The High Court of Singapore has handed down its written reasons in the case of Seow Hock Hin v MF Global Singapore Pte Ltd [2014] SGHC 42, dismissing the plaintiff's claim for accrued bonus payments under his contract of employment. This decision affirms the position that employers are entitled to exercise a discretionary bonus at their absolute discretion.

The Bonus Pool

The Plaintiff, Mr Seow, was the former Senior Vice President, Sales, Futures and Options, of MF Global Singapore Pte Ltd. He claimed a contractual entitlement to accrued bonuses totalling US$224,641.19. Bonuses were paid by the Defendant, MFG, on a discretionary basis and pursuant to a complex procedure. At the end of each quarter the Defendant would decide whether or not to declare a bonus. In doing so, it would first identify the net profit available for payout. It would then decide a percentage of the net profit available for payout which formed the gross available bonus pool. The percentage varied from year to year. Of the gross available bonus pool, certain deductions would be applied to arrive at the net available bonus pool. The Plaintiff would then submit a proposal as to how the net available bonus pool should be divided between him and his team members. His proposal required approval from the Global Head of Futures and Options and a second approval and declaration by the CEO.

In the instant case, the Defendant had made two deductions from the gross available bonus pool; the sum of US$491,913.95 for potential fines and withholding taxes and the sum of US$100,000 for potential bad debts. It later transpired that the actual sum payable in fines and withholding taxes was significantly lower than anticipated, resulting in a write-back of US$415,413.95. In addition, there were no bad debts that quarter, resulting in a further write-back of US$100,000.

The Write-backs

The Plaintiff’s claim was based on the premise that if the sums set aside for potential fines and bad debts were greater than the actual sums required, the write-backs should subsequently be distributed as part of the net available bonus pool. His contention was that these sums had already been declared and that he was therefore entitled to be paid them.

The Defendant, through its liquidator, hotly contested the claim, arguing that the write-back sums had not been declared as they had not gone through the double approval and declaration process; therefore no entitlement to them arose. Whether or not the sums were actually required for fines and bad debts mattered not: the Defendant had deducted them from the gross available bonus pool and they were therefore outside the pool available to the Plaintiff.

Contractual Entitlements

Tan Siong Thye JC sided with the Defendant, finding that neither sum had been declared. His starting premise was the Plaintiff’s contract of employment which contained the following clause:

“The payment of such bonus is at the sole discretion of the Company and is only payable provided you are in the employment of the Company on the date it is declared”

This, he held, meant that the Plaintiff had no contractual right to a bonus payment unless it had been declared. The Plaintiff had conceded that the division of the net available bonus pool required a double approval and a declaration: in this case there was neither approval nor declaration of the write-back sums. The Defendant was accordingly entitled to exclude them from the bonus sums paid.

The Thornier Issue

By disposing of the case on the basis that there had been no formal declaration (and also noting that the Plaintiff appeared to be claiming the whole sum, forgetting that others in team ought to be given a share), the judge avoided grappling with the thornier issue of whether a sum deducted for a specified purpose ought be placed back into the net available bonus pool if the specified purpose did not exist (or attracted a lower liability). The Defendant had already exercised its discretion in determining the percentage of the net profit available for payout. It therefore must have been the Defendant’s intention that this sum, subject to actual deductions, should be distributed. This raises an interesting question: had there not been an approval process in place, would the Plaintiff have had an automatic entitlement to be paid a bonus calculated on the actual net available bonus pool?

Discretionary Discretions

The judgment in this case reiterates the position that discretionary bonuses are exactly that: discretionary. As the Judge concluded, “although a guideline as to bonus computation grants the employee a degree of certainty as to the quantum of bonus he may receive, it should not tie the hands of the company such that it can no longer depart from such a guideline if the economic circumstances demand that it does so” 

If deductions are to be made, employers should avoid specifying the exact amount and purpose. Whilst making a deduction is squarely within the discretion of an employer, once it commits to a deduction for a specific purpose, it opens the argument that it is bound by such a purpose.