Discretion is still the better part of valour

Opinion

Discretion is still the better part of valour

A number of employers offer staff discretionary bonuses, which when times are good, can make sense. But are employers always obliged to pay these bonuses? A recent judgment - Humphreys v Norilsk Nickel International (UK) Ltd - says that employers can withhold bonuses, but only if they act rationally and not arbitrarily.

In this case, Humpreys worked as a chief economist for Norilsk. He was entitled to a discretionary bonus for 'satisfactory performance', a term that was undefined. In his role, Humphreys had to forecast the price of nickel. In the last part of 2008, his forecast was out by more than 50 percent as a result of the start of the downturn. Norilsk declined to grant the bonus because they had made a large loss based on Humphrey's forecasts.

The case went to the High Court who ruled that the employer could subjectively determine the bonus because 'performance' had no definition. It didn't help Humphreys that the term 'satisfactory' meant 'sufficiently satisfactory to justify a bonus'. Fundamentally, the correct forecasting of the price of nickel was key to the job; and for whatever reason, Humphrey's got the forecast seriously wrong.

This was first published in December 2010

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