there had been a pattern and practice of bonus payments in years prior to the termination.

Whether an employee has a successful bonus claim depends on a number of factors that are analyzed on a case by case basis. However, certain facts and circumstances apply across the board: the employee should have an excellent performance review during the year in question, the group/team, division/department or area of the Company in which the employee worked and the employer-company should be financially sound or at least not reporting losses across all four quarters. Otherwise, any bonus awarded to an employee in arbitration will reflect a reduction in the expected bonus due to the company or market conditions and the fact that bonuses paid to employees that kept their jobs were significantly lower than those paid in previous years.

While it is impossible to tell what kind of bonus season the tumultuous 2011 will bring given the massive layoffs in this industry, those that make it through year end will certainly fare better.

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