Dresdner bonus ruling thankfully won’t spark trend

May 10, 2012

By George Hay

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Investment bankers have just found a way to make themselves even less popular. Over a hundred former Dresdner Bank employees on May 9 won their claim in London’s High Court against Commerzbank, for non-payment of almost 52 million pounds of bonuses awarded in 2008. The case is likely to enrage taxpayers. Thankfully, though, it won’t spark a trend.

On the face of it, the ruling sounds like a disturbing victory for pre-crunch selfishness. The bankers launched their legal action after Commerzbank slashed bonuses by 90 percent shortly after it took over Dresdner during the financial crisis. Given that Dresdner lost more than 6 billion euros in 2008, that seems entirely reasonable. The bankers might not have had jobs, let alone bonuses, if Commerzbank hadn’t stepped in.

But the case wasn’t about fairness. Instead, it rested on whether a verbal pledge made to Dresdner staff at a town hall meeting in August 2008, which promised they would share a 400 million euro “guaranteed minimum bonus pool”, constituted a binding contractual obligation. The judge ruled that it did. Commerzbank plans to appeal.

With taxpayers and shareholders up in arms about financial sector compensation, the prospect of investment bankers successfully winning payouts through the courts is disconcerting. Fortunately, however, the chances of others making similar claims are slim. The great flaw of pre-crunch bank pay was that it gave employers no comeback when previously profitable bets turned sour. These days, most bonuses are deferred and subject to clawback. If the same scenario was repeated today, the bonuses would have been reclaimed, or not awarded in the first place.

That probably won’t make German taxpayers any happier. But at least the victorious Dresdner bankers are the last of an entitled breed.

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