Bonus Dispute and Compensation Dispute
Many securities industry professionals receive bonuses in addition to their base salary. Bonuses, which are also referred to as incentive compensation or discretionary compensation, often constitute the majority of a broker’s earnings. They are normally paid out in the calendar year after the one in which they were earned, and can consist of stock components in addition to cash. Bonus and compensation disputes typically arise after an employee is terminated or laid off. Investment banks and brokerage firms will decline to pay any bonus owed or offer a drastically reduced compensation in a severance package. Because bonus compensation can be a lot higher than a broker’s base salary, withholding this money can be devastating to a terminated employee.
When a terminated employee learns that they will not be receiving their scheduled bonus from the previous calendar year or is offered a small compensation in a severance package, they should consult an attorney familiar with securities industry matters and request arbitration from FINRA. An application for FINRA arbitration must be made within six years of the event that triggered the claim.
If a former employer withholds bonuses and compensation, a FINRA Arbitration Panel may award substantial monetary damages to the former employee for unpaid bonus and compensation, and even quantum meruit (unjust enrichment) claims deriving from a failure to pay bonus compensation. In New York, to state a claim for unjust enrichment, the ex-employee must allege that their former employer was enriched at their expense and the circumstances were such that good conscience and equity requires the employer to make restitution.
In April 2012 FINRA fined Merrill Lynch $1 million after finding that the company tried to sidestep a rule requiring it to arbitrate bonus disputes with employees.
Merrill Lynch, a division of Bank of America Corp., had purposely structured the terms of employee bonuses to get around the arbitration rule and require disputes to be handled in New York state courts. This stipulation violated FINRA’s arbitration requirement and curtailed the chances of employees making their own claims because the process in the state court was expedited.
FINRA reported that Merrill Lynch paid over $2.8 billion to more than 5000 employees in the form of retention bonuses structured as loans. Employees were required to pay back a portion of these bonuses if they didn’t stay at the company for at least seven years. Some left Merrill before seven years had passed and did not repay the balance on their bonuses, resulting in the company bringing up over 90 disputes in state court instead of presenting them to FINRA for arbitration.
When a security industries professional signs an employment contract with a new firm, they need to carefully examine the any policies regarding bonuses. The contract may state that any potential bonus or incentive compensation is within the absolute discretion of the employer, which can have an adverse impact on any later claims.