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Financial Industry Bonus Disputes

When a Bonus Dispute Becomes Theft

It’s no secret that the Financial Industry plays by its own rules, often shifting the consequences of its risky behavior to “main street,” or at least that’s what the media would have you believe. This attention grabbing narrative has been successfully exploited or effectively exposed (depending on your politics) by the press and politicians as a dramatic illustration of inequality and unfairness. And if you are among the top 1% of all wage earners and work in the financial industry, you are unlikely to gain any sympathy or support if you are inexplicably not paid a bonus that was promised to you earlier in the year. And this is precisely why it happens all the time.

The truth is that Wall Street banks boldly refuse to honor contracts or promises of bonus compensation from these professionals with shocking regularity. This is how the hustle goes – at the start of the fiscal year, when a banker is elevated internally, or recruited from another bank to a position where they have a better shot at variable compensation, the first question they ask their manager is, “Assuming all goes well, what will my bonus be at the end of the year?” Rather than make any reference to the bank’s policies, the manager responds by making an oral promise of a year-end bonus often with a specific percentage or amount attached to it (or clearly implied). Later, at the end of the fiscal year, the heads of each group or desk within the bank distribute profit to the traders and dealmakers who brought in revenue. The distribution is supposedly based on the performance of the group as a whole and, to varying degrees, the performance of the individual banker. However, at the end of the fiscal year after revenue has been recognized, the business groups and their leaders have powerful disincentives to honor their prior compensation promises – junior bankers now have more experience and can replace the more senior, bonus entitled and highly compensated bankers, an option that is particularly attractive given the inevitable wrangling over how to spend the slim pickings left from last year’s revenue. That’s when the distribution math and prior promises are thrown out the window, and a banker’s earned bonus money is used to zero out debt or incentivize a newer, cheaper whiz kid. And since nothing is in writing, the managing director can deny the prior conversation and leave you stuck with no bonus or a much smaller one than you expected. Now you’re up the creek – you’ll either be made redundant in a few months or forced to remain at the bank with diminished respect and seething inside.

Fortunately, there is a venue specific to the financial industry with its own special rules which works in favor of employees – FINRA, which stands for the Financial Industry Regulatory Authority. The financial industry and its employees are regulated by FINRA, and employees with bonus disputes are required to arbitrate their claims before a FINRA panel. FINRA arbitrations tend to be streamlined, no-nonsense and more focused on equity and fairness than the letter of the law. As a result, financial industry employees often have a decent shot at recovering all or part of their bonus when they can expose the hustle, a task that invariably requires counsel experienced with the financial industry and the FINRA arbitration process.