By Katharine Turner and Richard Latham
Lloyds Banking Group: Lloyds Banking Group announced on 20 February that that it will make an adjustment to a proportion of the bonus awards in respect of 2010 for a number of its senior employees, including five executive directors. This adjustment will be implemented by reducing the amounts already awarded in deferred shares and will amount to 40% of the award in respect of its former CEO (Eric Daniels), 25% of the awards in respect of four other Directors and 5% of the awards in respect of all members of the Group Executive Committee and others. Lloyds had previously announced that it would review its bonus arrangements in the light of the £3.2 billion provision to compensate customers wrongly sold PPI.
TUI Travel: The executive directors received no annual bonus this year notwithstanding the fact that the performance measures were met in full.
The context here is that the company had been forced, for the year before, to restate the accounts by £117m. The remuneration committee used its discretion to override the bonus formula for the following year and determined that no bonus should be paid as an alternative to "clawing back" the previous year's bonus. So this is effectively another approach to clawing back unvested or unpaid monies.
The situation at TUI also raises an interesting point about whether bonuses are discretionary or contractual. Much like long term incentive plans, participation in a plan may be and often is contractual but payments generally are not. Some companies take care to ensure that their employment contracts, the rules of their plans and the communications on them make this clear and in particular make clear that bonus payments are subject always to the remuneration committee's discretion. Custom and practice can also be critical here. We strongly recommend that companies make sure they know where they stand and legal advice is likely to be necessary.
Rio Tinto: It has been reported that both the CEO and CFO, Tom Albanese and Guy Elliot, declined to be considered for an annual bonus after the company posted an $8.9bn (£5.6bn) write-down on the value of aluminum assets bought under their oversight in 2007 before the markets crashed.
Xstrata: CEO reported to have waived a technical entitlement to change of control payments in the event of a merger with Glencore.
Royal Bank of Scotland: On 30 January, the CEO, Stephen Hester, waived a £963,000 shares only bonus awarded to him by the bank in face of intense political and media pressure.
Network Rail: Network Rail announced on 6 February that executives, including CEO Sir David Higgins, have decided not to accept annual bonuses this year. They had come under growing political pressure to waive the potential six-figure awards with Labour stating that the bonuses could not be justified in the current financial climate and that the company's performance did not merit it. Sir David, who joined the company last year, said: "I and my directors decided last week that we would forego any entitlement and instead allocate the money to the safety improvement fund for level crossing". In a further statement, Network Rail, said its board "will take the opportunity to reflect further on how to incentivise performance in the company against the backdrop of the current context".
We have also seen evidence / operation of bonus adjustment of a similar nature outside the UK, for example at UBS (Switzerland) and Computer Associates, Green Tree Financial, Molex and CSK Auto (all United States).