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"Never rely on a bonus that's verbally guaranteed"

Next time you apply for a job that comes with a verbally guaranteed bonus, remember Barclays. It's said to have verbally promised some of its senior bankers big bonuses last year, and then cut the bonus pool by 40%. When the bonuses didn't happen, people complained. In some cases, Barclays then had to pay them even higher bonuses to stay.

Rule number one: Never expect a bank to live up to oral promises/reassurances on bonuses.

Very early in my Wall Street career, around the time I bought a small, relatively inexpensive ($250k) house on Long Island, my lawyer on that transaction explained to me that under New York state law (unlike some other states), only an agreement in writing, properly executed (signed) by both parties, is enforceable as a contract. 

Oral statements or handshake agreements have no standing under NY state law, unless they are put into writing.

Donald Trump probably learned this from his father long before he arrived at Fordham or the University of Pennsylvania real estate school. This may be one reason he lies as an instinct: in the NY real estate business, you can say anything you want without fear of legal consequences. Only what is put in writing matters legally.

The fact that you can never trust verbal reassurances was re-affirmed to me when I was assured by the head of research at my second Wall Street employer in the 1990s that the firm "always" paid a bonus that was more than the minimum specified in employment letters, only to learn a year later that because the markets had been so tough, the firm was only paying the minimum specified bonuses that year. 

Rule number two: always seek professional advice. 

That experience made me much more aggressive in negotiating my initial guarantees. Ever since, I have always hired an employment lawyer to review my contracts.

Rule number three: even senior bankers make mistakes. 

As the Barclays case shows, even senior bankers don't always adhere to these rules. The same applies to the current litigation between David Handler and Centerview, which is amazing. It's amazing both because a senior, successful M&A banker didn't get a signed partnership document from Efron/Pruzan for 10 years following drinks and hugs at the University Club, but also because Efron/Pruzan must have lived up to whatever compensation promises they made in that meeting (or appeared to) to keep Handler happy for 10 years, with no written partnership agreement! So maybe verbal guarantees do work - up to a point.

William Lawson is the pseudonym of a banker with a long pedigree on Wall Street.

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Photo by charlesdeluvio on Unsplash

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AUTHORWilliam Lawson Insider Comment

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