Bank discretion over staff bonuses

by Nick Humphreys and Edward White

The decision in Brogden v Investec Bank plc [2014] EWHC 2785 has revisited recently the issue of banks exercising discretion in calculating employee bonuses and the extent of the discretion the bank has.

The case follows on from the decision in Commerzbank AG v Keen [2006] EWCA Civ 1536, which set a high threshold for bank employees seeking to prove an entitlement to a discretionary bonus where the amount was less than the employee believed was due.

1. Brogden & anr v Investec Bank plc: The background
Investec employed the two claimants to develop a structured equity derivatives unit (the “desk”). Under a bonus clause in their contract of employment, the claimants were entitled to 30% of the desk’s ‘Economic Value Added’ (EVA) at the end of the third financial year.

Investec subsequently calculated that there would be no bonus pool.

2. The claim
The claimants argued that they were entitled to a bonus pool of over £8 million, and made the following submissions:

a) There had been an oral agreement between the claimants and their employer that the desk’s EVA would be calculated at the institutional market rate.
b) The EVA was to be determined objectively.
c) Investec’s discretion in awarding bonuses was subject to the implied terms of good faith and rationality.
d) In failing to treat the desk as if it were at on arms-length basis, Investec had not made a rational calculation of EVA.
e) Investec had paid an institutional rate for almost two years and had caused the claimants to expect a similar calculation for their bonus pool.

3. The legal issues
The main issue in question was whether the desk’s EVA (and the claimants’ subsequent bonus pool) should be calculated:

a) Objectively, according to the institutional market rates at the time; or
b) Subjectively, according to Investec’s internal calculations of the desk’s economic value to the bank.

4. The decision
The court upheld the discretion of the bank in calculating its bonus pool, stating the following:

a) There was no evidence of any agreement between the parties to calculate the EVA at the institutional market rate.
b) As “EVA” had no standard market meaning, it could be calculated at the discretion of the bank.
c) Such a calculation was still subject to the requirements of rationality and good faith.
d) As the desk was one of many channels of funding within Investec, its EVA did not have to be calculated ‘at arm’s length’, but could instead be viewed by its subjective worth to the bank.
e) Investec’s previous conduct in paying an institutional rate could at most only amount to a mere expectation, and could not render the bonus payment in question irrational or contrary to good faith.


The case continues the trend of decisions against the interest of employees in relation to the exercise of discretion by banks. Provided a bank does not act irrationally or capriciously, and provided it follows its own documented scheme (which, usually, employees will have embarked on performance in working towards), the case confirms that banks will continue to enjoy a wide discretion as to the amount (if any) of any bonus which they set.

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About the contributor

  • Nick Humphreys Partner

    Nick has acted for numerous multi-national, publically listed corporations as well as public and third sector clients. His clients include travel sector clients, industrial conglomerates, hotels, media organisations, marine businesses and charities

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