Laid-Off Wall Street Executives Seek To Arbitrate Bonuses
By JESSICA PAPINI
Of Dow Jones Newswire
Mar 04, 2009 NEW YORK (Dow Jones) - Laid-off Wall Street executives are seeking to recoup their bonuses via arbitration claims.
Many former Wall Street employees, laid off in a moribund job market, are taking former employers to arbitration to recover lost compensation. Securities industry employees are required to arbitrate claims through the Financial Industry Regulatory Authority, or Finra, and the process can take months.
"In the financial-services industry, there is a rise in claims for bonuses either as part of, or the main reason for, arbitration," said Bradford K. Newman, leader of the international employee mobility and trade secrets practice at law firm Paul Hastings.
Folks on Main Street might find it incomprehensible that Wall Street executives are suing their former employers for bonus money. These are often the same financial companies that have posted huge losses, gotten bailed out by the government or, in some cases, gone out of business.
As one lawyer who represents securities firms said, "Some employees expect a bonus because they worked hard and showed up to work for 11 months, but that is not going to cut it if you are a part of a sinking ship."
Unlike compensation on Main Street, Wall Street usually pays a relatively low base salary, with the bulk of an employee's earnings paid out in a year-end bonus.
According to Finra, 125 intra-industry claims, where a person active in the securities business filed claim against a firm or vice versa, were filed in January. Finra doesn't have comparable data for January 2008.
The financial market has been flooded with professionals looking for work. According to Challenger, Gray & Christmas, last year 260,110 While several other members in the trader's group of eight lost money for the company, only the trader and his boss were laid off, receiving no bonuses, the case alleges. Deutsch argues the arbitration panel should award the trader a bonus.financial service professionals lost their jobs. In November and December, typically the months when employees have bonus talks with their employers, a total of 130,960 people were laid off. Bonuses are usually doled out in January or February.
For one of these employee's arbitration cases to succeed, arbitration panelists must examine the nature of the bonus, and determine if an employee is legally entitled to it, Newman said. An employee who can argue termination was wrongfully motivated, such as a layoff occurring right before bonus time, might have a stronger case, lawyers say.
For example, Michael Deutsch, partner at securities, commodities, and employment law firm Singer Deutsch, said he is handling a case that alleges a trader was up 50% over his performance target, and his boss was up $200 million.
One big hurdle: Most companies' contracts proclaim that bonuses are discretionary.
Beyond that, an executive claiming a large bonus will have a more difficult time recovering than a lower-level employee, Newman said.
Even if arbitrators decide an employee should receive a bonus, it can be a challenge putting a value on it. Stock is often a bonus component, and stock prices have plunged. "There will likely be a lot of jousting back and forth" among the panelists, Newman said.
Arbitration panelists realize there "is certainly more stigma attached to the word 'bonus'," Newman said. At the end of the day, Newman believes many of the cases will be denied, or awarded a value less than the amount sought.
