By Cerys Williams King & Wood Mallesons’ London office
Bonus discretion, or the lack of it, has been under judicial scrutiny again this month in the Court of Appeal decision of Brogden v Investec.
The case concerned the operation of a contractual bonus scheme with a set percentage of “EVA” (Economic Value Added) by a division within Investec being put into a bonus pool for subsequent distribution to participating employees. The EVA was calculated by an automated process but impacted by factors over which Investec had control, such as the notional rate of interest applied to funds generated by the unit. For the year in question, based on the EVA calculation methodology, the unit recorded a loss and accordingly no bonus was paid. Two bonus participants challenged this outcome on the basis that EVA should have used its discretion to calculate EVA differently and with a broader emphasis on the value generated by the unit.
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