HSBC redundancies shock industry – The Banker

HSBC surprised the industry last week as news broke that it had fired investment bankers on the same day they were due to hear their bonus figures, and reportedly gave no bonuses to many it laid off.

The bankers were made redundant as part of new chief executive Georges Elhedery’s plans to separate the bank into four divisions and introduce an east-west geographical split to streamline operations. This included shuttering some investment banking offerings in Europe, the UK and the US, with equity capital markets and advisory services outside Asia and the Middle East being wound down.

While redundancies in the banking sector are common, the timing of this particular round — so close to bonus season — has surprised bankers and analysts, who said it was not behaviour expected of a UK bank. It also raises questions around a possible court case, and shines a light on the often brutal way bankers can be made redundant.

“American banks have more of a high risk, high reward [system],” said one analyst. “The selling point of HSBC to potential employees is ‘look, you’re not going to get a massive bonus but there’ll be a little bit more job security and humane treatment of staff’.”

While the exact calculation of bonuses is specific to each company, some bankers who spoke to The Banker said there are “unwritten rules” about who gets paid and when, with some seeing 75 per cent of a bonus payment as a reflection of work already done, with the remainder an enticement to stay at the company.

“You’ve got people who [would have] worked for a full year and delivered on their performance criteria [not getting bonuses],” said the analyst. 

Legal action possible

If the bankers decided to take action, there could possibly be a court case arising from the dismissals, if they did not sign settlement agreements. 

“There’s a body of case law that has never actually been decided about whether or not there’s an implied term in an employment contract not to dismiss an employee to avoid paying a bonus,” said Chris Hogg, partner at Bloomsbury Square Employment Law.

“When you dismiss someone close to a bonus date you potentially give rise to that kind of claim that the timing of the dismissal is related to the bonus rather than a genuine dismissal related to other events,” he added.

However, it would be typical for employees in this situation to be offered settlement agreements, which include some kind of compensation, and which also negate any future lawsuits. 

HSBC declined to comment.

It is rare for bankers to win a case against their employers for non-payment of bonuses. One of the most high profile cases in recent years was the case against Commerzbank, which in 2013 was forced to pay millions of euros to investment bankers who claimed they were entitled to a share of a €400mn bonus pool set up to help retain employees ahead of an acquisition.

The UK’s Court of Appeal sided with the 104 London-based bankers, who argued they were promised bonuses ranging from €15,000 to €2mn, but were not awarded the full amount. The aim of the bonuses was to retain staff ahead of Commerzbank’s acquisition of Dresdner Kleinwort from Allianz.

The case hinged on what was said at a “town hall” meeting in August 2008 about the €400mn bonus pool. But Commerzbank used a “material adverse change” clause in contracts to scale back the amount paid out to employees in bonuses.

A softer approach

Lawsuits aside, most bankers agree that the way some banks make staff redundant could be softened. “The theatre of it is awful,” said one bank employee — who was made redundant about a decade ago — referring to many banks’ policy of making employees redundant during the workday, and sometimes escorting them out with security. Some spoke of not being able to return to their desk to pick up their bag or say goodbye to colleagues after being told they were being made redundant. 

It’s not just anxiety-inducing for the employees who have lost their job. “You’re sat at your desk waiting for a phone call and hoping [HR] doesn’t ring,” the person added.

But others say redundancies can keep standards high. “It keeps you on your toes,” said another banker.