“Bonus awards for all front and middle office employees who received a letter in December stating their provisional award, which was subject to Dresdner Kleinwort’s financial performance targets, will be cut by 90% pro rata to the stated provisional amount.”
“The Company reserves the right to vary the terms and conditions described in this handbook and the terms and conditions of your employment generally. Such changes can only be made by a member of the Human Resources Department and must be communicated to you in writing. When the change affects a group of employees, notification may be by display on notice boards or Company Intranet.”
“Entire Agreement The terms of this Agreement and Sections 1 to 20 of the Company’s Employment Handbook supersede all previous conditions, understandings, commitments, agreements or representation (other than fraudulent misrepresentations) whatsoever, whether oral or written, relating to the subject matter hereof and constitute the entire agreement between the parties. No waiver or modification of this agreement shall be valid unless in writing, signed by the parties and only to the extent stated.”
“As I have already informed you in the past two weeks, there has been a growing wave of notices of termination, in particular in the Fixed Income, Currencies & Commodities Division, in all three areas (Trading, Sales and Quantitative Analysis/Modelling). Employees are moving either individually or in teams, above all to Goldman Sachs, Citigroup and Unicredit/HVB, lastly involving four out of five employees of the Analysis Team. Furthermore, we know that a majority of the employees are going for interviews with competitors and a substantial number of employees have requested a meeting under the key word “Resignation”
“ …it is not clear to us that a robust or comprehensive strategy for the future of DK (DKIB) has been developed…In particular (i), the continuing uncertainty among management and staff could lead to a significant number of key individuals leaving or becoming disaffected, which may pose a heightened risk to DK where management acknowledge that resources are already stretched within support functions and (ii) there is a risk of impairment of DK’s credit rating post separation, with possible severe impact on DK’s business model. Actions Required We recognise that the senior management of DK share these concerns and are actively taking steps to reassure staff and determine a strategy for the non-retail operations. However significant work needs to be undertaken in the short term to address the concerns outlined above. … The FSA will consider removing DK from the Watchlist when the following actions have been completed: “… An assessment of the key risks to the UK operations has been completed, including the risk of the loss of key staff and the mitigation plans DK has in place. We would expect to receive this by end June for our review.” …”
“… consideration be given to creating some kind of staff retention scheme to help retain front, middle office and back office staff whose continued presence is judged important to Dresdner Kleinwort at this time.”
“Stability of the workforce is key. Regulators have picked up on the risks brought about by the uncertainty. Allianz have embraced the concept of giving front and back office financial certainty, but this is likely to take time.”
“…the risk of defections has risen considerably. A retention programme is therefore being discussed internally as well as with Allianz, and we expect its terms to be finalised shortly.”
“In the run up to the transaction, the Seller runs the risk that there is severe diminution in the [DK] asset it is trying to sell because many of the employees, given the uncertain environment, decide to leave the firm, or they stop performing. Beyond the consummation of the transaction, the Acquirer runs the risk that [DK] becomes a withering asset because key personnel leave as there isn’t a long term retention scheme to retain people’s commitment to build a long term viable franchise. It is recognized that both the Buyer and Acquirer are willing to pay to mitigate these risks and to ensure management and employees continue to build the business, and get paid on this performance. … at this stage we can only deal with the first of these risks, and we feel that it is imperative that employees and management of [DK] have comfort that bonuses will be available for 2008 as we are preparing for the transaction.”
“… to ensure that the firm is not destabilised with key and mass exits in 2008 prior to any transaction, thereby impacting or hampering a deal …” and proposed that: “... for 2008 a de minimis pool of€400m … be set aside for DKIB ...”
“SJ would shortly announce a minimum bonus pool for DKIB to be guaranteed by Allianz. He had requested that this also extend to the functions. Certain key individuals would be guaranteed bonuses.”
“... I will now promptly communicate the agreement regarding the minimum bonus pool” and suggesting that they “formally decide and record” the granting of a minimum pool and incentive pool at the meeting of the DBAG board on the following day, and that he announce the decision in his next business update on18 August 2008 , notifying Exco [Executive Committee] members shortly beforehand so that they could put a “positive spin” on the decision through an information cascade. Dr Jentzsch proposed saying that: “The Firm’s and Allianz senior leadership team have recognised the importance of providing certain financial reassurances to the employees [of] Dresdner Kleinwort in these times of continued speculation over Dresdner Kleinwort’s future. As a result it was decided that the minimum bonus pool payable to Dresdner Kleinwort employees will be 400 million … Please note that this is not an individual guarantee and that the allocation of the pool to individuals is still discretionary and will be done according to individual performance. In addition we have agreed that there will be an incentive pool available to Dresdner Kleinwort employees. A baseline revenue number of€2.327 .5 million has been established …The fact that we pegged the Incentive Pool to revenues instead of residual income is solely in order to keep the formula simple and transparent.”
“DKIB Bonus Pool 2008 Stefan Jentzsch explains the need to define a 2008 bonus pool for 2008. A minimum bonus pool, which should be announced in the coming week, is needed to ensure employee stability. All risk policies must be strictly observed in order to prevent the pool being ‘generated’ by taking excessive risk. The minimum pool should be guaranteed and allocated on a discretionary basis. Revenues of EUR 2,327.5 million formed the basis for a cash pool of EUR 400 million, with corresponding increases. Independently of the minimum pool, but related to it at a content level, approximately 60 front office staff should receive individual bonus guarantees. The EUR 87.2 million estimated for this is to be paid for out of the bonus pool of EUR 400 million. The Board also resolves that a defined number of names from the Functions should also receive additional bonus guarantees. The question of how to incorporate existing goals agreements, especially at L2 level, and communication to employees who do not receive an individual guarantee are discussed. The Board approves the preparation and communication of the 2009 bonus pools for DKIB as presented by Stefan Jentzsch. In view of the individual bonus guarantees, the Compensation Committee should take a basic decision on how to proceed on the basis of a list of names and should report on the results in the next Board meeting. Wulf Meier is requested to discuss the issue with Klaus Rosenfeld.”
“Introduction For staff at DKIB, these are very difficult and uncertain times. This uncertainty threatens to destabilise the business and potentially has serious ramifications for the transactions/strategy Allianz plans for DKIB: Allianz, the Board of Managing Directors of Dresdner bank and the management of DKIB have to ensure that the firm is not destabilised with key and mass exits in 2008 prior to any transaction, thereby impacting or hampering a deal. … In order to cover these points this paper is focused on: The formulation and communication of the overall DKIB pool in 2008, so that we can all agree on the ‘formula’ and quantum of the pool as well as the communication of the pool to the staff base of DKIB in order to maximise the efficacy of our stabilisation objective: Whilst the pool would represent a base level of de minimis pool, we would also want to provide some incentivisation for better performance, and we also wanted to share our thoughts and agree this. Formulating/Agreeing the Pool We propose that for 2008 a de minimis pool of€400m (75% of 2007) be set aside for DKIB. This base case cash pool is set off the base revenues of€2.327bn ... In order to provide some incentivisation to DKIB over and above base revenues a simple pay out ratio of 40 cents for€1 of revenue is proposed to be added to the bonus pool over and above the base case … Communicating the Pool In order to stabilise the DKIB business it is essential and necessary to formally communicate the pool that has been secured for the staff base. If agreed it would be our intention to formally communicate to the entire staff base of DKIB via a Business Update that Allianz have recognised the uncertainty and impact the strategic discussions are having on the staff base and have agreed to set aside a de minimis overall DKIB bonus pool for 2008 at€400m . …”
“Minimum bonus pool 400mE, roughly equal to 25% reduction on 2007” Another 20 cents goes into the incentive bonus pool for passing aggregate revenue targets. This is not an individual guarantee of a 25% reduction on last year. Will allocate on a discretionary basis according to performance. Subject to sticking to risk guidelines.” Subject to sticking to risk guidelines.”
“A Guaranteed Minimum bonus pool irrespective of performance has been agreed and communicated to staff in early August. … So far, the incentive scheme is working with YTD revenue€115 mn above pro rate base target.”
“Dresdner Kleinwort and Aligned Functions Bonus Awards The communication date for bonus awards for both Dresdner Kleinwort (Front office employees) and Aligned Functions (support employees) will be Friday19 December 2008 . The bonus pool for the Front Office has already been communicated by Stefan Jentzsch in his updates. The bonus pool for Functions will be comparable with last year’s, adjusted for head count movements, individual bonus awards continue to be discretionary and determined by the relevant management, and last year’s awards should not be taken as any indication of a level of any bonus award for 2008. Bonus communicated on 19 December will be paid in full with January salaries through the January payroll. The 2008 bonus awards will be awarded in cash and subject to statutory deductions (for example tax and social security). There will be no Stock Plan awards for 2008 and no portion of the 2008 bonus awards will be subject to deferral. ”
“…do we have your assurance that Commerzbank would not interfere in the awarding of the bonus pool which has been set aside by Allianz for the employees of Dresdner Kleinwort for this current year?” and replied: “… I think the bonus as it’s set aside by the Allianz management or by Dresdner, I think in the end is a decision by Dresdner’s management. … You have a process, you probably have a formula, you have a judgment process and the question who makes this judgment can only be somebody who knows you, period. …”
“As already discussed in detail, the minimum bonus pool was approved this summer in order to ensure employment and earnings stability in the face of the said dramatic changes yielded from the intended sale of the bank. This was and is being done for the bank, its shareholders, and finally even for its buyer. That this measure has fulfilled its purpose can already been seen on the basis of the significantly reduced personnel fluctuations. … … In my opinion, this goes to prove that the decision and communication of a minimum bonus pool of€400 million in the summer of 2008 stands justified and was made in the interests of the bank and the merger since the expected goal was fulfilled. If now the bonus pool must be reduced after the objective has been met, I would consider that a dishonourable idea. …”
“The minimum bonus pool for employees of the business division Dresdner Kleinwort (ie excluding the functions) remains in place and will be awarded on a performance basis as previously announced by Stefan Jentzsch…”
“Dear , A discretionary bonus for 2008 under the arrangements given below has been provisionally awarded at EUR The provisional bonus award stated above is subject to review in the event that additional material deviations in Dresdner Kleinwort’s revenue and earnings, as against the forecast for the months of November and December 2008, are identified during preparation of the annual financial statements for 2008 i.e. that Dresdner Kleinwort’s earnings position does not deteriorate materially in this period. This will be reviewed in January 2009 by Stefan Jentzsch. In the event that such additional material deviations are identified, the Company reserves the right to review the provisional award and, if necessary, to reduce the provisional award…… You will receive a detailed statement confirming your final bonus award in local currency in February 2009. This will be paid together with your salary in the February 2009 payroll.”
“So I think it is fair to say that, as one can take from those numbers (the review of performance year to date) depending on how the remaining few days will go, then we’re going to end the year having achieved, if not slightly exceeded, our base line target numbers: i.e. the underlying business that we’re in, which is not affected by the mark-down, is performing in line with expectations which I think, given the very difficult market environment, is quite an achievement and I think can and should be applauded. Therefore, from my perspective, it was certainly right to confirm the bonus pool of€400m for Dresdner Kleinwort, which we did set out in the summer in order to stabilize the investment banking activities. As we can see from this and many other indicators, this pool that we’ve given out in August/September this year served its purpose as a retention measure because people have, by and large, stayed with the firm and kept the firm together but I think it’s also fair to say that we earned the monies paid. … So when determining the allocation of the bonus pool, we of course had and did take into consideration the financial performance of the particular business areas, and hence we have seen units that will have or have a slight increase in their bonus pool versus last year in line with their performance, and other units have seen their respective bonus pool reduced, and in parts quite significantly. The same is to be said about the individual award. As in previous years, we had and of course we did take into account many factors, not limited to, but including the monetary and non-monetary contribution of the employee, the behavior of the employee, the difficulty of the role the employee has or had been undertaking, and therefore also individual bonuses vary quite dramatically. Of course, this is the same approach that we have adopted in any previous year and there was absolutely no change to the process. In line with these parameters, some employees have or will see their individual numbers being reduced dramatically and some will see significant increases. … … there’s one deviation from the commitments that we’ve made before, and while the total bonus pool for Dresdner Kleinwort has been kept at 400 million, the letters distributed today are not telling you what your bonus number will definitely be but what you can expect it to be, subject to the review of the financial performance for the full year … I did not seek and do not like this proviso ... ... before everyone starts to hyperventilate and develop paranoia, ... let me clarify a few things. First ... the final review will be done by me or under my leadership in January 2009 ... Second; while the determination of the individual bonus number is a fully discretionary process, as you know, the calculation of any adjustment would have to be based upon a demonstrably material deviation in Dresdner Kleinwort’s financial performance in 2008 from that as currently forecasted. In addition any change in the individual award would have to take into account not only the deterioration but all the other factors determining individual compensation. … ... both Martin Blessing and Michael Reuther are men of honour who will stick to the bonus commitments already publicly made. Also I could not understand how and why, for what no doubt will be just a small economic amount even if it happened, they and their senior Commerzbank management collectively would wish to destroy their reputation as trustworthy leaders ... … If the awards will have to be changed because we have a material deterioration in the business, then we have to go back and look at each and every individual award, taking into account the new performance figures for the firm but also taking into account all of the other factors that are there. So you can’t just go out and do it by a mathematical formula.”
“…The months of November and December saw a dramatic deterioration in the earnings situation for both banks…we on the Board of Managing Directors of the new Commerzbank conducted a review of bonus payments for 2008. After an intense round of discussions, the boards of Commerzbank and Dresdner Bank decided in favour of a policy as uniform as possible for the two banks and their subsidiaries. No bonuses will be paid for 2008….For 2008, we will pay employees at both banks the contractually guaranteed benefits…Through these measures, we aim to ensure fair and equitable treatment for employees of both banks.”
“bonus awards for all Front and Middle Office employees who received a letter in December stating their provisional award, which was subject to Dresdner Kleinwort’s financial performance targets, will be cut by 90% pro rata of the stated provisional amount.”
“Stefan You just mentioned management has agreed with Allianz on a guaranteed bonus pool of€400m . Is it right to assume this only being the case if DKIB not being sold until year end or will this also be one negotiation point in the current negotiations with an investor?”
“Bonus pool of – reason is to take away uncertainty – change of ownership should happen by year end – up to us to up the number accounts to perform but that number will remain no matter what – not a subject for negotiation.”
“… explained that a minimum retention pool of€400m was guaranteed for front office staff.”
“I agree with you that the statement made here to the FSA, the way I said it in my witness statement, was that it was guaranteed by Allianz but it is formally speaking not a correct statement because Allianz did not formally guarantee that bonus pool.”
“I became aware that Dr Jentzsch had obtained approval for a bonus pool of EUR 400 million for the front and middle offices of DKIB from the Board after this was announced at the Town Hall meeting on18 August 2008 .”
“Q. And moreover you recorded, and you may want to look at this…that the minimum pool should be guaranteed and allocated on a discretionary basis… A. yes. Q. And by ‘guaranteed’ you did not mean guaranteed by Allianz did you? A. No, certainly not.”
“Allianz has said nothing to indicate a change of commitment to the bank and continues to show strong support for Dresdner Kleinwort. Recently Allianz has agreed and supported Dresdner Bank’s Management Board decision to set a minimum bonus pool of€400m for Dresdner Kleinwort. This applies to the investment banking division in its existing form and therefore does not include corporate functions”
“Allianz has offered protection by agreeing to a€400 mn minimum bonus pool. It is our duty to repay Allianz by getting as much business in as possible, however difficult it may have become. A poor performance may affect the foreign exchange ratio for Allianz, so we have to protect them as Allianz has protected us. A Guaranteed Minimum Bonus Pool of€400 mn irrespective of performance has been agreed and communicated to staff in early August. ”
“The entire staff base of DKIB would mean all the people at Dresdner Kleinwort investment banking division, i.e., the 3000 and small number that reported in the end to me; i.e., front and middle office as we discussed yesterday”
“The minimum bonus pool was only for front- and middle-office and did not include the back-office that supported the front- and middle-office. I recall that we did receive some queries within HR as to whether the back-office would benefit from the minimum pool or not, and HR confirmed that the back-office would not benefit from the minimum pool (as it was always clear to me that it would not, because Dr Jentzsch was not responsible for the back-office).”
“Q. You were also asked, Dr Jentzsch, whether you said that the whole sum was going to be paid out, and you said that was not said because it was implicit. Can you just explain why it is implicit? A. I think from very small deviations, if a bonus pool was sized at a number X, whatever X was, and by whatever methodology, then we would typically spend, if not all of the money, then almost all of the money. It may well be that a few percentages may not be allocated, because it so happened…that in the various allocation rounds, I typically kept a little bit at the side, so to speak, so I gave the managers only part of what we had to work with in case there were any unseen events. Sometimes there were not, so we left it at that, yes. But I think with a 95 to 97 per cent probability, if that is the right word, those numbers (the agreed pool) were being paid out, to the extent of 95/97 per cent were being paid out.”
“Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations.”
“Whether the parties intended to enter into legally binding relations is an issue to be determined objectively and not by enquiring into their respective states of mind. The context is all-important.”
“Dresdner Kleinwort front office have a guaranteed minimum bonus pool with upside potential that will be announced in December and paid in January.”
“…Recently Allianz has agreed and supported Dresdner Bank’s Management Board decision to set a minimum bonus pool of€400m for Dresdner Kleinwort.”
“The minimum bonus pool for employees of the business division Dresdner Kleinwort (ie those excluding the functions) remains in place and will be awarded on a performance basis as previously announced by Stefan Jentzsch…;”
“I now have all the stats for the live event: overall, attendance was second only to the special up date you did in March on the separation, and 27% up on June. I would see this as really good for August and an indication of employees’ eagerness to hear more about the separation and future plans for the business. Information as to the announcement was also disseminated to staff by management by the ‘cascade’directed by Dr Jentzsch. I have no doubt that the news of the creation of the guaranteed minimum bonus pool spread like wild fire.”
“Where there is an improvement over your existing benefits, such changes are effective immediately.”
“It is without doubt the law that there is no dismissal where both parties to a contract of employment freely and voluntarily agreed to vary its terms. This happens whenever there is an increase in rates of pay or a promotion. However, the courts have rightly been slow to find that there has been a consensual variation where an employee has been faced with the alternative of dismissal and where the variation has been adverse to his interests. ”
“48. The law in such a case is reasonably clear. Perhaps the leading authority is Rigby v Ferodo[1987] IRLR 516 . An employer unilaterally announced a reduction in pay. The employees rejected that but continued to work under protest. It was held that the unilaterally imposed variation of contract did not take effect. Lord Oliver said at pp518-519: I can … see no other basis [i.e. estoppel waiver or acquiescence] upon which it can be argued that the continued working by Mr Rigby and his acceptance for the time being and under protest of the wage that the appellant, with full knowledge of his lack of agreement, chose to pay him is to be construed as an acceptance by him either of the repudiation by the appellant of the original continuing contract, or of the new terms which the appellant was seeking to impose. ”
“51. Applying Elias J’s ‘only referable’ test to the present case, it seems clear to me that it would be quite wrong to infer from all the circumstances that the claimant had accepted changes to his contract, changes which were wholly to his disadvantage both by removing his right to performance-related bonus and imposing restricted covenants… ”
“I consider that the modern approach to the question of consideration would be that where there were benefits derived by each party to a contract of variation even though one party did not suffer a detriment, this would not be fatal to the establishing of sufficient consideration to support the agreement. If both parties benefit from an agreement it is not necessary that each also suffers a detriment.”
“In the late 20th century I do not believe that the rigid approach to the concept of consideration found in Stilk v Myrick is either necessary, or desirable. Consideration there must still be but, in my judgment, the courts nowadays should be more ready to find its existence so as to reflect the intention of the parties to the contract where the bargaining powers are not unequal and where the finding of consideration reflects the true intention of parties…A gratuitous promise, pure and simple, remains unenforceable unless given under seal. But where, as in this case, a party undertakes to make a payment because by doing so it will gain an advantage arising out of the continuing relationship with the promisee the new bargain will not fail for want of consideration.”
“The requirement that consideration must move from the promisee is most generally satisfied where some detriment is suffered by him e.g. where he parts with money or goods, or renders services, in exchange for the promise. But the requirement may equally well be satisfied where the promisee confers a benefit on the promisor without in fact suffering any detriment.”
“the trust and confidence required in the employment relationship can be undermined by an employer, or indeed an employee, in many different ways. I can see no justification for the law giving the employee a remedy if the unjustified trust-destroying conduct occurs in some ways but refusing a remedy that occurs in others. The conduct complained must, of course, impinge on the relationship in the sense that, looked at objectively, it is likely to destroy or seriously damage the degree of trust and confidence the employee is reasonably entitled to have in his employer. That requires one to look at all the circumstances.”
“Earlier, I drew attention to the fact that the implied mutual obligation of trust and confidence applies only where there is ‘no reasonable and proper cause’ for the employer’s conduct, and then only if the conduct is calculated to destroy or seriously damage the relationship of trust and confidence. That circumscribes the potential reach and scope of the implied obligation.”
“Mr Blessing points out the complexity of the bonus issue, which will be discussed very sceptically in public and in politics. Internally, the problem lies in the fact that the board did not fulfil commitment expectations and thus, the trust in the board as an institution was eroded. De facto, however, promises made by both organisations, Dresdner bank and Commerzbank have not been met.”
“MR JUSTICE OWEN: ... I want to be clear about this, Mr Blessing. You tell me, "We couldn't stand by our promises." A. Yes. Q. Why not? A. Because the promises were given at a time in a totally different economic situation. They were given in August in a difficult situation not only for Dresdner but in a difficult situation regarding the stability of the organisation. This was prior to signing the sales agreement to Commerzbank. Then we had in the September the Lehman collapse. Then the economic situation deteriorated and then in --- Q. Just a little more slowly. A. Sorry. Q. Yes, then? A. The economic situation deteriorated. Commerzbank had to take government money at the beginning of November. Then basically there was the debate about including a material adverse change clause that the Dresdner board decided in early December and still in late November and December the financial situation of Dresdner eroded further significantly so that --- Q. A little more slowly. Yes, so that? A. And also in the markets so it wasn't only Dresdner, it was the market situation, so that Commerzbank group had to take a second government rescue package early January and, therefore, after a review process in Dresdner Bank about whether the material adverse change clause had been triggered or not, actually solely by ex-Dresdner people, we as the board came to the decision to basically reduce the bonus pool. Therefore I am saying we gave a promise, or the institution gave a promise and in different circumstances and there was such a radical change in the circumstances that we couldn't stick to it. We looked at it whether this was a promise or a contractually binding thing and we thought that this was a promise, therefore, we changed --- we changed that and, as Mr Hochhauser said, we basically didn't stick to our --- or he said we broke our promise because we thought given the circumstances this was necessary”
“Q8. How does the proposed Commerzbank acquisition affect the Dresdner Kleinwort bonus pool for 2008? A. The minimum bonus pool for employees of the business division Dresdner Kleinwort (ie excluding functions) remains in place and will be awarded on a performance basis as previously announced by Stefan Jentzsch.”
“…The bonus suggestions for the current fiscal year are to be stipulated as early as the middle of December. It is intended that employees should receive the legally-binding bonus letters before Christmas. Furthermore, the payout date is to be set for January 2009. We would like to ask you – not only on the basis of the current state of the capital markets – to rethink this procedure….Naturally we are of the opinion that the current management of Dresdner Kleinwort should stipulate the amount of the bonuses, however we would expect that we would be involved in the process of stipulation of the bonus pool and the distribution of the pool to the business units, and that we would be able to discuss this with our Dresdner Kleinwort colleagues. For this reason we suggest that in January next year a joint Compensation Committee should be convened, in which representatives of Commerzbank and Dresdner Kleinwort can meet together to decide on the distribution. We request that you take this matter up with the management of Dresdner Kleinwort…”
“Q. You see, Mr Blessing, the reality when we look at this letter is that this shows that you are beginning to seek to undo the deal that had been done, weren't you? A. I think that that is your interpretation. Q. It is and I think it is a very fair interpretation of that letter, isn't it? A. That is your interpretation. Q. Yes, but it is a fair interpretation of that letter, isn't it? A. I am not here to judge whether you do fair interpretations or not.”
“The variable compensation within our profession is being discussed intensely and controversially in public. Not least against this background we are irritated – and, to be honest, also a little upset – by the way the Executive Board of Dresdner Bank is conducting the figuration and allocation of compensation”
“Q…do we have your assurance that Commerzbank would not interfere in the awarding of the bonus pool which has been set aside by Allianz for the employees of Dresdner Kleinwort for this current year? MB...I think in the end is a decision by Dresdner’s management. I think to be very blunt, whoever has done a good job should get a bonus …the question who makes this judgment can only be someone who knows you period.”
“…the decision and communication of a minimum bonus pool of€400 million in the summer of 2008 stands justified and was made in the interests of the bank and the merger since the expected goal was fulfilled. If now the bonus pool must be reduced after the objective has been met, I would consider that a dishonourable idea.”
“It is important for us to know the facts about the deciding process of the bonus pool…We need to know all the details leading to this decision. Was it a board meeting or a compensation committee meeting or both”
“..the process was essentially discretionary and I would not want to make a legal argument that the bank cannot reduce the pool. I might want to make a moral argument given that the bank did agree with the pool and it has been communicated to the employees.”
“Q ….Effectively Allianz was --- of course it was a matter for the Dresdner Bank board but Allianz was giving a very, very clear indication of what outcome it indicated the Dresdner Bank board to come to. Is that fair? A. Yes, you can say that.”
“A. … I think we had made a statement to employees or Stefan had made a statement to employees, as you have pointed out, on a number of occasions. I think employees had an expectation from that statement but what I can't say honestly from this witness stand is that it required the 400 million to be distributed for the reasons I have already given. MR JUSTICE OWEN: (To the witness): But I think you go further, don’t you, because you say, as I understand your evidence, that what had been said gave rise to a moral obligation to make these payments? A. Yes, I did and I have a lot of sympathy with the employees. I was personally very angry about what happened but I think the documentation shows me pointing out at one point going to the extent of finding out the number of times that this had been spoken about. I think that is in your document pack somewhere. So the idea here that I am perfectly content with what is going on would be very misleading”
“Q. You see, you at the time, Mr Hindle, were very concerned about the repeated promises that were made and can we look at C13 page 4472. Have you seen this before? A. Yes, I have just referred to it. Q. You ask, “Emma, can you let me know when Stefan made statements on the euro 400 million with upside bonus pool?”
“- I think it is likely that the bonus pool did play a part in retaining staff and therefore it achieved its objective and I will also agree with Stefan that I consider changing it a dishonourable idea, which was my comment about moral”
“… a retraction of the commitments will destroy the trust of the employees in the executive management fundamentally, finally and irrecoverably … I consider it neither comprehensible nor responsible at this point in time to step back from the commitments made .”
“... The board promised something and the board has somehow failed to deliver this. This is an issue that also affects credibility, which was something that we were aware of as we were making the decision ... We, my colleagues and I, also have to fight to rebuild the trust that we have shattered with this decision ...”
“Q. Did people report back to you that the clear message from Stefan Jentzsch at that meeting was that it was unlikely, very unlikely ..... A. Yes. Q. ... that the MAC clause was going to be invoked? A. Yes. That is, I believe, what he said. Q. Did they explain to you that he had been quite graphic in his account, he had said literally books or positions exploding. Do you recall anyone telling you about that particular colourful phraseology? A. I have read the transcript of what he said, so I do know he said those words. Q. Right, but do you remember at the time whether anyone said that to you? A. I don't recall at the time, no. Q. I suggest that the reason why you told Mr Thorne, amongst others, that you thought it was unlikely, extremely unlikely, that the MAC clause was going to be invoked was because that was the message that Dr Jentzsch had conveyed at the Town Hall meeting on 19th December. A. Yes, that is probably right. Q. Yes, and that it is only going to be invoked in extreme circumstances. A. Yes. Q. That effectively meant everyone stayed and carried on working for Dresdner Kleinwort where otherwise there might have been a mass protest. A. Absolutely. Q. Yes. The stability of the bank could have been threatened, could it not, if there had been a mass reaction, adverse reaction to the imposition of the MAC clause. A. Yes. Q. So effectively by giving the reassurances that he did on 19th December, Stefan Jentzsch preserved the stability of Dresdner Kleinwort at that stage, did he not? A. He did”
“…I would urge literally anyone and I’ve said it before and I say it again, I wish on the one hand that the sentence would not have been in and on the other hand, I think it is, given the circumstances, quite understandably (sic) that such a sentence had to go in. God forbid that anything would happen dramatically in the past few days, literally books, positions exploding and then management not having the ability to react, if only a theoretical ability to react. I think that would be hard to defend and, as you know, managements’ actions in banks in particular, those that are exposed to this credit crisis, are under scrutiny not only by the press and the general public and by shareholders but also by state attorneys and others. So I think it was just a prudent thing to do and I think people should just look at it in that spirit.”
“The minimum bonus pool for employees of the business division of Dresdner Kleinwort (i.e. excluding the functions) remains in place and will be awarded on a performance basis as previously announced by Stefan Jentzsch …”
“Q. … if someone said to you on19 December 2008 ; “what is the most up to date forecast for DKIB?”
“… on 18 December we received further information about the results in November and probably December, the possible trends in December, in particular the need for capital would be much greater because the risk weighting of the assets had to be increased …”
“Q. They trusted him in a way that they did not trust either Mr Blessing or Commerzbank to ensure that the bonus pool allocations were dealt with fairly. A. That is a good way of putting it.”
“The minimum bonus pool for employees of the business division Dresdner Kleinwort (i.e. excluding the functions) remains in place and will be awarded on a performance basis as previously announced by Stefan Jentzsch…”
“…on 18 December we received further information about the results in November and probably December, the possible trends in December, in particular the need for capital would be much greater because the risk weighting of the assets had to be increased…” and of the MAC clause: “… the only reason that this proviso has been kept there is to say, we will just agree the rough size of the bonus pot in August before the closing. And that of course was a completely different economic situation. And of course it was clear in the last few weeks in December the economic performance and the profit and loss can still dramatically change. And so I think it's absolutely right to go back and say, let's reassess the bonus pool on the basis of the economic performance. Because if you've only done a certain amount of profitable work you can only pour out a certain amount of money. We can't really use the money from the State and use it to pay bonuses…”
“In view of the failure to meet the earnings target on which the August 12 2008 board decision on the DKIB 2008 bonus pool was based, the Board considers a more far reaching view of the bonus pool, and a reduction in the direction of a target of EUR 300m, to be necessary. ”
“Michael, I have been told that the board have decided to cut the bonus pool for Dresdner Kleinwort by 100m. To achieve this cut we would need to reduce the provisional discretionary awards communicated on 19 December by 36% I am sure you intend to communicate the cut to staff but in doing so I would recommend that we communicate the amount of the material adverse variance to the November and December forecasts and why the board thought a reduction of EUR 100m on the discretionary bonuses was appropriate. I also recommend communicating how this cut will be applied and the reason for the method of application. People will also ask about Stefan Jentzsch’s involvement in the decision so I recommend covering that as well.”
“I can confirm that the Board has decided to bring down the pool by EUR 100mio. This is based on the significant losses in the on going business in November and December. EUR 300 mio. Pool would be less than 50% reduction of the 2007 pool of EUR 530 mio. This would still be at the lower end of cuts compared with industry, also considering the overall net DKIB performance of minus EUR 4bio. ”
“One cannot guarantee a bonus pot…the bonus pot as a whole is now on the test bench. In addition we must wait for the numbers. If agreed goals were not achieved, adjustments are normal.”
“an individual determination of bonuses subject to the proviso that the bonus pool in the amount of EUR 400m established at the time is considered as a retention pool, that only performance is assessed (i.e., that transaction effects attributable to the merger … are eliminated), and that, furthermore, the assessment is performed on the basis of the extent to which individual performance was substantially worse or better that expected in the last 2 months of 2008”
“He does not see any grounds to doubt the assessment that DKIB’s earnings situation has deteriorated significantly in the months of November / December 2009.”
“... The way I experienced that meeting on February 10th, and I am referring to the pre-meeting not the subsequent board meeting, is that a decision has been made to invoke the MAC clause and the meeting was simply there to sort of, if you want, get me to sign off on it and assume the responsibility for that decision. That was the way - and that's why I was so upset about the meeting, because it wasn't about a discussion whether or not, it was - I was basically presented a fait accompli ...”
“a company showing a loss has no room to distribute any bonuses … this should also apply to banks. And a decision regarding the matter will be made by the Board of … Commerzbank and the Board of …. Dresdner Bank next week”
“Martin Blessing then explains the document on the Dresdner Bank 2008 bonus pool. They should be resolved today and the results communicated in tomorrow together with the Commerzbank bonus decision. Martin Blessing goes into the background to the bonus debate in the light of the… Financial Market Stabilisation Act and the discussions with the SoFFin and mentions the reduction of approximately 90% year-on-year in the bonus payments at RBS, which has just been announced and which brings their level down to the statutory minimum. In addition, he mentions the legal position in Dresdner Bank, which is different in some areas, and Dresdner Bank's capital ratio, which presumably amounts to between 4% and 5% at present. Under the starting situation, the total bonus pool at Dresdner Bank amounts to EUR 620 million, of which EUR 400 billion is attributable to the IB bonus pool (front office), EUR 187 million to the bonus for staff not covered by collective wage agreements and EUR 33 million to the bonus of staff covered by collective wage agreements. Martin Blessing also presents the starting situation for the individual bonus pools, including the subsidiaries, broken down by the guarantee bonuses, discretionary component, both after December 2008 and January 2009, taking into account the resolution by the Board on January 27, 2009. With respect to scenarios A to C (linear reduction of the discretionary bonus, discretionary bonus 0, differentiated reduction) presented in the documents submitted to the Board, he gives further details on proposal C since this is to serve as the basis of the subsequent discussion by the board.”
“... we had to take different stakeholders and different interests into account. We had to take into account the interests of the employees and their contracts, we had to take into account the interests of the shareholders, we had to take into account the interests of the public opinion because we are also a retail brand, so if the public opinion exposes --- is very much against what we do that could mean that less people come to our branches, less business. So we have to take different things into account in coming to this decision but also the legal position of the bank vis a vis the employees. MR HOCHHAUSER: (To the witness): Mr Blessing, let me be plain. I suggest to you that intense political pressure was placed upon you not to honour these commitments that had been made before you assumed and issued it (as heard). Do you agree? A. Mr Hochhauser, I would not deny that also political pressure is put on banks but, to be honest, it is the question to decide of the management board to which pressures you bow and to which you don't. ...”
“…The months of November and December saw a dramatic deterioration in the earnings situation for both banks…we on the Board of Managing Directors of the new Commerzbank conducted a review of bonus payments for 2008. After an intense round of discussions, the boards of Commerzbank and Dresdner Bank decided in favour of a policy as uniform as possible for the two banks and their subsidiaries. No bonuses will be paid for 2008….For 2008, we will pay employees at both banks the contractually guaranteed benefits…Through these measures, we aim to ensure fair and equitable treatment for employees of both banks.”
“bonus awards for all Front and Middle Office employees who received a letter in December stating their provisional award, which was subject to Dresdner Kleinwort’s financial performance targets, will be cut by 90% pro rata of the stated provisional amount.”
“… there are various factors that the bank had to take into account in returning discretionary bonus payments. One of these is the overall financial performance of the bank. For 2008, the overall financial performance of the bank as a whole has been a determining factor… Secondly the decision is based on an understanding that bonuses are additional payments that dependent on the success of the company; therefore they should not be paid if the company as a whole does not make a profit.”
“29(c) The following Claimants received individual guarantees which were designed to stay and had that effect. Their decisions to stay were referable to these guarantees and/or to the general matters set out above, not to the contingent possibility of receiving some unknown additional sum by way of discretionary bonus; i) Desmond McNamara; ii) Sandro De Toffol; iii) Dominico Crapanzano; iv) Igino Napoli; v) Claudio Pinto; vi) Vito Santoro. (d) The following claimants sought or continued to seek alternative employment following the announcement and yet did not find suitable alternative employment. They made no decision to stay. The fact that they did in fact stay was referable to their failure to find other employment, not the announcement as to the bonus pool: (i) Marco Laicini; (ii) Gareth Lewis-Davies. (e) The following claimants considered that the acquisition of the first defendant by the second defendant was a positive development and that caused their decision to remain at the first defendant: (i) Jeremy Thomas; (ii) Matthew Thorne.” i) Desmond McNamara; ii) Sandro De Toffol; iii) Dominico Crapanzano; iv) Igino Napoli; v) Claudio Pinto; vi) Vito Santoro. (i) Marco Laicini; (ii) Gareth Lewis-Davies. (i) Jeremy Thomas; (ii) Matthew Thorne.”
“A. … I was actually happy that there was just a retention pool. My line manager decided to put me on the list. Did I feel pleased about that? Yes, I felt pleased about that. Would I have carried on working if I had not been on the list? I would have carried on working if I had not been on the list.”
“The creation of the guaranteed bonus pool was a huge relief as at that point we did not know who would finally take us over and this meant that we could stop worrying about compensation and focus on performing. It played a massive part in my decision to stay with the bank and especially after it was announced that Commerzbank was the purchaser. We all knew that Commerzbank was not interested in the investment banking division, but as a result of the guaranteed bonus pool it was worth staying at the bank at least until the end of the year in order to receive the 2008 bonus.”
“Although I had the benefit of an individual guaranteed bonus … my main motivation to remain at DKIB was the prospect of receiving additional compensation for the work I was performing, much like in 2007 when my total compensation exceeded my minimum guaranteed bonus. Had I known that I was not going to receive any pay out from the Guaranteed Retention Pool, I would have looked for other job opportunities in 2008. I was conscious that my guaranteed bonus for 2008 was conditional on me not resigning before the date on which the bonus was due to be paid. However, any new employer would have ‘bought out’ this award so had it not been for the opportunity to participate in the Guaranteed Retention Pool, I would have left the bank.”
“This is an anti pasto. You stay with us and then you are going to get more.”
“Q. … the€1.3m was the sum which management judged would be enough to ensure that you were not bought out by the competition? A. … No it was not like that.€1.3m was the sum that was enough to let me work within bigger promise. This bigger promise was the€400m .”
“had I known that I was not going to receive any additional payout from the Guaranteed Retention Pool, I would certainly have looked for other job opportunities in 2008. In the light of my performance, I have no doubt that I would have found a new job.”
“If there had been no announcement regarding a guaranteed minimum bonus pool, I would certainly have pursued discussions with other banks, including Deutsche Bank. I was one of the top performing employees not only at DKIB, but in the industry sector, and would have found employment elsewhere … 35. Although I had been promised a personal guarantee as described above, this on its own would not have been enough of an incentive to remain at DKIB; after all, if I had moved, I would have only done so on the basis that this guarantee would be bought out … if I had known that I was not in fact going to receive any payout from the guaranteed bonus pool there would have been absolutely no point in staying at DKIB.”
“... when I heard about the split, I was talking to friends and my line manager and they were saying, as I start, this was my second year, I am a junior, I was a junior, so it was my second full year in this industry, so I talked to my line manager and other friends and they say, look, if you are in a bank where there is a merger position, it is always good to look for another job. So this is why I was a little bit nervous about this split. Then the announcement and, based on the announcement, I decided to stay until the end of the ... until actually February 2009, or whenever the bonus will be paid.”
“Q. Having told Mr Deeble in terms that you were not looking for other jobs and that it was your plan to look around in the autumn because you had been with Dresdner for two years and because you were getting married, that the true position is that it was always your plan to look for other jobs in the autumn, is it not? A. No. I disagree. The fact that we were getting married in September, we were thinking about honeymoon and actually my wife was quite anxious, I as well, and the fact that we were ready to postpone our honeymoon after, you know, looking for a job. So discussion with the firm was August or summer, the plan was, the wedding in September, I said, okay, the wedding is only three days, fine. Let's do it, but, on the other hand, I said about the honeymoon, probably we want to move, to shift or to postpone, because if the situation was the same, like if I didn't hear about the bonus pool, I will definitely look for a job more actively and the honey, I am sure we... we agreed that it could be postponed. So the fact that... so I disagree in the sense that once I got the news when I attended the Town Hall on the screen, and I was reassurance, and the email with my wife was clear, I said, "For now it's fine", clearly was suggesting, "Let's stay here. Let's go... let's get married. Let's have a honeymoon and let's look for a job in autumn." This was the plan.”
“Well, if the bonus pool was not announced, I would have been looking for a job early September, end of August, early September to look for a job. Q. And it would take you several months, as you have just said, and so there would be no prospect, realistically, of you actually leaving before the date when bonuses were paid, would there? A. I disagree, because obviously you have to look at the worst case, right. The worst case is it could take up to three months. The best case could take a week. Actually, in March I got an offer in a week.”
“Q. If the bonus pool announcement had not been made, there was nothing more than you could do or you did do to secure another job? A. No, there was because clearly I would have started looking for a job in September much, much more actively. The fact that I went for a honeymoon, because I was reassured by the announcement.”
“MR LINDEN: Well, isn't the reason that you stopped looking for jobs that there weren't actually suitable jobs out there for you? A. That may be one -- yes, one element in it. It also may be the fact that I may not have been actively looking but I accept that in the second half of the year, clearly we had the financial crisis and opportunities were short -- were limited, but I have to say that as soon as Commerzbank reneged on the deal and I received my payment in February I was able to start applying, reactivating my search so fromthe end of February there were a few emails. My first interview started in April and by the time I resigned from Commerzbank in May I had two offers, which were conversation -- which were superior to Commerzbank and one of those had an element of a guaranteed bonus, and I use that just to illustrate that despite difficult circumstances that persisted before the turn of the year and after the turn of the year I was still in a position to find a job relatively easily and therefore -- again we are speculating here. If I had tried harder, would I have got a job in the remaining part of 2008? Well, I would suggest based on the fact that I was able to get a job in 2009 relatively easily, suggests that I -- I could have done that if I had chosen. One thing is for sure and this is not speculation. If I had known that Dresdner would renege on the retention bonus in August I would have tried far harder to have left the bank and the fact that I didn't was directly due to the fact -- well, yes, almost all totally due to the fact that all the commitments that had been made, not just on the 18th but subsequently, again and again and again, from other town halls, from Q & A’s, from what fed down from management.”
“Q. Mr Aiken will say to the court that there was a positive view about the prospect of sale because Allianz was really better known as an insurer rather than serious about investment banking. Is he right about that? A. No, I don't believe he is. I think, as I said, he will just put the best points across but I was always very sceptical as to whether, you know, our bureaucracy would ever reduce as a sale and I think that even the sale to Commerz -- maybe we are jumping ahead of ourselves, but even the sale to Commerzbank was fraught with uncertainty. For example, Commerzbank said, "We don't want to do proprietary trading. We want to focus on Germany" and probably three quarters of our business was taking proprietary risks in the UK, so, you know, it's a complete -- it wasn't adherence to their stated strategy. So, I think there was a lot of uncertainty.”
“Q. ... Doesn't that suggest that you were in fact taking the view that if there was an acquisition that would not be a problem for those in structured finance? A. I think it was a balance, the way I described it. You had factors weighing in your favour so, you know, it is a profitable group, and then you had factors weighing against you. MR JUSTICE OWEN: That is the one you have just identified? A. Exactly, and I think where 18 August came in is it sort of tipped the balance, if that makes sense.”
“Q. You see, he was actually right in thinking you were a flight risk wasn't he? A. I don't believe -- well, yes, I think possibly he was. Q. Well, isn't it the case, Mr Aiken, that once you had been paid your guaranteed award you spoke to Mr Thomas about making a team move with him, Mr Hewson and Mr Burrows? A. I did do that, yes. Q. And you told Mr Thomas, didn't you, that you had been discussing that possibility with someone called Iain Lorriman of Pure Recruitment? A. Mm hmm. Q. And you also told them that you were meeting Standard Chartered to discuss a team move? A. Correct. Q. And you did, in fact, have such a meeting, didn't you? A. I did have a meeting, yes. Q. When was that meeting? A. At the end of January, I believe. Q. Yes. You don't mention any of that in your witness statement, do you? A. I had only just remembered it when I read the transcript of Mr Thomas's statement. Q. Did you not think, Mr Aiken, if you were going to give evidence about lack of flight risk that it might have been relevant to tell this court about your own position and the fact that you yourself considered leaving? A. No, I didn't. It didn't cross my mind. MR JUSTICE OWEN: Help me. Were Mr Thomas and Mr Thorne any greater or any lesser flight risk than you? A. I don't believe so, no.”
“Q. Your witness statement indicates, and correct me if I am wrong, but you did not so much as look for alternative employment in the fourth quarter of 2008. Is that right? A. It is sort of right. Since just before the trial my solicitors asked me did you have any other contact. There was a contact with a headhunter on2 September 2008 , which I did not take forward because I knew about the pool and then I, you know, would say I fulfilled my half of the bargain that, you know, I stayed at the bank. ... A. I didn't pursue it because -- yes, as I said, I thought the guaranteed bonus pool sort of tipped the balance in terms of staying.”
“Q. ... So we have understood that in the period prior to January 2009 you did not make enquiries or have discussions about alternative employment, is that right? A. Yes. I mean, one colleague in another bank did say to me that his boss said that if things went wrong at Dresdner there would always be a job for me at his bank, but I did not pursue that at the time.”
“Q. Is this right that in Q4, the position so far as the market for structured finance was concerned, it was going steadily downhill? A. I think Mr Aiken makes some speculation about there was not a market in 2008 for the structured finance. I think, to be honest with you, we didn't test it, is the point, and I don't think we could say categorically there was no jobs available. I think it's likely that some of the factors, Lehman Brothers being one, meant that people were more nervous about hiring, but I don't think we can say definitely that there were absolutely no opportunities there. It is a shame I didn't test it.”
“Q. Therefore there was no realistic possibility, was there, of your finding a job and leaving before bonus time. A. If you take from 15th August to - what was it? - 21st February, that is a period of six months, so if I had wanted to move I think there would be a realistic chance of doing that before that time. Q. Mr Attrill was saying that, certainly in his line of business, it generally takes three to four months to find a position. Is it different in structured finance? A. I would think three to four months is probably an average. Obviously, if you go for your first position and you get offered it, you can do it within a couple of weeks, but it could take a couple of weeks, it could take a couple of months, it could take three months, it could take six months. Q. With the market as it was, the (inaudible) dimension, with the market as it was in relation to structure finance in Q4, given your notice period, there was not a real possibility, was there, of your leaving before bonus time? A. I don't know. I mean, one of the other senior members of the team, Mr Hewson, who was the Head of the European Group ... he actually handed in his resignation in November 2008 on the basis that he had found another job to go to. So he gave notice then. I don't know what the job was, but after some discussion internally he was made an offer which persuaded him to withdraw that resignation. Q. Added to the consideration of notice, the question of the situation for structured finance in the market in terms of job market, you stood to lose£640,000 worth of share options. That was another reason, was it not, why there was no realistic possibility of your leaving before bonus time. A. I think, as previous witnesses have said, the practice in the market, whether logical or not, is that a new bank will replace your options with their options. I mean, they value the shares at current market value and give you equivalent shares in their own organisation. And I think I perhaps need just to explain that: I gather that generally that sort of cost does not hit the business lines, sort of hits a central pool, where obviously they are getting credits for people leaving and debits for people joining who they are having to give - and they sort of see it as ..... MR JUSTICE OWEN: Yes. A. It is certainly not seen as a cost in the business line, so it is not generally an obstacle to moving.”