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The worst thing about Bank of England’s buyout clawbacks

Bank of England clawbacks

The Bank of England's proposed buyout clawbacks are manifestly unfair

The Bank of England is big on clawing back bonuses. It wants to clawback bonuses that were paid up to seven years ago, even if they’ve already been spent. And now it wants to clawback bonuses that were paid at a previous employer and bought out when bankers changed jobs.

The new proposals are detailed on the Bank of England’s website today. For the moment, they’re simply at the proposal stage, but employment lawyers have already spotted one major problem.

The big issue is that, as things stand, previous employers will be given full authority over whether the deferred bonuses they paid (and which were bought out and transferred to a new bank’s stock when the employee switched jobs) are clawed back or not.

In other words, if you move from Morgan Stanley to J.P. Morgan, for example, and J.P. Morgan buys out your £500k of deferred stock so that you’ll join, Morgan Stanley will be able to clawback that £500k of J.P. Morgan stock up to seven years later if it decides you were, ‘guilty of misconduct or risk management failings,’ to quote the BofE.

This sounds a) a bit strange and b) very open to manipulation.

“You will end up in an odd situation where your remuneration is controlled by an organization you no longer have any links with,” says Sam Whitaker, a counsel in law firm Shearman & Sterling’s executive compensation and employee benefits practice. “That’s pretty unique.”

If ‘wrongdoing’ is unearthed in your team three years after you’ve left and everyone else is still in place, it also seems pretty likely that you’ll be the one blamed. “You could easily be made a scapegoat,” says Whitaker. “If you left under a cloud, or went to an employer on good terms, you might well be made the fall guy.”

The Bank of England has thought of this, sort of. If you suspect you’re being unfairly treated by your past employer, it suggests you go to your current employer and ask them to, ‘apply for a waiver if they believe the determination was manifestly unfair.’

In other words, if you think your buyout is being unfairly clawed back, you’ll need to ask J.P. Morgan to assemble a case on your behalf. J.P. Morgan would then put this the Bank of England in rebuttal to the claims brought against you by Morgan Stanley.

J.P. Morgan, however, would clearly have no incentive whatsoever for you to win: the compensation liability is entirely its own. As an employee, you’d be checkmated.

Maybe the Bank of England needs to go back to the drawing board on this?

Photo credit: Macro Bird Claws by Christopher Bowley is licensed under CC BY-NC-ND 2.0

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