Avoid bonus restrictions: get your 2010 bonus guaranteed immediately
The UK's coalition government is emitting mixed messages regarding its commitment to reforming bonuses.
On one hand, Vince 'I have a visceral dislike of bankers' Cable, told the Financial Times at the weekend that banks face being broken up and that bonuses will be curbed. In a measure of his determination, Vince also said he couldn't, "close down the possibility that unilateral action might have to be taken."
On the other hand Gideon George Osborne has popped up in the Financial Times today apparently saying that he only favours bonus restrictions if they're matched by broader international action. George appears to be in favour of the IMF's 'Financial Activities Tax' (FAT Tax), on profits and remuneration, but says it has to be looked at 'in the context of the IMF and G20 discussions.'
Either way, it looks like some form of additional bonus restriction can't be ruled out this year. And some banks/individuals appear to be anticipating its introduction.
Pre-emptive guarantees
Yesterday, the Sunday Times reported that banks are planning to guarantee 'billions of pounds of bonuses' over the coming weeks to avoid punitive bonus taxes in the emergency budget, now scheduled for June 22nd.
Guaranteeing bonuses at this stage of the year may make sense from banks' perspective: the 2009 bonus tax wasn't levied on any bonuses which were already contractually assured at the time of its introduction.
Getting your 2010 bonus guaranteed now may also make sense from an individual perspective, particularly in the (still unlikely) event that restrictions on cash bonuses are introduced later this year.
Graham Muir, a partner at law firm Nabarro, says the government is theoretically able to pass legislation which overturns existing contractual commitments, but that this is very unlikely. "It's more usual for legislation to apply only to future arrangements," says Muir.
If Muir's right, bankers who negotiate a guaranteed 100k cash bonus now for 2010, should, for example, still get paid what they're contractually owed even is legislation is subsequently passed restricting cash payouts to 10k.
Of course, the reality is likely to be less simple. Earlier this year, the FSA reportedly threatened to revoke Merrill Lynch's license to operate in the UK unless it renegued on its existing guaranteed bonus contracts.
Two year fixed term contracts
Another way of getting around bonus restrictions, and in particularly of getting around restrictions on two year guaranteed bonuses for new hires, is fixed term contracts.
One headhunter alleges that a large US bank in London has begun offering two year fixed term contracts at generous rates. He points out that these are effectively two year guarantees by any other name.
Muir says he hasn't come across this, but that, "The imagination of the banks is fairly endless when it comes to ways around these arrangements."
However, the head of HR at one US investment bank says they're not using either ruse (fixed term contracts or guarantees for 2010). "We've been advised that if any changes are made to the tax regime, existing contracts will be captured as well," he says.
